Fail to Plan, Plan to Fail
Never have these words in the title been more relevant to your business than now in these volatile uncertain times and it maybe for the most unlikely but very important reason!
Paying tax might be furthest from some people’s minds at the moment with rising input prices being experienced for most farm businesses. However, the budgets we are presently completing for the 2023 year ends are telling a different story.
Yes, input prices have risen this year, but a number of businesses have forward bought inputs, feed, and fertiliser, so the full impact of inflated costs is not going to be felt during the financial year ending 2023. Couple this with much higher output prices, milk at 47 ppl, wheat at £340 per tonne, as I write, and farm businesses could be in for a very profitable year.
With this in mind it is important to think about tax planning early enough to be able to take any action necessary. This can include farm averaging, introducing additional business partners or capital expenditure to make use of capital allowances. It is important to say at this point that, changes should not be made just to avoid paying tax, they should be part of the longer-term business strategy.
If capital expenditure is needed and will benefit the business as well as reducing tax it is important to ensure that it can be delivered to the farm within the business financial year. Lead times on machinery have been extended significantly over the last six to twelve months and some tractors and telehandlers are taking six to nine months to be delivered. This means that if you want to buy a tractor and take advantage of the tax relief in this financial year you would need to order it in July / August.
This is why budgeting is important. The business can look nine months ahead at the potential profits and then discuss with their accountant what could be done to reduce tax liabilities now rather than at the end of the financial year when it would be too late.
The other point to consider is that the rise in profits this year could be a one off. Next year if input prices hold, all businesses will feel the full impact so profits could come back again, making this year a one-off spike in profits. Budgeting forward for two years will help to identify the swing in profits likely to be seen which allows further tax planning. If the profits are likely to drop in the second year, then on account payments of tax in January and July could be reduced to reflect this. This again reflects the benefit of budgeting and having accurate management accounts to enable sensible discussions with your consultant and accountant.
- Independent Nutritional Package
- Lessons from 2018 – Dry Weather (revisited)
- R&D Tax Credits and Farming
- Commodities Update (8th August)
- Autumn Reseeding
- Farming Transformation Fund – Slurry Infrastructure Grant
- Honiton Show
- Adding Value Grant
- Commodities Update (07/07)
- Are You Generating Lasting Wealth?