Managing farm cash flow

Although the milk price appears to be improving for many dairy farmers, there is often a lag before this shows itself as cash in the bank. A number of farmers are therefore still feeling the consequences of the low prices achieved over many months and are facing pressure on their cash position.

Here are a few potential areas that can be looked at to help improve the cash flow position:

Reduce tax payments on account 

If profits are expected to be lower, then there may be scope to reduce tax payments on account for the following tax year. From April 2016 there is also scope to average profits over five years rather than two. It therefore makes sense to get accounts and tax calculations prepared as soon as possible to give an up to date tax position.

Seek a loan repayment holiday 

It may be possible to agree a period of interest only payments with your lender to reduce the monthly outgoings.

Defer capital expenditure 

You can look to delay expenditure on capital projects and new plant(s) and machinery. You should bear in mind that this will reduce the level of capital allowances claim in the future and so could have a knock on effect on future tax liabilities.

Re-schedule HP payments 

It may be possible to extend the term of HP agreements which will reduce the monthly payments. The term of HP agreements will not be extended beyond the expected life of the asset being financed.

Suspend pension payments 

Payments into pension schemes can be deferred. Pensions can be topped up in the future when cash flow improves.

Realise assets 

You can review whether there are any assets which can be sold. You do need to watch the capital gains tax position on any disposal but, as a result of the write off of milk quota, a number of dairy farmers will have capital losses available to set against capital gains. Trading losses can also be set against capital gains in certain situations.

Draw down pension 

The new pension rules give much more flexibility in accessing pension funds for individuals who are 55 and over and so there may therefore be scope to access funds from personal pension schemes. However you should always review the tax positionand take professional advice before drawing down your pension. 

At Thomas Westcott we have specialist agricultural accountants and consultants and we are happy to discuss this or any other farming matter with you.