Cash flow is currently difficult on many farms and is likely to remain difficult for the foreseeable future.

For those farm businesses who trade as a sole trader or partnership, January 31 is an important date. This is the date by which Tax Returns must be filed but it is also the date by which tax requires to be paid. Sole traders and partners in a partnership pay tax in two instalments on January 31 and July 31 annually. Additionally, if there is a balance of tax to be paid from the previous year, this balance must also be paid on January 31. Farm businesses trading as a limited company pay Corporation Tax in one instalment nine months after the end of the company’s accounting period.

Now is the time to focus on the amount of tax to be paid on January 31 2016. The annual accounts for the most recent financial year now require to be prepared and the tax liability calculated. In addition a review of the year to date should be carried out in order to estimate the likely tax liability for the current year and, therefore, the payment on account which requires to be made on January 31 2015. This information can be fed into the process of managing cash flow over the winter months. In addition to paying tax on January 31 2016 all of the other farm suppliers require to be paid: outstanding feed, fertiliser and contractors. Where possible the objective should be to achieve all of these without adding to the business overdraft.

This is also an appropriate time of the year to review the farm accounting system to establish if it is fit for purpose and meeting objectives. The objectives of the farm accounting system are two fold: firstly, that it supplies to the farmer up to date information to enable informed decisions to be taken in a timely manner; and, secondly, that it enables the farmer to pass the business Records Check Programme operated by Revenue & Customs.

An up to date well maintained record keeping system will enable the farmer to both manage cash flow and minimise tax at the same time. This is achieved by establishing the capability, in cash flow terms, of the business to spend profits on tax saving items, while at the same time, paying down feed, fertiliser and contractor charges. Expenditure on tax saving items include necessary repairs; payment to family members assisting on the farm; training allowance to employees attending agricultural college. In addition, at this time of year it is appropriate to undertake a review of business structure: sole trader, partnership or limited company from the two points of view of minimising tax and availing of opportunities arising from CAP reform.

A business which takes time out to stand back and look at the cash flow of the farm over the next six months will be better equipped to keep on top of paying bills, minimising tax due on January 31 and maintain its relationship with the bank.