Growing financial pressures mean good advice is vital

The UK farming sector is coming under financial pressures on multiple fronts, with farm gate milk prices cut significantly by major UK processors since August, as a result of factors including increased production by dairy farmers world-wide and pressures on global wholesale markets.

Meanwhile, although British farmers are enjoying what looks set to be a bumper cereals crop, prices have tumbled with the latest HGCA figures suggesting wheat prices are at their lowest since December 2012.

And according to the latest figures from the Royal Institution of Chartered Surveyors (RICS), arable land rents under the Agricultural Tenancies Act rose by 3.6% and pasture land rents by 4.2% in the first six months of 2014. Some commentators have pointed to a willingness to pay higher rents for cropping land for anaerobic digesters as a factor in the increases.

The RICS research also found that farmland prices had risen by 3% in the first half of 2014, creating further obstacles to expansion of holdings or to new entrants.

These are unwelcome developments for the sector, including the farmers facing high tax bills following the better weather and commodity prices. Some will have timed capital expenditure to make best use of the generous tax allowances on plant and machinery. Others will need to consider profit averaging to spread profits that might otherwise be taxed at a higher rate of tax, and there will be those able to reduce tax payments on account, where it is known that profits will reduce.

The relaxation of the rules regarding annuity purchases from next April is making pensions a more attractive tax planning option. Some of my own clients are also looking at the benefits of using a self-invested personal pension for land acquisitions.

It might be an exaggeration to say a perfect storm is brewing for farmers, but the outlook is uncertain at best, which underlines the importance of working with an adviser who understands what might happen to profits in the future, rather than simply reacting to historic events, which is so important in building resilience in farm businesses.

Inevitably, the combination of financial pressures could be enough to force some farmers out of the industry, although many will tough it out, as they have traditionally done.
Cash will ultimately prove to be king. Strong businesses that have invested wisely in the good times will be best placed to take advantage of the next wave of opportunities which, despite current challenges, will undoubtedly follow.

Richard Barnett is managing partner at Cheshire-based farming specialists Howard Worth Chartered Accountants and a member of the UK200Group’s agriculture special interest group.

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