Kieran Coughlan: Certified public accountants host farming taxation seminar

The Munster branch of Certified Public Accountants held a seminar focused at accounting professionals on the topic of farming taxation with a banking update on supporting volatility in agriculture which was hosted by AIB.

Accountants with farmer clients were informed of the particular pressures facing the dairy and tillage sectors in 2016. 

Against a backdrop of reduced income, farmers will be experiencing significant cash flow pressure this year.

Farmers themselves are taking action in a variety of forms to face-off these headwinds, from avoiding capital expenditure, avoiding certain inputs such as liming, reseeding, application of P&K fertiliser and other temporary cost shortcuts to preserve cash flow.

Attendees heard that there are a variety of other opportunities to preserve and even improve cash flow, from destocking non-core stock, selling excess machinery, obtaining off-farm employment.

Of course, many farmers with little or no debt may be able to cruise through this current cash flow crisis without varying their actions much, but certain farmers, who have either incurred significant borrowings, or are experiencing an expensive lifestyle stage (such as children at college) will need to take a more aggressive approach to finding solutions through difficult times.

The best placed person to assess whether the coming 12 months will exert an unacceptable amount of pressure on themselves, their families and their farms are farmers themselves. 

From an accounting and taxation perspective, professional advisers have a significant role to play. 

At a basic level, accountants can offer farmers help with preparing a cash flow budget to determine whether there will be pinch points over the coming year or a more fundamental deficit leading to a significant hole in their farm finances.

John O’Doherty, Regional Director of AIB reminded those in attendance that cash flow planning templates, which can be used by farmers for their own personal use or as part of a credit application are available as a free download from the AIB website.

Beyond cash flow planning, accountants can take a proactive approach to taxation management for farmer clients with a view to minimising outgoings. 

The starting point for is for both farmers and accountants to work together as quickly as practicable to determine the underlying profits for last year.

Once the profits are known, accountants and taxation advisors can evaluate whether a number of taxation strategies can be employed to reduce the farmers’ tax exposure. 

For dairy farmers in particular, there may be an opportunity to claim additional capital allowances against 2015 where they had purchased milk quota within the previous seven years.

Where farmers have incurred superlevy fines as a result of oversupplying milk in the last few quota months of 2015 these fines can be also offset against taxable profits for 2015.

Apart from quota options, farmers in all sectors should continually assess whether income averaging is or could be off benefit to them or indeed whether it is time to opt out of income averaging at a particular stage in their farming career in order to minimise potential clawbacks.

There are alternative taxation options around capital allowances and leasing which could potentially save profits from being taxed in 2015. 

In terms of cash flow planning for farmers, accountants and taxation advisors can offer advice for their clients on how to meet their 2015 taxation liability, including the option for farmers to enter instalment arrangements in extreme situation.

Farmers should also be presented with options to reduce preliminary tax for 2016 which can be aided by preparing income forecasts. 

From a banking finance point of view, Donal Whelton AIB Agri Adviser reminded those in attendance that AIB has a range of products aimed specifically at farmers, many of which can be tailored to deal with volatility.

Of particular interest is the AIB Farmer Credit Line facility which provides seasonal support at significant discount to headline current account borrowing rates.

In terms of managing volatility, Donal Whelton suggested farmers facing cashflow pressure could consider short term increases to working capital facilities, an interest only period in respect of existing borrowing or a retrospective application for credit in respect of expenditure already incurred in recent years which was funded from cashflow.

Donal suggested that many dairy farmers have incurred expansion costs over recent years such as the cost of adding and upgrading physical infrastructure and the costs of increasing livestock on the farm. 

As a result of expanding from cash-flow farmers may have left themselves short and retrospective borrowing spreads the costs of this investment a number of years freeing up cash for farmers to deal with the current crisis.

Of course from the banks perspective, a farmer’s ability to meet repayments is paramount, and farmers should be able to demonstrate to their bank that they are operating from an efficient base.

Concluding at the event, Donal Whelton suggested there is a strong positive outlook for farming but both farmers and AIB recognise that volatility is the new norm and as a result cash flow management is becoming ever more important.


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