A brighter future ahead for contractors
For many of them, the dry spell has allowed them to complete pit silage, silage baling and hay earlier than expected, and with less strain on man and machine, compared to recent years.
The role of Irish contractors is understated, indeed I would go as far as saying that contractors have an even more difficult job than farmers themselves.
Often, contractors bear the brunt of farmers’ stresses, particularly when weather conditions are not ideal. Contractors carry the financial pressure of machinery repayments, staff and delayed payment from farmers, usually tied to single farm payment cheques, leaving the contractor as one of the last people to be paid in the year.
Many contractors were doubly scarred in 2012, by a carry-over of debt due from farmers who were unable to pay, as well as their own increased costs arising from difficult weather conditions.
Contractors have seasonal work patterns, and can go from being idle to working round the clock for weeks at a time.
A spate of EU rules and regulations haven’t helped, with closed periods for slurry, hedge-cutting and winter ploughing causing extra pressures when open season arrives.
Over recent years, the withdrawal of key financial institutions including Royal Bank of Scotland, PTSB and Friends First, has significantly reduced competition in the asset finance market. On the ground, the credit crunch has resulted in a difficulty in securing finance arrangements, increased paperwork, and increased cost of finance.
Practical problems have also arisen in genuine cases where contractors have sought to have repayments rescheduled, with loan books to some finance companies having been bought out by receivers who have been less than willing to restructure debt.
However, a number of factors point toward a brighter future for agricultural contractors.
From a machinery purchase point of view, some of the big brands have teamed up with their own finance agencies to offer dealer finance. This is adding competition back into the market, with subsided hire purchase and leasing arrangements driving down the cost of finance.
The announcement by the European Central Bank last week that it is to impose negative interest rates in order to discourage banks from holding deposits, coupled with specific measures introduced to encourage banks to lend into the real economy, should feed through to lower interest rates, and an increased appetite for banks to boost their non-property based lending.
In terms of farmer reliance on contractors, the increased output expected to materialise from Harvest 2020 expansion will undoubtedly increase the amount of work available to contractors.
Farmers who are expanding animal numbers on their home farms will have a greater need for contractors, when silage and other crops will need to be harvested at distance.
Increased specialisation amongst farmers, together with the need for farmers to finance their expansion plans, will result in farmers spending less money on machinery over coming years.
An ageing farmer population will also feed into outsourcing of work to contractors, where they are willing to take on the additional work load.
From a tax point of view, many contractors are deciding to transfer their businesses into a company structure.
There are many advantages to this approach including the following. Contractors are not exposed to income tax, when farmers still owe them at year end; contractors can manage their finances more efficiently, not exposed to widely varying tax liabilities in times of volatile income; and contractors find it easier to put aside money for new machinery purchases, where income tax does not need to be paid on contracting profits.
Aside from these tax considerations, contractors also see the advantage in ring-fencing their businesses separate from any other assets they own.
The Association of Farm Contractors of Ireland (FCI) recently made a submission to the Minister for Agriculture as part of the agri-taxation review.
The wishlist from the FCI includes a change to our taxation system, whereby farmers would be obliged to obtain a receipt from their contractor containing either a VAT number or a PPS number.
The FCI hopes this proposed measure will weed out those working in the black economy.
The FCI has also called for a levelling of the playing field with a rebate of carbon tax, which is already available to hauliers.
Chartered tax adviser
Kieran Coughlan,
Belgooly, Co Cork
(086-8678296)
