Prepare now for tax bills later in the year
This could put pressure on your cashflow later this year, and it is a good idea to figure out how you are going to budget for this “known unknown” bill.
According to Philip O’Connor of IFAC, one strategy the group strongly recommends to dairy farmers is to organise a direct debit to a separate deposit account from the peak milk production months (six months) to cover the anticipated tax bill.
In this way, the money will be there come November.
Alternatives include using your Single Farm Payment received in October and November to pay the bill, or to organise a direct debit with the Revenue Commissioners (tax bill paid over 12 months).
Either way, dairy farmers are recommended to prepare a cashflow budget (if you haven’t already) to anticipate expenses that will arise before year end.
Unfortunately, many are unaware of their upcoming tax bill and don’t approach their accountant to finalise their accounts until it is too late — when there is very little they can do to minimise their tax liability (because the year end date has passed).
“Farmers need to use their accountant for more than simply telling them the tax bill for the last year sometime in the autumn of the following year,” says Mr O’Connor. “By that stage, very little can be done about last year and you are already eight to nine months through the next.”
He also advises: “Your tax bill should not be a surprise; the earlier you know about it, the better you can deal with it, and therefore budget for it.”
Dairy farmers should also watch out for changes, such as capital allowances running out (the capital allowances for the on-farm capital investment in 2008 will be coming to an end next year). Such changes can affect tax liability, even though there may be no change in farm income.
