Think Tank

The five key tax & financial dates for farming businesses over the next 12 months (2020/21)

How to avoid key dates cash crunch with good planning

Cash flow pinch points are likely to arise for many farming businesses in the next few months.

Aside from lower yields on the arable front and rising costs of production for most sectors, the knock-on effects of COVID-19 include increased costs, limited sales and, in some cases, redundant diversifications.

The added pressures of Brexit mean budgeting is more important than ever.

Here we explain the key dates farmers and rural businesses need to bear in mind and why you should be aware of them for your own business, contact us if you’d like to discuss these in more detail.

22nd September 2020

1 January 2021 – Corporation Tax

UK farming companies with a March year end will have their Corporation Tax liability falling due on 1 January.

The COVID-19 crisis hadn’t kicked in back in December and was only starting to take hold in March, so profits were probably higher and, as a result, the tax bill most likely larger. Since then, a combination of lockdown, increased costs, limited sales and any redundant diversified income may have depleted the cash generated in your last financial year, and it may no longer be there to pay the tax.

For those arable December year-ends who have just gone through major contracting costs, cash could be particularly tight.

Currently, this is three or six months away, so there is time to plan and manage cash if you can. If it isn’t possible (to pay your tax bill) from cash flow, then you may be able to agree a Time To Pay arrangement with HMRC to spread it over several months.

31 January 2021 – Income Tax

The end of January is, of course, the payment date for your Income Tax. This is a personal liability, not a company one, but for many farmers, their income all comes from the business, so there is usually a knock-on effect.

Some farmers have taken advantage of the government deferral scheme to defer the 31 July 2020 payment on account meaning the amount that will be due on 31 January 2021 will potentially be that much higher. Even if you have deferred, the January 2021 payment will be based on your income to 5 April 2020, which was largely pre-crisis and may well be higher than your income for the tax year 5 April 2021. It may therefore be possible to reduce the payment on account that is due on 31 January alongside the 2019/20 final payment. Talk to your accountant about this.

Ideally, get your tax return done as soon as possible so that you know what the amount is. Although many farmers leave it until close to the deadline, it’s possible to do your return any time after 5 April!

If your cash flow is particularly low in January, once again consider whether a Time To Pay arrangement with HMRC would be beneficial.

31 March 2021 – VAT deferral payment

One of the first things the Chancellor announced was the deferral of the VAT payment falling due during the lockdown period. This is a deferral, not a cancellation and therefore initially becomes due for payment on 31 March 2021.

However, the Chancellor has recently announced that businesses could opt into a new scheme which will mean that this VAT liability is not fully repayable on 31 March 2021, but instead can be repaid in smaller payments over the period to 31 March 2022, interest free. Note, where the original deferral was automatic, if you wish to make repayments up to 31 March 2022, you must opt into the scheme.

While the agricultural industry is relatively unaffected by COVID-19 directly, this date may have the potential to be one of the most critical dates for your suppliers with insolvency and cash both potential issues. The knock-on effect of this will be your ability to source your supplies easily and at the same price.  As it’s more than nine months away, you have time to plan, put money aside or arrange facilities to negate any supplier issues that may arise.

Rent Quarter Days – Rent payment

Traditionally in the UK, quarterly rent is payable on 25 March, 24 June, 29 September and 25 December.

If you rent your farm or other land and pay rent quarterly, then two of these quarter days closely coincide with December 2020 and March 2021.

If your forecasts indicate that these dates could be a problem for your business, now might be the time to start negotiating with your landlord to switch to monthly rentals to smooth the cash flow effect.

1 May 2021 – CBILS and BBLS repayments

Finally, the CBILS (Coronavirus Business Interruption Loan Scheme) and BBLS (Bounce Back Loan Scheme) started to be advanced in April and May 2020, mostly with 12 month repayment holidays.

We have seen significant uptake from farmers on the Bounce Back Loan Scheme and those 12-month anniversaries are going to come around in April and May next year. Repayments are likely to start on 1 May.

The CBILS loans were assessed for affordability, often assuming a return to 2019 trading levels by the time the loan payments commence but BBLS loans were issued with no checks on affordability at all.

The Chancellor recently announced the ability to extend the loan period and more flexible repayment terms for the government backed loan schemes under the new ‘Pay as You Grow’ scheme. We await more details at this time.

You understand your own farming business and should have a good idea on the peaks and troughs of cash flow over the year. Still, these are extraordinary times and, more than ever, you should be forecasting your business and cash flow to navigate through the times ahead. Old Mill is here to help and if you’d like to talk about your business please get in touch with us today.