Agricultural Breakfast Autumn 2016

AGRICULTURAL BREAKFA

ST

Axminster · Barnstaple · Bideford · Bridgwater · Burnhan on Sea · Crediton · Exeter · Holsworthy · Honiton · Ilfracombe · Langport · Okehampton · Plymouth · Seaton · Somerton · Tiverton · Torquay · Weston super Mare

COSTS OF PRODUCTION

J AC K W

H I TE


By Your Side. On Your Sidewww.thomaswestcott.co.uk

THERE IS AN OPPORTUNITY TO MAKE SIGNIFICANT PROFITS

THE CHALLENGE INVOLVES CONTINUAL GOOD COST

MANAGEMENT

COSTS OF PRODUCTION


SO WHAT IS COST OF PRODUCTION?


PROFIT OF £77,247 OR 4.12 PPLTHEREFORE COP = 20.88PPL?


CASH SURPLUS OF £13,557 OR 0.72 PPL

THEREFORE COP 24.28PPL?


NET WORTH GAIN OF £39,247 OR 2.09PPL

THEREFORE COP 22.91PPL?


CONSIDERATIONS

• WHAT ARE WE TRYING TO ACHIEVE?• YEAR SPECIFIC OR ‘NORMALISED’?• FAMILY LABOUR AND RENTAL VALUES• DEPRECIATION AND REINVESTMENT• SUCCESSION • TAX ALLOWANCE


WHATS THE USE OF COP?


• Benchmark• Plan• Set targets• Implement• Monitor• Improve• Sustainability


‘the difference between failure and success is doing a thing nearly right

and doing a thing exactly right’

‘the only difference between success and failure is the ability to take action’


TIMING OF COP EFFORTS


PRACTICAL REMINDERS

VARIABLE COSTSMANAGEMENT OVERHEADSSTRUCTURAL OVERHEADS

PROFIT REQUIREMENT


• 30% + OF DAIRY MARGIN

• YIELD FROM FORAGE CRITICAL

• RELIANT ON GOOD FORAGE AND NUTRITIONAL ADVICE

• 200 COW HERD, £42,600 SAVING

• MINIMAL COST DIFFERENCE BETWEEN GOOD & BAD SILAGE

FARM A FARM BTOTAL YIELD 8000 8000YIELD FROM FORAGE 3500 1500YIELD FROM CONCENTRATE 4500 6500FEED RATE 0.27 0.385ANNUAL PURCHASED FEED £480 £693

PURCHASED FEED


IT DOESN’T TAKE MUCH TO MAKE A DIFFERENCE


FERTILISER USE

Right amount, right time, right method


VALUE OF MUCK


MANAGEMENT OVERHEADS

• TOO FEW OR TOO MANY STAFF• REPAIR COSTS VS CONTRACTING• SELF PROPELLED FORAGER VS FORAGE

WAGON• ELECTRICTY AND FUEL SUPPLIERS


STRUCTURAL OVERHEADS

• STOCKING RATES, LAND RENTAL & MARGINAL ACRES

• MACHINERY POLICY

• LOAN STRUCTURE


SUMMARY

• IMPORTANT TO UNDERSTAND WHAT FIGURES YOU ARE DEALING WITH

• SIGNIFICANT GAINS CAN BE MADE

• TARGETS NEED TO BE ACHIEVABLE

• IMPLEMENTATION IS KEY TO SUCCESS

• ONGOING PROCESS


WE ARE HERE TO HELP……


THANK YOU

KEEPING IT IN

THE FAMILY

P E T E R BR O W N



Succession and keeping it in the family?

• Where to Start?• How To Be Fair?• A plan – making it work• What have you got?


Valuing the farm, the business, andpersonal assets

• Where have the assets come from?• Is there already a family agreement?• Has tax been considered?


BALANCE SHEET VALUATIONSAccounts Current Day

Land & Buildings 250 acres + house + buildings £428,238 £2,250,000Machinery £164,349 £165,000Dairy Herd 180 cows £150,369 £216,000Rearing Cattle 150 head £73,886 £98,500Investments Arla £15,976 £16,000Other assets £42,885 £42,885TOTAL ASSETS £875,703 £2,788,385

Bank Loans and Overdraft £563,824 £563,824Family loans £116,495 £116,495Other Creditors £94,716 £94,716TOTAL LIABILITIES £775,035 £775,035

CAPITAL £100,668 £2,013,350


What questions does this pose?

• Who are the partners?• Who is taking a living from farm?• Land – who bought it, is it all integral to farm,

does it act as security?• Is any of land being used for non agricultural

use?


AVERAGE HERD SIZE1996 2015

Dairy Cows 75 142

Acres 94 acres 178 acres

• How has this been managed?• Land purchase or rent - in whose name?


Farm Provides Living For:

Parents – retired - £8,000 per year

Farmer and Wife - £20,000 per year

Son or daughter - ?????? Per year


Partners and partnerships• Often created for income tax reasons• How often are they reviewed?• Who buys assets – individuals or partnership?• Whose name is money borrowed in?• What does the partnership need to carry on

after death of one partner?


What Is Fair?

3 offspring

1) Oldest works away in very good job, no mortgage 2) Middle works in social services, married with children, struggles

financially3) Works at home (15 years), paid minimum, but all costs paid and

lives in cottage built by Grandparents, no long term partner

HOW DO YOU LOOK AFTER ALL?


Questions to be answered after true capital is valued

a) What assets need to remain with farming business?b) What labilities can be afforded?c) Should restrictions have time limits?d) Can any part be split off into a different businesse) Are there restrictions on what can be done – Ag.

Ties.f) Tax implications


ACTION PLAN

1) Discuss plans informally2) Write a business plan with options3) Agree principles4) Seek taxation advice5) Write wills and other legal agreements6) Review regularly


Be fair to all - keep tax at a minimum - ensure retiring

partners have an appropriate lifestyle - keep farm going -

what assets can be realised - let everyone know - reward

those who have made the business - give security for

those working in business - make sure succession to

tenancy can take place - pass on asset as appropriate -

keep whole family informed


Thank You

“The content of this presentation has been prepared as a guide to topics of current financial business interest. We strongly recommend you take professional advice before making decisions on matters discussed within. We can accept no responsibility for any loss to any person acting, or

refraining from acting, as a result of this material.”

FARMING UPDATE

N I CK S

M Y

Axminster · Barnstaple · Bideford · Bridgwater · Burnham on Sea · Crediton · Exeter · Holsworthy · Honiton · Ilfracombe · Langport · Okehampton · Plymouth · Seaton · Somerton · Tiverton · Torquay · Weston super Mare


CASH FLOW

• Reduce tax payments on account• Seek loan repayment holiday• Defer capital expenditure• Reschedule HP payments• Suspend pension payments• Realise assets• Draw down pension


AUTO-ENROLMENT

• Check staging date• All eligible workers enrolled• Employer contributions due• Compliance requirements


NATIONAL LIVING WAGE

• From 1 April 2016 for 25 and over• Increase from £6.50 to £7.20• Rising to £9 in 2020• Employment allowance available


IHT RESIDENTIAL NIL RATE BAND

• Nil rate band frozen at £325k to 2020/21• Additional £175k relief for family home• Phased in over 4 years from April 2017• Lose £1 of relief for each £2 over £2 million• House left to direct descendants


IHT RESIDENTIAL NIL RATE BAND

• Land worth £2 million + house worth £500k left to spouse

• Reduced RNRB• £1 million of land left to children• Spouse receives RNRB


CAPITAL GAINS TAX

• Reduced to 10% and 20%• Residential properties remain at 18% and 28%


ANNUAL INVESTMENT ALLOWANCE

• Permanent allowance of £200k from 1 January 2016


AVERAGING

• From 2016/17 have a choice of averaging over 2 years or over 5 years

• 5 year averaging available if:• Comparison of latest year and average of previous 4

years shows one figure is 75% or less of the other• Any year shows a nil profit


2012/13£

2014/15£

2015/16£

2016/17£

2017/18£

Profits 60,000 60,000 60,000 10,000 10,000

2 year averaging

60,000 60,000 35,000 22,500 22,500

5 year averaging

40,000 40,000 40,000 40,000 40,000

Tax saving £4,600

AVERAGING


INVESTMENT PROPERTY - Stamp duty land tax

• Additional 3% SDLT on purchase of second home• 36 month overlap period but tax paid and refunded

Price SDLT 2nd home SDLT

Up to £125k nil 3%£125k-£250k 2% 5%£250k-£925k 5% 8%£925k-£1.5m 10% 13%> £1.5m 12% 15%


INVESTMENT PROPERTY - Tax relief on interest

• Interest tax relief reducing to 20%• Phased in from 2017 to 2020


Current New

£ £

Rent 10,000 10,000

Interest 9,000 nil

Profit 1,000 10,000

Tax 400 4,000

Interest credit 1,800

Tax liability 400 2,200

INTEREST TAX RELIEF


ACCOUNTS

• New accounting standards have been introduced• Impacts on accounting treatment of:

• Stock• Animals on herd basis• Government grants


MAKING TAX DIGITAL

• Biggest change since double entry!• Unincorporated businesses and landlords from 2018• Companies from 2020• Records kept on approved software• Quarterly online reporting • Year end adjustments – No Tax Return


RATES OF TAX

• 7.5%• 10%• 18%• 20%• 28%• 32.5%• 40%• 45%


Thank You

“The content of this presentation has been prepared as a guide to topics of current financial business interest. We strongly recommend you take professional advice before making decisions on matters discussed within. We can accept no responsibility for any loss to any person acting, or

refraining from acting, as a result of this material.”

Agricultural Breakfast Autumn 2016

Business

Transcript of Agricultural Breakfast Autumn 2016