Avoiding cash flow pinch points

Cash Crunch

 

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.

 

Corporation Tax for limited companies with a March year end is due on 1 January 2021. Those who do not have the cash or the scope to extend borrowing to pay their tax bill, may be able to agree a time to pay arrangement with HMRC, which will spread the liability over several months.

 

Payment on Account

31 January 2021 is the deadline for making balancing payments of Income Tax and National Insurance Contributions for sole traders and partnerships.

 

Many have taken advantage of the government scheme to defer the 31 July 2020 payment on account until 31 January 2021. The payment will be based on income from the tax year to 5 April 2020, which was mostly unaffected by Covid-19, so it is likely that income levels will be higher than for the year to 5 April 2021.

 

Completing the 2019-20 tax return as soon as possible will allow taxpayers to find out their liability and decide whether to reduce the 2020-21 payment on account.

 

VAT Payments

The Chancellor postponed VAT payments due during lockdown until 31 March 2021. This will affect suppliers more than most farmers and could put some suppliers under extreme cash flow pressure.

 

Quarterly Land Rent Payments

Traditionally, quarterly land rents are payable by 25 March, 24 June, 29 September and 25 December.  

 

If forecasts show that these dates could cause an issue, it might be a good idea to start negotiating with your landlord earlier rather than later. A switch to monthly payments may help to smooth cash flow.

 

If an alternative rent payment schedule is agreed with the landlord, it must be adequately documented by a rent memorandum or an exchange of correspondence clearly setting out what has been agreed.

 

Coronavirus Loans

Loan repayments under the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) will begin from April 2021 for some. Most loans included a 12-month repayment holiday.

 

The loan term for the BBLS has been extended from six years to ten years. There is also the opportunity for struggling farms to switch to interest-only payments or even defer all payments for up to six months.

 

CBILS loans were assessed for affordability, often assuming a return to 2019 trading levels by the time repayments commence. The BBLS loans were issued with no such checks. However, if cash is available and the loan is no longer needed, there are no charges for early repayments and doing so would avoid future interest costs.