We have lads buying 200 acre farms and building houses from 2 years cash flow. I'm feeling inadequate! I'm hoping it's cos I have poor land or I'm just a bad farmer!!
To save paying tax you have to borrow to kill the tax bill a year like last say youve 100k profit taxed at 50 percent and you build a parlour for 100k you pay 42.5k tax as only 15 k was tax deductable.So if you borrowed 700k and built tanks sheds machinery if you needed them then youve ni tax at 50 perent.The items you borrow for to avoid paying tax must make you money as well as a tax saving eg slurry storage fert value staying compliant avoiding fines.
that is also the hickey business model
only borrow for land, everything else is done out of cash
Important part of the above is 'we' a family dairy business where theirs a couple of sons/father involved is a totally different animal to a one man band, working away by himself, when your largely working alone in the springtime good facilities are needed, and cant really be done in stages of years/when cashflow allows
Got a load of drainage chippings delivered their, women driver mid 20's, local girl who had been relief milking since she was 17, done 2 years in ag collage at dairy herd management, wouldn't be a great sign of things to come re the next generation when after a few years on dairy farms and doing the 2 years in collage, thinking it was going to be a career, a year later goes at the lorries
i see what you mean... but christ youd want to be borrowing some amount of money to burn up repayment capacity to such an extent that ya wouldnt be able to purchase land..were ya happy with your few bob from Kerry today??
We’re loosing a farm that we had storage on it so it has to be replaced now. Was a pain drawing out to it any way so it’ll all be in the one place now
bit of future proofing going on too thsat if they change the slurry produced per cow figure we’ll be okay
built a house between 22 and 23 largely out of cash and it has sucked us dry. Thankfully what’s left to be done on it is largely outside and around it and that can wait a few years
We all have to see what suits our setup, the scale of the project relative to the amount of cash predicted to be available in the given year would prob determine if done from borrowing or cashflow really. There is prob a figure that could be worked out for each place to determine that if need be, percentage of turnover after costs or whatever in order not to put pressure on things.
Could be argued some did too much last year out of cashflow which then led the tax liability to put pressure on this years cash flow. When budgeting now I try to have the years tax owed there at the start of the year, doesn't always workout that way.
Tax, drawings, wages and to a certain extent contractors, vet, feed costs, etc can be determined at the start of the year with a +/- figure for each to allow a bit of leeway. Again putting a conservative figure in for income side and see what way things are likely looking for the year ahead.
If projects can be done in stages cashflow may do but if it saves on time / labour etc to do it in one borrowing could well be the way to go, the write off will be there either way, well once the profit is made to use it!
But if you finance a project properly and keep a healthy cash flow you will be met with a much more receptive bank manager if the need arises to borrow extra for land. I think one of the biggest regrets most post 2015 expansion farmers have is that we tried to do too much from cashflow. And again, was there any need for that last comment, whether people are happy to stay as they are or buy half the parish is there business.
On loan repayments, they're going to be the same per month if milk price is good or bad. My plan is to do the bare repayments in low price years and pay off extra when i can. I thought most others did the same?
Many years ago a wise bank manager advised against short term borrowing for the likes of building or machinery purchase as it burns up your repayment capacity.
Then if an opportunity to for instance buy a piece of land comes up you wont be in a position to secure the necessary finance.
That's all well and good if you are willing to just work away with the same as your daddy left you.
sure if we all had repayments to make on 230 acres, we would all be doing infrastructure work out of cash flow over a period of time but if you're not heavily borrowed it's more beneficial to the farm and one's sanity to get the infrastructure work done through a short-term loan as soon as possible.
The thing is you would still have to meet repayments in a year like last year or worse still back when the milk price dropped to 20 cents a litre. We had enough repayments to make having already purchased the 230 acres. If you had seen the wintering unit we put up on that farm and the price it has been completed for.
But every one to their own.
You keep harping on about not borrowing and building out of cashflow, but I can't see why if it takes you that long to get to the finished product. If you had borrowed the money first day the lower building cost would probably have covered all the loan interest and you would have had a usable building in year one while keeping a good positive bank balance. Also, stop presuming everyone's situation is the same as yours, on a few occasions I've noticed that you expect everyone to do as you do because it works for you.
You would assume somebody adding that much storage is expanding, not increasing just to comply with new regs.
We did two tanks 200 x 16 x 9 out of cash flow but did it over a few years. One tank at a time, did first tank year one, put slats on it the following year, did cubicles the 3rd year, put up shed the following year, then next tank and so on.
Shouldn't the government first port of call be to give grants for concrete and drainage on farms to stop water runoff entering slurry tanks . This is a quick fix and would solve alot of slurry storage problems in a short period. After this they should look at capacity
yes very true.. but i doubt if someone with say 200000 gallons storage is going to be increasing storage by just 20,000 gallons... look at GrasstoMilk.. he going doing a tank 180ftx20ftx8ft... thats 180,000 gallons storage... fair going for anyone to pay for that from cashflow...
But the thing is to have your capital allowances available already from previous jobs to fund it before tax and then the next item paid from cash flow can be carried forward. But you have to be on the treadmill already, so you are always one step ahead of the tax man.
But it is not a "green field" investment only additional slurry storage we were talking about. Perhaps 10% extra. If the business can't pay for that there is something seriously wrong.
True.. but seeing as its a capital investment that can be written off over 8years why would you fund it from cashflow?
paying for it out of cashflow is fine but you always cut corners doing it that way...
How do you figure out which capital investment is ok to do from cash flow and which to borrow money for? Extra slurry storage is not a small investment
grant definitely worth it.... if your documentation is perfect when submitted.. u should be paid promptly enuf.. we submitted our stuff end of march 22 and got paid in July 22...
only drawback with grant is it reduces your capital allowance for the build
After vat and after grant. You can only depreciate what it actually cost you
after vat and grant.
Not for a tank really. You couldn’t get a more permanent structure.
The whole vat reclaim thing is very dodgy now too
After vat , before grant? Or after
Amount after grant. Can only depreciate the actual cost to you afaik.
there is also the argument that it’s tax deductible so why bother. You’ll get it back any way
Amount after vat
