Ifac has published its annual Irish Farm Report for 2024 today (Thursday, January 18), which outlined the main concerns, from an accounting and financial management point of view, for Irish farmers.
The report found that 23% of farmers do not complete a budget or cashflow forecast, and 32% of farmers either do not have, or are unsure if they have, enough available cash for the next six months.
The report includes advice for managing cashflow on farms, which the organisation said is “essential” for the success of any farming operation.
Among these is seasonal budgeting. The report said that farming is cyclical, so expenses should be planned around the seasons.
Philip O’Connor, head of farm support for Ifac, said that farmers should make sure they have enough money during planting and harvesting seasons to cover essential items such as feed, seeds, fertilisers and labour.
O’Connor also advised farmers to check their credit facilities to see when they expire, and what options are available to renew them, negotiating fixed-rate loans or flexible lines of credit if possible.
If a farmer has high-interest debt, they should consider paying it off and finding better ways to manage short-term borrowing needs.
In terms of expenses, farmers should look for ways to reduce their costs and get the best value for money, by negotiating payment terms with suppliers and buyers, and trying to line them up with cash inflows.
More key advice in the report for managing cashflows includes:
- Evaluating your personnel, making sure you have the right people on your team and addressing performance issues among them;
- Taking advantage of tax savings, and considering a restructure of the farm business to achieve that;
- Building an emergency fund to help in dealing with unexpected challenges such as equipment breakdowns, disease outbreak, or bad weather;
- Using technology, such as farm management software, to help track expenses, monitor income, and generate financial reports.
“By following these tips, you can improve your cashflow management, ensuring a stable financial foundation for sustainable growth and resilience in the face of agricultural challenges,” O’Connor said.
The Ifac report also includes advice on extracting cash from your farm business (when farms are operating as companies) and which tax hurdles to watch out for.
Marty Murphy, Ifac head of tax, said: “You can take out money from your company by paying yourself a salary or renting out property to the company. Still, you need to be careful because these types of payments can also be taxed.”
According to Murphy, salary, rent and divided paid out by a farm company are subject to income tax.
A director or employee can receive a net salary from the company. However, PAYE must be operated in nearly all cases. PRSI will depend on your controlling interest in the company.
Rent can be paid out of the company to the landowner, as farmers typically retain the land personally and do not transfer it to the company. However, land is fully taxable while in the individual’s hands. Furthermore, receiving rent from the company may also impact the availability of certain reliefs.
A shareholder of the company may also receive a divided, and a dividend withholding tax of 25% applies. However, no corporation tax deduction is available for a dividend payment.
According to Murphy, more tax-efficient extraction options than the ones above are possible.
These include:
- A director’s loan, whereby a company director can receive tax-free sums from the company;
- Sales or buy-back of shares by the company, whereby a company may be able to buy back its own shares, releasing “a considerable cash sum” to the shareholder at Capital Gains Tax (CGT) rates;
- Pension funding, in which annual company contributions to a self-administered pension scheme allows directors or employees to benefit from a “very tax-efficient method of saving for their retirement”;
- Termination payments, where an employee or director leaving the company may be eligible for a tax-efficient lump sum payment if certain conditions are met. This can be part of an overall exit strategy for the business owner.