Professional Advice for the Agricultural Sector agri Business
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Making hay while the sun shines or watching profits get scorched? Nick Banks, Partner and agricultural specialist at Scrutton Bland reviews the 2018 cereals harvest.
A s the seasons change it is at this point in the year that data starts to emerge about the 2018 UK cereals harvest, and we can start to identify trends and consider the financial ups and downs for those farmers with their crops in store. Over what has since turned out to be the hottest summer in England since records began, I was in regular contact with my farming clients checking how they were fairing in the weather. This is just one of the replies I received: “It’s bloody hot and dry, and we’re busy on the combine. Wheat is at 11 / 12% moisture yields, which is down by 10 to 15 % on last year.” Interestingly though, it would appear that this analysis from the field is consistent with the national picture we are now seeing. The AHDB Planting and Variety survey recently reported a UK wheat cropping area of 1,751k/ha. Winter wheat yield data currently stands at 7.8t – 7.9t/ ha compared to the five year average of 8.2t/ha.
This derives a projected yield for 2018 wheat harvest 13.7m/t which is below the five year average: (see table above) The reduced output this year will give rise to concern over the domestic market supply, and this is being reflected in futures prices. This time last year, in my article on the 2017 harvest I mapped the wheat futures prices on a graph and it is interesting to see from the graph above how prices in November compare to the future price set in 2017 – prices are up some 20% on those predictions: What does this tell us? The low harvest yield is compounded by the position of UK opening wheat stocks in June 2018 which were at a four year low at 1,718 kilotons, which may give markets cause for concern about supply meeting demand.
So, the short term forecast is encouraging and indicates that prices may strengthen. Reports suggest that farmers are holding on to crops, and that those with on-farm storage and sufficient working capital to establish 2019 crops, can ride the market to maximise price. Those farmers in pools will need to have confidence that prices will be optimised and will need to analyse the performance of those to whom they’ve committed their crops. of the pound against the dollar and euro is another factor to cause spot prices to climb. The outlook for the harvests of other key EU member states does not look that dissimilar to the UK, and tight domestic markets in Europe are anticipated, notably in Germany where reports suggest it may be necessary to increase imports to meet demand. Foreign currency is another element which can have an influence on crop prices. The softening
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2014
2015
2016
2017
2018
m/t
16.6
16.4
14.5
15.2
13.7
Projected yield for 2018 wheat harvest 13.7m/t which is below the five year average
Feed Wheat Futures Prices £/t
190 180 170 160 150 140 130 120
Sep-17
Sep-18
Data as at 30 September 2018 per AHDB
I am not sure any pundit can confidently predict how the pound will fare as we head toward March 2019 and our exit from the EU. Here in the UK we have seen a sharper focus on food security against a backdrop of Brexit, which has highlighted our vulnerability and reliance on imports. Perhaps, if other EU member states also experience this sense of vulnerability, it may provide some useful context in the negotiations for trade agreements between the UK and the EU - which would be mutual benefit of both parties. Our role as advisers is to appraise the risks to our clients businesses and identify strategies for how these risks can be mitigated. A common measure of risk used by advisers is an analysis of the pressures on businesses called PEST (Political, Economic, Social and Technological).
In my opinion, never before have arable enterprises felt the impact of so many and so varied a range of risk factors. Brexit, the changing social context of the millennial generation and the development of artificial intelligence in farm technology are all impacting how arable farmers are operating today. So whilst some farmers may take comfort in the market data forecasts and predicted strengthening prices for their 2018 harvest, in the short term, it is those who appraise their business risks, and take action to mitigate them, who will be best positioned to withstand and maximise the opportunities in the medium term which presented by the changing economic and political landscape.
Scrutton Bland have almost one hundred years’ experience in advising farmers, landowners and those working in rural and agricultural industries with tax, accounting, insurance, employee benefits, and development and diversification. Contact Nick Banks on 0330 058 6559 or email nick.banks@scruttonbland.co.uk
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Making Tax Digital: reviewing the new requirements Making Tax Digital for VAT (MTDfV) ushers in mandatory new requirements from 2019. However, the change isn’t just about VAT: MTD affects the very way that businesses keep accounting records.
Quarterly filing dates Start of first return period subject to MTD
First quarter end within MTDfV
First MTD VAT return deadline (month plus 7 days)
March/June/Sept/Dec 1 April 2019
30 June 2019 31 July 2019 31 August 2019
7 August 2019
Jan/April/July/Oct Feb/May/Aug/Nov
1 May 2019 1 June 2019
7 September 2019 7 October 2019
New rules MTDfV means that businesses must keep some records digitally. Coupled with this, VAT returns in future must be submitted to HMRC via an Application Programming Interface (API). Submission can be from API-enabled spreadsheets, software or bridging software – software spanning the gap between business software and HMRC systems, permitting two-way digital communication and using MTD APIs. HMRC acknowledges there will be different ways to submit VAT returns under MTD, but the transfer of data to HMRC, from the mandatory digital records to the filing of the return, must be entirely digital. VAT Notice 700/22: Making Tax Digital for VAT outlines the requirements in more detail.
Who is affected? MTDfV affects any business with taxable turnover above the £85,000 VAT registration threshold on 1 April 2019, regardless of its legal structure. Any business in MTDfV whose turnover subsequently falls below the threshold must stay in MTDfV, unless deregistering for VAT. Voluntarily registered businesses currently below the registration threshold can elect to join MTDfV but are not mandated to do so. Any business exceeding the registration threshold after 1 April 2019 must also comply with MTDfV – and is given only 30 days to get digital. Voluntarily registered businesses need particular vigilance. Exceeding the threshold brings them into MTD immediately. Example XYZ Ltd voluntarily registered for VAT in 2017. By 30 November 2019, cumulative sales in the previous 12 months exceed the mandatory VAT threshold. MTDfV rules apply to XYZ Ltd immediately – that is, from 1 December 2019. As it’s already VAT registered, there is no 30- day grace period.
Who is exempt? Exemptions are limited to: • businesses run by practising members of a religious society or order with beliefs incompatible with regulation requirements • businesses subject to an insolvency procedure • those satisfying HMRC that, for reasons of age, disability, remoteness of location or for any other reason, it is not reasonably practicable for them to use digital tools to keep business records or submit returns. HMRC agrees exemption may apply even if someone is not currently exempt from VAT online filing and may offer ‘digital assistance’ where it doesn’t consider exemption appropriate. If satisfied that keeping and retaining the specified information for each transaction is ‘likely to be impossible, impractical or unduly onerous,’ HMRC may vary the detail to be kept electronically.
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Mandatory use of software Under MTD, specified records will have to be kept digitally, using ‘functional compatible software’. This means a ‘software program or set of compatible software programs which can connect to HMRC systems via an API’, which must be capable of: • keeping specified records in digital form as required by the new rules • preserving digital records in digital form for up to six years • creating a VAT return from the digital records held in compatible software and submitting this data to HMRC digitally • providing HMRC with VAT data on a voluntary basis • receiving information from HMRC via the API platform Records to be kept digitally are specified in the VAT Notice. They include ‘designatory data’; the VAT account linking primary records and the VAT return; and information about supplies made and received. Requirements are potentially more extensive than at present, for example in relation to supplies made. Here it will be necessary to record the different rates of VAT applicable. For supplies received, the amount of input tax to be claimed will be needed. But MTD isn’t completely paper-free. It’s the actual recording of supplies made and received that must be digital. Where invoices and receipts aren’t held digitally, they should be kept in hard copy as usual for VAT purposes. Timetable and submission process For most businesses, the new rules apply from the start of the first VAT return period beginning on or after 1 April 2019. However, MTDfV for some ‘more complex’ businesses is now deferred until 1 October 2019. This deferral applies to: trusts; not for profit organisations not set up as companies; VAT divisions; VAT groups; public sector entities such as government departments and NHS Trusts, which have to provide additional information on their VAT return; local authorities; public corporations; traders based overseas; those required to make payments on account; and annual accounting scheme users. The first MTDfV submission depends on the quarterly return date. Under MTD, the VAT return is still a nine-box return. The key difference is that it will be populated by pulling data from the digital records. Returns will not be submitted by keying VAT return figures into the HMRC portal.
Software considerations The digital records required for MTD don’t have to be held in one place or one program. Businesses can keep digital records in a range of different compatible digital formats. The use of spreadsheets is allowed, in combination with add-on MTD software. The question then arises as to how information will be transferred from one place to another. If that information is prescribed as part of what HMRC calls the ‘digital journey’ – the mandatory submission process – it has to be transferred via ‘digital links’. Digital links A digital link is a transfer or exchange of digital data between software programs, products or applications. Where a set of software products is used, there must be digital links between them, and once data is entered into software, any further transfer or modification must be via digital link. Manual data transfer isn’t allowed – say, noting details from invoices in one ledger, then using that handwritten information to update manually another part of the functional compatible software. Copying by hand or manual transposition of data between two or more pieces of software is not permitted, and crucially, cut and paste isn’t acceptable in the long term. The VAT Notice outlines acceptable digital links, including: • linked cells in spreadsheets • emailing a spreadsheet with digital records to an agent for the agent to import data into software to make a calculation, such as a partial exemption calculation • transferring digital records onto portable devices and giving these to an agent • XML, CSV import and export, download and upload of files • API transfer Transition: the soft landing penalty period For VAT return periods beginning between 1 April 2019 and 31 March 2020, penalties won’t be charged if businesses don’t have digital links between software programs. This means cut and paste is briefly acceptable while businesses update their systems. However, from 2020, HMRC will penalise non-compliance. The transfer of VAT return data to bridging software to make submissions to HMRC must always be digital, and is excluded from the soft landing provisions.
Adjustments and special cases At present, adjustments are often needed before VAT returns are submitted: such as capital goods scheme adjustment calculations, and the fuel scale charge and partial exemption calculations. Under MTD, these can be calculated outside the digital records and the total then recorded digitally. MTD rules recognise a variety of special cases, including retail scheme users, who will be able to record daily gross takings digitally, rather than details of each supply. Other provisions deal with: • recording mixed rate supplies with a single price • invoices for multiple supplies • employee expenses • reverse charge supplies • intra-group supplies for a VAT group • supplies made by third party agents Software providers HMRC is not providing software. It is working with software providers to get products on the market by the MTD start date, and lists recognised products on the gov.uk site as they become ready. The current list can be found on the HMRC website. If you already use accounting software and your supplier is not on this list, ask if and when they will upgrade products to be MTD-compatible. Recommended action We advise considering the impact of MTDfV now. Any business not using digital accounting records will need to do so as soon as possible. Some businesses will be eligible to join the MTDfV pilot run by HMRC, which gives the opportunity for a dry run before mandation. However, the pilot is not yet open to every type of business, and the timetable is still evolving. MTDfV may prove to be a challenging transition for businesses, and we are always on hand to answer any questions you may have. If you would like to find out more about any element of Making Tax Digital and the affect on your business, we have created a team of specialists who can guide you through the steps you need to take. Contact us at hello@scruttonbland.co.uk
Further detail: VAT Notice 700/22
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Scrutton Bland signs partnership with leading farming app Scrutton Bland has signed a preferred partner agreement with leading financial software company Figured, making the firm the first to offer this app to clients in the South East.
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T his new partnership with the New Zealand founded technology firm, sees Scrutton Bland strengthen our cloud accounting and business advisory service sblive and closely follows the announcement in October as the UK’s first certified partner of GoCardless, the direct debit app. Figured is designed to take the stress and frustration out of financial planning and management for farmers by combining up-to-date farm production data with real-time transactional data on a cloud platform to provide an accurate view of the farm’s financial position both current and forecast. Being cloud-based and integrated with Xero, one if the UKs biggest cloud accounting software providers, means that Farmers and their advisors can work together collaboratively, look at the same figures and proactively work on the financial health of the farm business.
Nick Banks , Business Advisory Partner and Head of Scrutton Bland agricultural division has been working alongside Figured as part of a development group to test and advise on the software for the UK market. Speaking about the announcement. Nick said: “The role of accountants has been changing for some time, businesses and in particular those working in the agricultural sector, now require Business Advisers who can take a broader view of their clients operations and want to work with an adviser with whom they can build long term relationships and who can get to know their business as it evolves.” “As advisers, we need to ensure that we are delivering the very best solutions for our clients and cloud technology is at the forefront of that, particularly with HMRC’s Making Tax Digital on the horizon” “as traditional farming busiensses develop and diversify, it means that we, as advisers, need to help our clients keep on top of their finances, using software like Figured enables us to start conversations earlier with our clients as we identify any issues or opportunities and deal with them faster” Ryan Pearcy, who recently joined Scrutton Bland as a cloud expert “thinks is an amazing solution for the UK farming sector.” “Having a farm’s financial, stock and crop information in one place, in real time, means freeing up much needed time for the farmer as they no longer have to pour over spreadsheets or look at multiple files to create an overall picture of how well the business is doing, and therefore giving them more time to get on with their business” If you would like to understand the benefits of adopting cloud based technology for your business or simply find out more about Figured contact our sblive team who can help.
For more information on sblive visit our website scruttonbland.co.uk or call the sblive team on 0333 234 7144.
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0330 058 6559 scruttonbland.co.uk
@scruttonbland
Scrutton Bland Financial Services Ltd is authorised and regulated by the Financial Conduct Authority. 0319/11/2018/MTKG
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