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Young Farmers Scheme Level 2 Qualification

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Title: Young Farmers Scheme Level 2 Qualification Author: Ann Brown Last modified by: Ian McMaw Created Date: 9/16/2014 8:49:07 AM Document presentation format – PowerPoint PPT presentation

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Learn more at: http://www.cafre.ac.uk
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Title: Young Farmers Scheme Level 2 Qualification


1
Business Management Session 1 Farm Business
Performance Arable Crops
2
Business section 4 weeks
  • Night 1
  • Farm Business Performance Management
  • Record-keeping
  • Night 2
  • Costs and Receipts
  • Management accounts
  • Night 3
  • Profit and Cashflow
  • Benchmarking
  • Night 4
  • Banking and Finance

3
Night 1 Agenda
  • Introduction
  • What is Farm Business Management?
  • Business Goals and Objectives
  • Record Keeping
  • VAT Rules, Rates, Records
  • Accounts Profit and Loss, Balance Sheet
  • Tax Returns and Payments

4
Business Management
  • Group Exercise
  • What is farm business management?
  • What has to be managed?

5
Farm Business Management What is it?
  • The control of farm resources (inputs) to reach
    a goal (outputs)
  • Resources include
  • Land
  • Labour
  • Capital, e.g. machinery, buildings, Fertilisers,
    Pesticides, etc.
  • Decision making

6
Arable Farming - a Complex Business
  • Control
  • Crop Rotation
  • Soil Fertility
  • Disease Control
  • Timing of operations
  • Machinery policy
  • No Control
  • Weather
  • Nitrates Regulations
  • Grain Price
  • Input Prices

7
Farm Management what is it?
Typical Organisational Chart Large
businesses Farmer?
M.D. Builder
Worker Plumber Mechanic
Manager Agronomist Book
keeper
M.D.
Management
Workers
8
Goals
  • What do you want out of the business?

Top-class herd, flock, crop
A decent standard of living
Education for children
Provision for retirement
A healthy business to pass on to next generation
Enough free time to enjoy life
9
Goals
  • Group Exercise
  • Short term goals that you would like to
    accomplish within the next year
  • Intermediate term goals to accomplish within
    one to 5 years
  • Long term goals that require more than 10 years
    to accomplish
  • What are your goals?

10
Objectives
  • Improve herd genetics
  • Improve grassland management
  • Reduce borrowings (overdraft)
  • Replace old buildings
  • Expand the herd
  • Diversify

11
If you dont know where you are going, any road
will take you there - George Harrison
The Importance of Planning
12
Tools for Management
  • Farm Records
  • Why keep records?
  • What records do I need to keep?
  • What records are legally required?
  • How long must they be kept?

13
Farm Records, why keep them?
  • Its the Law
  • For VAT and Tax forms (HMRC)
  • For measuring performance
  • For making decisions
  • Details for management decisions feeding,
    breeding, culling, selection, purchases,
    expansion, etc.

14
Farm Records - Physical
  • There is a crossover between the Legal
    requirements, FQAS, NAP, Cross Compliance and
    other schemes.
  • Herd Records Law
  • Grain Store Hygiene - FQAS
  • Fertiliser used Law, NAP Regulations
  • Livestock feed supplies Law, FSA, FQAS
  • Chemical / Pesticide records - Law

15
Farm Records - Financial
  • Documents used to complete a tax return,
  • Bank statements and cash transactions
  • Loan agreements
  • Credit card receipts
  • Sales and purchase invoices
  • Investments
  • Private expenses taken from account Personal
    Drawings
  • VAT accounts, import or export documents

16
Farm Records - Other
  • Personnel File
  • Wages National Insurance contributions etc.
  • Retention Period for Financial Records 6 years
    after the current year
  • Contract employee records
  • Retention Period 7 years after employment ends
  • Health Safety
  • Risk Assessment reports, Accident Books
  • Retention Period 12 years
  • Insurance
  • Employers liability insurance certificates
  • Retention Period 40 years

17
Performance Records
  • Group Exercise
  • What information needs to be recorded before you
    can assess the performance of your own farm?

18
  • Performance records/stock records
  • Information to record
  • Field and crop records
  • Spray records in store and used for traceability
    and legal requirements
  • Crop rotations
  • Crop yields Prices received
  • Soil analysis Fertiliser applied
  • Sprays applied
  • Used for Benchmarking

19
Arable performance indicators
  • Gross margin
  • Crop yield
  • Sale price (Grain / Straw)
  • Machinery running costs
  • Crop rotations
  • All this information will help to create
    benchmarking reports for the enterprise

20
What is VAT?
  • VAT is a tax added to the value of certain goods
    (fertiliser) and services (auction fees).
  • When certain goods and services are sold, VAT is
    collected by those selling. This money is then
    sent to HM Revenue and Customs.
  • www.hmrc.gov.uk/vat/

21
VAT return
  • Must submit online
  • You usually submit a VAT Return to HMRC every 3
    months.
  • The VAT Return records information for the
    accounting period like
  • your total sales and purchases
  • the amount of VAT you owe
  • the amount of VAT you can reclaim
  • your VAT refund / payment
  • You must submit a VAT Return even if you have no
    VAT to pay or reclaim.

22
VAT Rates
  • Goods and services can be classified into five
    VAT groups-
  • Standard rate - currently 20
  • Reduced rate - currently 5
  • Zero rate - this is not the same as exempt or
    outside the scope of VAT (0)
  • Exempt no VAT but within the VAT system
  • Outside the scope of VAT

23
Vat Categories Summarised
24
Agricultural Flat Rate Scheme
  • No need to submit a return
  • Farmer can claim 4 of the value of outputs sold
    to VAT registered businesses
  • 4 is not VAT but compensation for not claiming
    input VAT
  • Suits farmers with low inputs and no major
    capital investments

25
Financial Accounts
  • Financial Statements
  • Profit Loss Account
  • Balance Sheet
  • Almost all farmers are either Sole Traders or in
    a Partnership and therefore are not required by
    law to keep the above accounts, but it is normal
    practice
  • Your accountant will advise
  • Adequate records are needed for completion of
    Self Assessment tax return and VAT returns

26
Profit and Loss Account
  • The Profit and Loss Account summarises the
    financial transactions during the accounting
    period (a year).
  • A measure of how well the business is performing
  • Used to calculate the profit generated and the
    tax due

27
Profit and Loss Account
Sales Subsidies (including SFP) Sundry
receipts
TOTAL INCOME
COST OF SALES
Opening valuation (livestock, crops,
fodder, feedstuffs and goods in
store) Purchases Closing valuation
-

GROSS PROFIT
-
OVERHEADS OR FIXED COSTS

NET PROFIT
28
Profit and Loss Account
Sales Subsidies (including SFP) Sundry
receipts
TOTAL INCOME
COST OF SALES
Opening valuation (livestock, crops,
fodder, feedstuffs and goods in
store) Purchases Closing valuation
-

GROSS PROFIT
-
OVERHEADS OR FIXED COSTS

NET PROFIT
29
Profit and Loss example
30
Balance Sheet
  • Shows the financial position of the farm
    business.
  • Only valid on the day it is completed.
  • Shows what the farmer owns and what he owes.
  • The balance sheet lists
  • The ASSETS of the business fixed and current.
  • The LIABILITIES of the business current and
    long-term.
  • How the business is FINANCED its capital.

31
Balance Sheet
Value of Assets
-
Value of Liabilities

NET WORTH
32
Balance Sheet
Value of Assets
-
Value of Liabilities

NET WORTH
33
Balance Sheet example
LIABILITIES LIABILITIES ASSETS ASSETS
Long/medium term liabilities Long/medium term liabilities Fixed assets Fixed assets
Mortgage 55,000 24ha land _at_ 25,000 600,000
Hire purchase 8,000 Machinery and equipment 40,000
    Farm vehicle 10,000
Current liabilities   Current assets  
Overdraft 15,000 Fertiliser in store 14,000
Merchant creditors 4,000 Seed in store 4,500
NET WORTH 586,500    
TOTAL LIABILITIES 668,500 TOTAL ASSETS 668,500
34
Income Tax
  • Tax must be paid on earnings and other incomes
  • You must file a tax return each year by
  • 31st October by paper or
  • 31st January online
  • Your accountant can file the return for you or
    you can do it yourself
  • You must pay tax on profits
  • HMRC will not wait for payment!

35
Income Tax
  • The current official HMRC tax year is from 6th
    April 2014 to 5th April 2015, although businesses
    can have different tax years.
  • Tax rates
  • Everyone can earn 10,000 per year (Personal
    Allowance) before tax is applied
  • Pay 20 on remaining income up to a total of
    41,865
  • Higher rate of 40 from 41,866 to 150,000
  • Additional rate 45 Over 150,000
  • If the business is a Partnership, each partner
    has a Personal Allowance

36
Summary
  • Managing your business is crucial to success.
  • Good financial and physical records are needed to
    manage and plan properly.
  • Failing to plan is planning to fail!
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