The underlying costs of the 2017 harvest

In the midst of the Brexit uncertainty, a new farming cycle has begun and the challenge faced by farmers to make a profit on these crops may be the one of the most difficult we have seen in recent years.

Farmers will always be price takers for their crops; beating the market involves a gamble that many are either not prepared or not able to take. The reality is therefore, that the profitability of farming pivots around management of cost.

To that end, the fall in the value of the pound since the Brexit decision is looking likely to start to have an impact on costs in 2017, so for arable famers to capitalise on the potentially higher world grain prices and increased BPS rate, there needs to be a firm control of the costs and a proper consideration of how much of an increase is needed in yield to break even from any additional spending.

We would encourage our clients to have at the very least a crude working of how much is being spent per acre as you go along. There are so many products now to control pests and diseases, but the effect on profit may only be marginal. Given the uncontrollable factors involved, the reality is that it may not actually be worth as much as you think to attempt to improve the yield in a patch of blackgrass.

We also advise our clients to look at their machinery spending and decisions carefully over the coming year. In Savills’s 2015 harvest research, the calculated cost of machinery was £34 per acre together with depreciation of £39 per acre. There have been incentives to purchase new machinery over recent years, bringing the benefit of generally reduced repair costs, but with it significantly higher depreciation charges than for second hand machinery. Depreciation may be written off as an accountant’s paper exercise, but the cost of the machinery must be considered against the profits.

Farm machinery technology has progressed alongside that of cars, with even the potential introduction of electric tractors by the end of the decade, but with this price has also increased, although the basic stats of the tractor are not significantly different from its predecessors. A 200 horsepower tractor in 1982 cost £30,000, today the equivalent would be likely to cost in the region of £90,000. In cost comparisons, while repair costs of second hand machinery may be almost double that of new machinery, the depreciation cost per year of new machinery is potentially 60% higher than that of second hand equipment. In numerical terms, new equipment with a cost of £1.5m may be compared to a second hand cost of £600,000. In an AHDB trial the new equipment cost £54 per acre to run in the accounts (repairs and depreciation) compared with £28 per acre for the second hand machinery.

As with every decision there are many other non-financial factors to consider such as down time while repairs are required and managing machine hours across the fleet of equipment to reduce the need for repair, not to speak of being able to purchase the machinery you want second hand. The reduction in the value of sterling has been a massive stimulus to the used machinery export market and is pushing up the prices in the UK and making it very hard to find the machinery you require.

Putting machinery cost into context, with a good price it may take 500 tonnes of wheat to buy a new tractor, making machinery decisions vital to the finances of a farming business, especially with a potential increase in the alternative.

Growing Your Business – Common Pitfalls

Many people running their own business want to grow and become more profitable. Why should this be a problem you may ask? Surely everyone is in business to make a profit? Very true, however a business can grow too fast and actually fail as a result of this. Cash (or lack of it) is one of the key causes of business failure.

Growing a business may require new equipment or capital investment. Where does this cash come from? There are many funding options available that will help to ease the cash flow burden. Your accountant should be able to assist in obtaining the right funding for your business, along with helping to prepare any forecasts and projections needed to obtain it.

Securing some large contracts may seem like a really good business plan, but ……….reliance on a handful of large customers can have a negative effect on your cash flow. Larger customers can often extend the terms over which they pay, hindering your cash cycle. You will have paid your suppliers but may have to wait a further period of time to receive the income owed to you.  Do you have a sufficient overdraft facility in place to cover this?

You may currently be below the VAT threshold, but growth may mean you must become VAT registered. How do you pass this cost on if you provide products or services to the general public or not another VAT registered business? Adding 20% onto you sales may result in you becoming less competitively priced. When your business starts to grow, you should speak to your accountant to help guide you through this.

Whilst it’s perfectly natural to want your business to grow and be as profitable as possible, be cautious and seek advice before leaping into the unknown.

Right level of warning

A recent case has shown the importance of ensuring that any warning imposed by an employer within disciplinary proceedings is pitched at the right level. This is particularly important in the case of final written warnings.

In a recent case an employee with 19 years’ service had 18 years unblemished record but started to receive performance related warnings in the 19th year. He received a final written warning and then after further incidents was dismissed.

He claimed unfair dismissal at the Employment Tribunal. The Tribunal concluded that the final written warning was too high a tariff and substituted an ordinary (first written) warning. It then went on to conclude that when added to the most recent incidents the dismissal was still fair.

However, the employee appealed to the Employment Appeal Tribunal who said that this approach was wrong. Where a warning, particularly a final written warning was ‘manifestly inappropriate’ then it was wrong to substitute an ordinary warning and the correct approach was to disregard the warning completely – and that made the dismissal unfair.

Further, there is case authority that where a final written warning is manifestly inappropriate that it might be open to the employee to resign and claim constructive unfair dismissal.

Note that the language used is strong; the decision on the level of warning must not just be wrong but it must be manifestly inappropriate, in other words so obviously wrong that it should never have been imposed by the employer, so this is not an easy way out for the employee. However, the lesson for employers is that great care is needed before a final written warning is imposed.


ACAS guidance is that warnings should have an expiry date and should be disregarded after that date. As is not unusual two cases provide different approaches to this guidance, one following the ACAS approach and another saying that there is no hard and fast rule and that it may still be reasonable to take into account the whole of an employee’s record.

In a recent rather extreme case, an employee with a large number of warnings was dismissed by reference to his entire record including old, lapsed warnings. The matter went to the Employment Appeal Tribunal who took the latter approach and concluded that it was reasonable for the employer in these unusual circumstances to look at the whole employment record.

The best and safest approach is still to follow the ACAS guidance but this most recent case does mean that in some cases it may be appropriate to look at the entirety of the employment record including lapsed warnings.

The Von Voyage

My 22 years at Nicholsons

I started working for Nicholsons in March 1995 at our Market Rasen office. I worked 3 days per week as a receptionist /administrator, and enjoyed being part of the small but busy team, headed by Derrick Grayson and Nigel Douglas.

In 2004, all our offices were amalgamated, and all the Team moved into new purpose-built premises just off the Lincoln by-pass. These were exciting times for everyone at Nicholsons, but were tinged with sadness for me at leaving our busy little office in Market Rasen.

I started working full-time in 2004, and moved into the secretarial team, mainly working for Senior Director Richard Grayson. I thoroughly enjoy my work at Nicholsons; it is far more interesting than you might imagine, for an office full of accountants! I particularly enjoy the way everyone works together as part of a big team in the interests of our clients. It is like one big happy family, as all Team Members are so friendly and helpful – I can’t imagine working anywhere else.

During my time at Nicholsons, there have been huge changes to the way we work, mainly driven by technology. Clients expect quicker responses and like to be kept up-to-date, because they can then make better decisions. We pride ourselves in being able to help them with all their needs, quickly and efficiently.

When I am not at work, I love socialising with friends and spending precious time with my family. I also enjoy walking and horse-riding in the local countryside, when time permits! Nicholsons sponsor Lincoln City FC, and I have been to the recent FA Cup games with my work colleagues, cheering the team on to success; I have really enjoyed this.

I am so pleased to have been part of the Nicholsons “family” for the past 22 years, and look forward to what will no doubt be an interesting future.

Author: Yvonne Walker

It’s OK….we’ve got a procedures manual.

I recently attended a charity update and whilst these are always a useful technical update, I find the sections on the real life situations often so much more useful.  On this occasion, this came in the form of a presentation from the charity commission where they talked about the size of the charity sector in terms of income and also in terms of the cost of fraud.  I think given the number of cases you see in the press, this was the less surprising point.  What was a more surprising point was when they noted that the absence of proper controls accounted for 21% of public sector fraud, a high number yes; however they noted that 41% were recorded as being the result of a failure to observe controls.


This reinforces the need to not only make sure that controls are in place within the charity- this is tick number one, but this is a completely wasted task if there is then no review in place to ensure that these controls are working properly.


The charity commission have a wealth of information on their website but I think the first of these documents to have a look at is CC8 Internal Financial Controls which gives some guidance as to the controls that should be considered and why these are important.  After this a charity can then work through a charity commission checklist which can make them think of the areas where controls may be needed and a procedures or controls manual can be produced.  This checklist is due to be revised and will no doubt then include some additional controls to assist around the cyber security side but in the meantime this is a really good start and would establish a robust set of controls.


The process must not end here though as otherwise all of the good work will be undone.  On an ongoing basis you need to put processes in place to ensure that the controls are checked to ensure that they are operating effectively and in the manner that you intended.


Whilst controls which are correctly operating are not guaranteed to stop all fraud they may well go some way towards deterring opportunists and should ensure that losses are minimised.  Furthermore, in the event of an issue the trustees will be able to clearly demonstrate that they have taken their responsibilities for the governance of the charity seriously.

As You Were!

The Budget announcement, and subsequent withdrawal, regarding the increase in NI contributions for the self-employed has been a debacle. Philip Hammond was supposed to be a safe pair of hands as Chancellor of the Exchequer, but any more gaffes like this and he will earn the nickname “Butterfingers”!

Simplifying the tax system is a noble aim, and the abolition of Class 2 NIC from 6th April 2018 is a good step along this road. It seems that the Chancellor was trying to claw back
some of this lost revenue by his Class 4 NIC hike, but this was politically unacceptable. Continue reading

Budget 2017 – Payroll Changes

With the new tax year looming, the payroll year end is at the top of the list of ‘to do’ for all of us processing payrolls.  I thought it might helpful if I run through a few of the things that we need to keep in mind this month and into the next:

If you haven’t already ordered, and don’t want to waste ink, the Revenue are still providing blank P60 forms for free, just search for the online order form on HMRC.GOV.UK. Continue reading

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