and Smalley, said “At a time when farmers' ... Granddaughter Becky also helps
out. ... A farming and rural business publication brought to you by Moore and ...
rural life WINTER / SPRING 2013
A farming and rural business publication brought to you by Moore and Smalley Chartered Accountants and Business Advisors
Robotic milkers help Lancaster farm get more white stuff
pressure it is great to see a farming business innovating with new technology to stay profitable. This shows how even traditional farming businesses can benefit from investing in new technologies and keeping a closer eye on management information.” Derek’s family has worked on the 328 acre Holly House Farm for five generations and Derek has owned the farm with his wife Eileen since the 1980s. Derek’s son Neil, his wife Tracey and grandson Daniel, who leaves school next May, work on the farm. Granddaughter Becky also helps out. The Merlin Robots were supplied by Fullwood Ltd, of Ellesmere, Shropshire, at a cost of approximately £300,000 including installation.
Derek Fox (L) with business advisor Les Hewitt from Moore and Smalley
A Lancashire dairy farming business has boosted production and profits after investing in three state-of-the-art robotic milking machines. Holly House Farm, based at Bay Horse, near Lancaster, got the cutting edge equipment earlier this year and has already boosted milk production from its dairy herd by allowing cows to be milked up to five times a day without the need for any farm staff to be present. Out of the total herd of 310 pedigree friesian cattle, the three machines are milking 160 cows and producing around 9,000 litres of milk each annually, compared to 8,300 litres previously, for a major UK supermarket chain. In addition the sophisticated computer system that drives the technology can monitor the cow’s health by tracking its movement and food intake.
Derek Fox, the owner of Holly House Farm, said: “Our milk yields are up significantly this year, but the system is not only good for business, it’s great for the cows because it gives them freedom of choice as they are free to do what they want and choose when they feed and get milked. “The newly calved cows can be milked up to five times a day compared to twice daily previously and I don’t have to be on site. If there are any problems the computer system alerts me by sending a message to my phone.”
When the cow enters the milking crate it is identified by the electronic pedometer which is strapped to the cow’s leg. It sends a signal to the computer which allocates a high protein feed which is dispensed to the cow according to her milk yield, ensuring that no under feeding or over feeding takes place. The cow’s teats are thoroughly cleaned by computer guided rotating brushes which have been soaked in a mild antibacterial iodine solution. The laser guided machine attaches the cluster to the cow’s teats milking the cow automatically, producing milk for a major supermarket.
Derek has been receiving strategic business advice from Lancaster-based chartered accountants and business advisers Moore and Smalley, which also helped the business maximise tax savings on the new equipment. Les Hewitt, agricultural manager at Moore and Smalley, said “At a time when farmers’ profits are under constant downward
Jodie Swan inspects the robotic milker in action
A cost effective solution to poor quality grass silages Introducing sugar in molasses-based liquid feeds will provide one cost effective solution to improving the value of those poor quality grass silages. We’re in a season where every penny counts. Maximising efficiency will be taking on new meaning and getting to grips with forages will be among the priorities for all dairy farmers. Early first cuts contained little if any sugar but potentially a high level of rumen protein. Incessant rain led some first cuts to be delayed and so these clamps may contain fibrous silages that will need breaking down. Added to that, cutting of virtually all second crops has been delayed by anything upwards of a month. They’re starting to rot in the bottom of the sward, and consequently they will be low in D value and high in fibre. We could see some silages down in the 62D to 64D value range with NDF values above 55 per cent. Molasses-based liquid feeds are traditionally rated as a premium priced ingredient. However it currently equates to a similar price as wheat on a dry matter basis.
Molasses-based liquid feeds can provide a reduction in feed costs and an improvement of rumen function It’s worth understanding that not all sugars are the same. The type of sugar does make a difference to rumen bacteria. Rumen bugs do not grow as well on 5-carbon sugars found predominantly in maize and some grasses. Instead they prefer 6-carbon sugars as an energy source. Molasses comprises more than 60 per cent sugars – glucose, fructose and sucrose. Molasses-based liquid feeds have four major functions: Palatability - Introducing sugars will improve palatability and help fibre breakdown in the rumen.
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Reducing ration sorting - Molasses naturally binds the diet ingredients together, by maximising intakes of protein, energy, fibre, minerals and vitamins achieving optimal rumen health. The results mean a reduction in feed costs and an improvement of rumen function. Improved fibre digestion - The better we manage cows to take advantage of this opportunity, the better the economic returns. Adding sugar to the diet stimulates the rumen fibre digesting bacteria more effectively than starch. Replacing some starch with sugar in the ration will increase fibre (NDF) digestion. Every one unit increase in NDF digestibility will increase dry matter intake by 0.17kg.
Enhanced Microbial Protein Production - Rations providing both sugar and starch optimise microbial protein yield, compared to the slower fermentation of starch. Both cellulose and starch are fermented to 6-carbon sugars. When combined more microbial protein is produced. This protein source has approximately 82per cent of the amino acids expressed as a percentage of milk protein. Thank you to Bryn Davies at Lancaster based Advanced Nutrition Limited for contributing this article. If you are interested in finding out more visit www.arn-ltd.co.uk for more information.
The PAYE revolution The PAYE reporting regime is about to see the most fundamental changes since it was established in 1944. Over the next few months all employers operating UK payrolls will be affected. The government is introducing Real Time Information (RTI) which will provide HM Revenue & Customs (HMRC) with more accurate and up to date information about employees. Why RTI? The main driver behind these changes is to allow the benefits payments system to run more effectively. It has been recognised that both central and local government require more up to date earnings information. Employers will have to provide HMRC with employees’ exact payments and personal details electronically, on each pay day whether that is weekly, fortnightly, four-weekly or monthly. This information will support the introduction of the Universal Credit planned for October 2013. By April 2013 most employers will have to file under the new rules. Even if you only employ seasonal workers on your farm or in your holiday cottages you will have to submit details of their pay each time you pay them or potentially face penalties. RTI will collect information about tax and other deductions automatically each time employers run their payroll. This information will be submitted automatically to HMRC at the same time the employees are paid.
By April 2013 most employers will have to file under the new rules How do I prepare for RTI? By April 2013 having correct employee personal details will be essential. If an employee cannot be matched with HMRC records the RTI submission will be rejected. Amendments may result in a late return. This in turn could create a penalty situation. Data cleansing needs to be done on current employee information including:
Businesses that already use payroll software will need to update it so it’s capable of processing RTI, while businesses that don’t currently use payroll software need to plan how they will get ready for these new rules. Farming and rural businesses should not underestimate how these changes will affect the way they operate their payroll. If you need any help on this matter, please do get in touch.
• correct national insurance numbers and dates of birth • correct first names - abbreviated or nicknames will not be recognised • the weekly hours worked ie under 16, 16 – 30 or over 30 hours a week
RTI in outline RTI will involve employers changing their current payroll processes. Instead of year end returns, employers will be required to provide information when they do their regular pay run for employees. Once RTI is bedded in and all employers have switched to the new system there will be no need to submit P14s or a P35. The procedure for employees leaving and starting will also be simplified. Employers will initially be able to submit RTI from their software, or via an agent, using an internet channel through the Government Gateway. If you have nine or fewer employees you will be able to use HMRC’s free basic PAYE Tools software program.
HMRC will need to be electronically notified of all new employees, even if the employee hasn’t yet received their P45 or P46 from their previous employer. Once submissions under RTIs have started, passport numbers will be required for new starters. Technology The changes will require many businesses to invest in, or update, payroll software to allow them to comply with RTI. The fact that many farming and rural businesses may not have the digital hardware or technology to comply will not be accepted as a valid reason for non submission, for example many farms in remote rural areas have poor internet access.
Contact Margaret Merrifield Payroll Services Manager 01524 388719
[email protected]
www.mooreandsmalley.co.uk
Claiming VAT back on Farmhouse Renovations The cost of renovating a farmhouse can be considerable due to the age or size of the property and with VAT at 20 per cent it is all the more important to make sure that the VAT burden is kept to a minimum. HMRC have specific guidance relating to the recovery of the VAT incurred. These rules should always be considered at the planning and costing stage of any renovation.
HMRC’s Guidance
Why can’t all the VAT be recovered on a renovation?
• For a normal working farm where the VAT registered person, ie the farmer, is actively engaged full time in running the farm 70 per cent of the VAT incurred on the cost of repair, maintenance or renovation can be recovered.
HMRC agreed the following guidelines in relation to works done on farmhouses. Although these guidelines are not new many farmers, contractors, advisors and even VAT inspectors are not aware of the rules. As a reminder the following is a brief outline of the guidelines:
HMRC accept that a farmhouse is an “integral part” of a farm business, however it also provides domestic accommodation for the farmer and his family.
• Where farming is not a full time occupation then recovery would normally be in the region of 10 per cent to 30 per cent.
VAT incurred on expenditure is fully recoverable when it is incurred in making wholly taxable supplies, but what happens when the VAT partly relates to non-business purposes? The usual method is to arrive at a “fair and reasonable” method of apportionment between the taxable business element and the non-business element eg 50 per cent business use results in 50 per cent VAT recovery.
• Even if the VAT registered person is not fully engaged in farming, can it be demonstrated that the farmhouse is principally used for the business rather than as a domestic residence? Conclusion As with many areas of VAT the above is subjective and open to interpretation. When determining the recoverable percentage if it can be demonstrated that there is a high level of business use, a high percentage of recovery should be achievable. By doing so it may be possible for full time farmers to recover a minimum of 70 per cent of the VAT incurred. As for the part time farmers, by emphasising the business use there is still a good chance of also obtaining 70 per cent recovery. As always, think carefully and seek advice.
Points to Consider As can be seen above, dependant on the farming activity of the “VAT registered person”, VAT recovery differs wildly. Therefore it is very important to consider how to maximise recovery. Points to consider are:
The recovery of VAT incurred on farmhouse renovations and the methods used to arrive at the recoverable amount have led to the greatest number of appeals in respect of domestic accommodation.
• It the work is repair and maintenance, is it possible that the works could be wholly business related and recoverable in full, for example parts of the farmhouse are used wholly for business (office, storage etc.).
Contact Colin Corder VAT Manager 01772 821021
[email protected]
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