A new tractor, a cattle shed, a grain store or a block of land can transform a farm. They can also strain it for years if the cash side isn’t thought through. The question isn’t just “can we get the finance?” It’s “can the farm carry the payments in a poor year, as well as a good one?”
Cash, hire purchase or lease?
- Paying cash avoids interest but can empty the bank just before a big input bill. Check the low point afterwards, not just the balance today.
- Hire purchase spreads the cost, and you own the machine at the end. There’s usually a deposit up front.
- Leasing or contract hire can keep payments lower and predictable, but you don’t own the kit.
- Using a contractor is worth comparing too. For some jobs, paying per hectare or per hour costs less than owning the machine.
Mind the VAT gap
If you’re VAT registered, you can usually reclaim the VAT on a new machine or building, but you pay it first and get it back after your next VAT return. On a big purchase that can be tens of thousands of pounds for up to three months. On hire purchase, the VAT is often due with the deposit. Put both the payment and the refund in the forecast. Monthly VAT returns can shorten the wait.
Tax relief helps, but later
Capital allowances, such as the Annual Investment Allowance (currently up to £1 million a year), can reduce your tax bill on qualifying machinery and equipment. That’s valuable, but it reduces a tax payment later. It doesn’t put cash in the bank on the day you buy. Land doesn’t qualify, and buildings are treated differently, so check with your accountant.
Match repayments to your income
Farm income is seasonal, so ask the lender about repayment profiles. Payments timed after harvest, or after the lamb sales, are much easier to meet than twelve equal monthly payments that fall due in the leanest months.
Check for grants before you buy
Capital grants come and go. If one might cover the item, check before you commit, because buying before a grant agreement is in place usually rules you out.
Stress-test it
Run your farm forecast twice: with and without the purchase. Then run the “with” version again with a bad year built in: prices down, a poor harvest or a late payment.
If the low point still stays above your overdraft limit in a bad year, you can buy with confidence. If it doesn’t, you’ve found out at the right time.
If it doesn’t work as planned, the forecast shows the options: a bigger trade-in, a longer term, a seasonal repayment profile, a cheaper machine or waiting a year. Decision-specific scenarios like this are what the Partner service is for, and a forecast also strengthens a loan application.
An accountant of ten years who has built more cashflow forecasts than hot dinners. I help farms and agricultural businesses across Yorkshire see what’s coming and plan for it. More about me.