TAX !

[fudge]

As tenant your rent is tax deductible so you have that " advantage " over an owner occupier, but of course it's not an advantage as your paying the landlord instead of the government.
If your problem is the size of your overdraft at times of the year then buying plant or machines to avoid tax is the exactly the wrong way to reduce it.
I'm not trying to insult you or your understanding of how the tax system works but if you spend 100,000 of kit you arent saving 100, 000 grand of tax, depending on how the business is set up it could be 0, 19, 20, 40, or 45 of that( plus some NI saving)and as you are running an overdraft you are going to have to borrow the rest which at some point you are going to have to pay back out of profits which you will have to pay tax on, thus possibly increasing cash flow problems.
Buying kit to avoid tax is not a solution unless it is essential or can save money ( which of course will lead to higher profit and thus tax).
If you want to lower the overdraft then reducing drawings is the way to go, reducing capital expenditure will also do it although will result in a higher tax bill but only for one year.
One way of looking at this is to look at why Woolworths went bust, a business that had been trading for a very long time and making "profits" was dragged down because it couldnt cover its borrowings due to among other reasons dividends being paid out that the business couldnt afford, in your case drawings are the same as the dividends.

I agree with this approach. Budgets and cash flows must include realistic figures for drawings which include personal tax payments. If drawings are too great borrowings will increase year on year even though a profit is being made, this isn’t sustainable. I hope this isn’t the case for the OP, hard working people shouldn’t be put in this position by a previous generation.

 

[Al R]

As tenant your rent is tax deductible so you have that " advantage " over an owner occupier, but of course it's not an advantage as your paying the landlord instead of the government.
If your problem is the size of your overdraft at times of the year then buying plant or machines to avoid tax is the exactly the wrong way to reduce it.
I'm not trying to insult you or your understanding of how the tax system works but if you spend 100,000 of kit you arent saving 100, 000 grand of tax, depending on how the business is set up it could be 0, 19, 20, 40, or 45 of that( plus some NI saving)and as you are running an overdraft you are going to have to borrow the rest which at some point you are going to have to pay back out of profits which you will have to pay tax on, thus possibly increasing cash flow problems.
Buying kit to avoid tax is not a solution unless it is essential or can save money ( which of course will lead to higher profit and thus tax).
If you want to lower the overdraft then reducing drawings is the way to go, reducing capital expenditure will also do it although will result in a higher tax bill but only for one year.
One way of looking at this is to look at why Woolworths went bust, a business that had been trading for a very long time and making "profits" was dragged down because it couldnt cover its borrowings due to among other reasons dividends being paid out that the business couldnt afford, in your case drawings are the same as the dividends.

No OD here, always a balance though to get it right regarding surplus funds through quiet cash flow periods

 

[Steevo]

From what I've read in this and other threads I think the general grasp of accounting and tax among many is very poor, I feel everyone involved in the business should understand the difference between farm profit and loss accounts and tax returns and why they differ, of course accountants dont want that as you could do without them.
Imvho accountants should be used for long term financial and succession planning, business people should have knowledge of profit and loss, there might be less people then saying I'm paying lots of tax but have a huge overdraft

Excellent post!

 

[upnortheast]

As I understand it private drawings are after tax has been applied......

The figure at the bottom of your P & L account is before
Drawings
Tax
Capital Expenditure. - that includes repayment of loans from previous years Cap Exp

Simple example
4 partners drawing £15 k each
tax £5k
Loan/ mortgage repayment £45k (interest will be in the P & L account )
So in that example the P & L profit needs to be north of £100k for the business to have a better Net Worth at the end of the year

 

[Bongodog]

1500acres of which 350 conventional arable the rest rough grazing or hill ground which is organic, which is in a scheme for reduced stocking rates, that ends this year tho also contracting, no employees. A balls up by a realation a few years ago meant we had to borrow alot of money to sort a "trust" out which has led to our large overdraft which is a problem ! At the time it was the only way of sorting it out as we had to find alot of money quickly ! Personal drawings by the other partners were in the past probably more than they should be, I didn't take much of a wage just enough to pay my household bills as my wife had a very well paid job, which she lost because of COVID we are the prime example of asset rich cash poor farmers

Firstly if the partnership is paying the tax you state, it is earning a fair amount of cash. If you and your brother are drawing very little out of the business, your parents surely are. it appears that you are financing your parents lifestyle big time probably under that old handle of "one day it will all be yours" You don't need a new accountant, what you need is new parents !!! I knew of one such set up locally, two sons both in their 50's working long hours for little, parents meanwhile were usually on a cruise ship somewhere in the World.

 

[David.]

Well of course, the parents might have earned the right.
But I take your point.

 

[Renaultman]

This was my fear re the bounce back loan, ideally I would have liked to start paying it back from day 1 as have had the tax advantage of the purchases I made with it and now having to repay. Granted I could repay more quickly but it's reasonably cheap money. Trying to get from a period of investment to a period of debt reduction and know I'm going to have to accept some hefty tax bills

Edit.
It's looking like cheaper money every day

 

[icanshootwell]

Tell the old gits to retire

Anything like my parents, they couldn't afford to retire.

 

[Renaultman]

Anything like my parents, they couldn't afford to retire.

This thread is scaring me. I feel more like the OP's parents than the OP still working and work closely with my son. Certainly not ready to retire yet (58) either physically mentally or financially, but am acutely aware of some of the comments made on here.