MHA | Payments brought forward to help farmers but watch the…

Payments brought forward to help farmers but watch the accounting treatment

Sarah Dodds · Posted on: May 6th 2022 · read

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In a surprise announcement on 6th May the government has confirmed that in order to help farmers with cashflow problems, the basic payments (and subsequent delinked payments) would be paid in two instalments for the remainder of the transitional period up to 2027.

It is clear that despite increases in the values of crops and livestock, the sharp increase in the cost of inputs – particularly fertiliser, the production of which is closely linked to energy prices – some help is needed to iron out the short-term working capital requirements.

In the words of George Eustice:

We have decided to bring forward half of this year’s BPS payment as an advance injection of cash to farm businesses from the end of this July. It will give farmers some additional cashflow earlier in order to provide some confidence. We will also make this a permanent change to the way we pay BPS in future with twice yearly instalments going forward.

The RPA has also specifically confirmed that “It’s a permanent change to bring Direct Payments in line with what will be a more regular payment system under the new environment land management schemes”

From an accounting viewpoint some care will need to be taken over the point at which this receipt is recognised. Since the money is paid for compliance with scheme conditions which will not be satisfied until the end of the calendar year, those businesses with years ending between July and December will need to consider carefully the scheme conditions and wording of Financial Reporting Standard 102/105

Government grants, including non-monetary grants shall not be recognised until there is reasonable assurance that:

  1. the entity will comply with the conditions attaching to them; and
  2. the grants will be received.”

The question of whether condition (a) can be satisfied by July may be a matter of professional judgement. The standard further goes on to differentiate between grants which are purely “income support” and those which will involve continuing expense.

According to MHA agriculture partner, Sarah Dodds:

“The announcement is welcome, and it will help many who were worried about cashflow pressures in the difficult period leading up to harvest. The acceleration of the payment will need to be considered carefully from an accounting perspective though, if there is to be a case for treating it on a consistent basis with previous years.

Find out more

To discuss how this might impact your rural business, please complete our online enquiry form and a member of the team will be in touch. 

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