There seems to be a fairly positive mood among farmers at the moment. I was at an event recently and most farmers were talking about the good summer and the decent prices for cattle.

I don’t like to be negative, but it was not a great summer in this part of the world. There was good grass growth but there were also some very difficult times. We had a couple of weeks of very poor weather in the middle of July and then another couple of weeks of poor weather at the beginning of September.

Silage was a bit of a snatch and grab. If you were ready to cut, you had to hope that the contractor was available. On the whole, though, it has been a reasonable year.

Exceptional

However, when it comes to the price of cattle, we are in exceptional times. This time last year I doubt many people could have foreseen where prices would go.

Having said that I do wonder if we are any better off.

I was recently talking to a farmer friend about this. He buys about 120 stores every year and finishes them as beef.

Last year they were costing him £1,000 each and he was getting approximately £2,000 each when he sold them. This year he is paying £2,000 per head for the same cattle and getting £3,000 each for those being sold.

So, in other words, he has the same total margin on his 120 cattle.

We chatted a bit further and soon came to the realisation that he was in fact a lot worse off.

For income tax purposes his cattle are now valued at £1,000 per head more than last year. This is a £120,000 increase in valuation. So as far as tax authorities are concerned, he has an extra paper profit of £120,000. Depending on tax brackets, there will be in the region of £40,000 extra income tax to be paid just on the back of increased stock values.

I find this tax system completely appalling. This farmer has had to borrow an extra £120,000 to stock his farm and has made roughly the same amount of money, but he is going to have to find another £40,000 to pay income tax. In all likelihood he will have to borrow the extra money to pay the tax bill.

This is such an unfair system and it is amazing how few farmers actually realise the situation they are in. I fear a lot of farmers are in for a nasty shock when they next visit their accountant or fill in their tax returns.

Perhaps I’m wrong, but the way I see it there is very little that you can do to mitigate against this. There may be a small bit of tinkering around the edges, but the problem is a serious one.

Tractor

While we were talking about this there was another farmer sitting close by and he said that one answer is to go out and buy a new tractor.

While this may reduce the tax implications it is definitely not a solution, especially when it involves spending cash you don’t have. Instead of paying tax you are going to buy a new tractor that you probably don’t need. In my opinion you are just digging a bigger hole for yourself to fall into.

Caught out

Sadly, it is not only farmers buying store cattle that will be caught out by the tax system. Every one of us who own livestock will now find out animals are a lot more valuable and we are all going to have to deal with the tax implications of this.

For example, I currently have a lovely pen of bulls that are almost finished and I am really looking forward to getting a decent price for them. My bulls are all home reared, so I do not have to buy replacements.

But the really sad thing is that I am actually no better off – the cash I make will be passed on to tax authorities to cover the increased value of my livestock.

Given how keen government are to get more tax off ordinary people, I do not anticipate any tax changes for the better, any time soon. I suppose we are going to have to smile and pay the extra income tax.