Whilst the Agricultural sector has been fortunate in that it hasn’t yet seen the same degree of impact from the COVID-19 virus as commercial and retail businesses, it is evident that all parts of our economy will be affected, including the farming sector. With limited processing capacity and cancelled on farm livestock sales now a reality, further longer reaching impacts are a real threat to medium term commodity prices. One element that is certain is that our economic recovery will be reliant on the success of the Agricultural sector in paving the way forward. We want to ensure that we support you through this and that you and your business continue to be set up for success.
There is a lot of information being circulated about COVID-19.We highlight below some of the current relief packages being provided by the New Zealand Government and provide comment to assist you in considering their appropriateness for farming businesses.
There is currently much debate and little clarity on the ability of farming businesses to utilise the current COVID -19 wage subsidy being provided by the New Zealand Government.
We summarise below thoughts on some of the key issues.
Firstly, it is paramount to understand this subsidy has been established to help keep staff employed whilst businesses consider changes that may need to be undertaken during this pandemic, and to ensure the future viability of their businesses.
There is detailed information on our website relating to the wage subsidy with associated FAQs.
Some of the key points of note being:
- The business must have experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared with the same month last year (between the months of January and June 2020), and that the decline is related to COVID-19.
- Your business must have taken active steps to mitigate the impact of COVID-19.
- You must retain employees and pay them a minimum of 80% of their normal income for the subsidised period.
All employers, contractors, sole traders, self-employed people, registered charities and incorporated societies are able to apply.
The subsidy is being administered under a high trust model and employers may not be asked for verification before the subsidy is approved. However, MSD will have the ability to check applications and verify information at a later date. Where false or misleading information has been provided, employers can be subject to investigation. Once registered you or your business will also be listed on a public register.
A common point of discussion is where farmers are not able to get stock away to the freezing works or sale yards, combined with the drop in schedule prices. In this instance, if the number of animals you have not got away has created a greater than 30% drop in your revenue for any month between January and 9 June 2020 (not necessarily calendar month) compared to the same month last year, then you potentially are justified in your application. Keep in mind revenue includes revenue from all sources for your business. You should easily be able to establish this by looking at your actual cashflow compared to last year or updated cashflow forecast compared to last year
In deciding on whether to make the application, bear in mind the test is an actual drop in revenue or a predicted drop in revenue. You may predict a drop in revenue because you already know that you cannot get space at the freezing works, or cannot access sale yards, or cannot conduct your on farm stock sale etc.
If your circumstances fit the eligibility criteria for the subsidy it is important that you evidence your justification of “predicted” revenue drops with key supporting items such as:
- Revised budgets showing the implications versus the original forecast.
- Supporting information from stock agents or processors validating numbers of stock that you have been unable to sell and will reasonably expected to have sold.
- Any other key pieces of information that would further support your application.
In order to qualify your business must have taken active steps to mitigate the effects of COVID-19. This includes:
- Drawing from your cash reserves (as appropriate). You wouldn’t however want to compromise your working capital facilities ability to meet your seasonal requirements.
- Proactively engaging with you bank.
- Seek advice and support from your accountant, relevant industry associations and/or regional business partners etc.
We suggest that you record the steps that you undertake to further support your application if audited in the future.
There is currently a lack of clarity in the context for how farming businesses should consider the definitions of this subsidy and how these correlate with events that occur in a farming business, such as when you have had to defer the sale of stock due to lack of killing space meaning you still have stock on hand for sale in the future.
In determining actual or predicted revenue for the purpose of the wage subsidy for farming businesses our view is that you should include the receipt of money and invoices issued, but not the value of stock on hand.
- Some of this information will be difficult to determine i.e. is the drop in schedule price due to COVID-19 related matters or is it a factor of drought. Whatever position you take on this you need to ensure that you can support your thinking. You should also note that an application for the Equalisation Scheme will not change revenue for the purposes of claiming the wage subsidy.
The definition indicates that the prediction should be based on known events at the time of the prediction such as drops in bookings, cancelled orders for commercial businesses or cancelled stock sales for farming.
A good example of this is a business that would normally have an on farm stock sale but due to COVID-19 related matters they have had to cancel the sale. This could impact on the number of animals sold, the prices achieved and thus a reduction in revenue.
It is also worth highlighting that the subsidy does not give provision for the additional costs incurred i.e. additional feed costs due to having more stock on hand than planned. For dairy farmers it is unlikely they will qualify for the wage subsidy as the income from milk makes up a far greater percentage of their income than income from stock sales.
Where you have relied on predictions for your application but actual revenue drops of 30% in revenue do not eventuate , then you should hold these funds back for future repayment to Work & Income. Visit the Government wage subsidy webpage for more information and the application form.
Business Finance Guarantee Loan Scheme
The Business Finance Guarantee Loan Scheme is an initiative instigated by Government to assist small and medium sized to protect jobs and support the economy. The Crown will support new loans by approved banks to eligible businesses affected by Covid- 19.
Unfortunately, these loans are not able to fund anyone engaged in Agriculture (this does not include horticulture, viticulture, aquaculture, or services to agriculture).
For further information relating to this scheme please click on the links below:
Essential Workers Subsidy
This subsidy is intended to support essential businesses to pay their employees who can’t work due to:
- Being unable to come into work because Ministry of Health guidelines recommend they stay at home and;
- They can’t work from home.
An example of this could be a worker who is deemed at higher risk if they were to contract COVID-19 and is required to remain in isolation to reduce the risk to themselves and so cannot work.
Determine if you are an essential service and the associated Ministry of Health guidelines for this subsidy.
You must also:
- Not be able to financially support your employee due to the COVID-19 public health restrictions e.g. the cost of paying for your employees leave and paying for replacement staff is significant.
- Have had a conversation with your employee about how you can best support them at this time e.g. they may choose to use any sick or discretionary leave. You can apply for the Leave Support subsidy to top it up.
The payment rates are the same as the wage subsidy.
If you are already getting the wage subsidy for a specific employee, you cannot get this subsidy as well.
As per other subsidies associated with COVID-19 there is a large element of trust in your application process. These applications could well be audited at a future point in time, thus you need to have read and complied with the declaration and acted in good faith.
Relief from Payment of Taxes
Whilst we are working from home, we remain open and want to assist you, just like we would normally.
If you require any assistance with the composition of cashflow forecasts, revising the current plan of approach to navigate through the next period, a discussion on your interest rate risk management plan and generally ensuring that your business is in the best position it could be to deal with uncertainty around debt and commodity markets please get in touch.
Also, paramount to us is your own personal wellbeing. With uncertainty there is often another layer of anxiety. If at any stage you are feeling undue pressure and anxiety, please reach out to a trusted source. This could be a neighbour, us or your local Rural Support Trust. We all want to ensure you are supported. In a similar context make sure you check in over the fence and that you keep an eye on the wellbeing of your neighbours and local community.
Please discuss any of the above options with your BDO adviser prior to implementation, as they all have implications.
For your information we provide other key links below that may be useful in assisting you navigate through the issues you may face as a result of being affected by the Covid-19 pandemic: