Cost Of Machinery

The cost of machinery is widely considered to be one of the most expensive categories of farm overheads and farmers should be under no illusion that the purchase of any new (or used) item of machinery must always be carefully considered. The temptation is often to be blinded by shiny new equipment and be convinced that its purchase is a 'necessity' when in fact it is not always the case by any means.

The benefits of new machinery can sometimes be difficult to measure. A new parlour, for instance, may have a quicker throughput, may allow for herd expansion and may be more pleasant for its operators to use, yet a new tractor may not be significantly more efficient than a current one, and its purchase may be on terms of perceived (and not proven) reliability, the prestige of owning the latest technology, or simply to encourage the retention of a valued staff member.

Capital allowances for new machinery are also an essential consideration, and the timings of new purchases are important as claiming those capital allowances can help to reduce tax bills.

Furthermore, other means of acquiring the use of new machinery without having to purchase it outright exist. Options such as Hire Purchase and leasing may be attractive, but each has different tax implications and definitions of which party is responsible for maintenance and which party eventually retains ownership of the asset. Spreading the cost of machinery over a period of time, however, may help to make the management of cash flow easier.

Running costs are another area where expenses are not always well-accounted for. Servicing, maintenance, repairs, fuel and insurance costs when carefully analysed will constitute a significant proportion of a farm's overhead costs.

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