cowshed

Thinking of going contract milking next season?

Feb 22, 2022 / 2 minute read
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Getting it right and doing your homework at the start is crucial. If you’ve been given an opportunity with your current employer or been offered a contract milking position elsewhere and unsure where to start, below are a few key areas to start to consider.

A contract milker is a self-employed dairy farmer managing the farm and is paid a set amount of the milk income and required to cover a set number of expenses. 


What do you need to think about?

Contract negotiation

  • How is the income calculated? Is this a fixed dollar amount per kgMS or is a percentage received directly from the milk supplier or a combination of the two?
  • When will I receive income?
  • Based on the cashflow cycle, will I need an overdraft facility?
  • Is there any other income that is able to be derived such as an allowance for calf rearing?
  • How many employees will I need and what do I need to pay them?
  • What other costs do I need to cover? Standard costs include farm power, dairy shed consumables, insurance, ACC etc. Refer here for a link to our annual farm statistical data.
  • What assets do I need to provide? Do I need to outlay capital to purchase these assets?

Cashflow budget

The preparation of these is crucial to managing your cashflow and overdraft facilities, particularly in the first year.

These will also give you an indication of what your profit would be before you sign up.

Taxation obligations

If you are currently on a wage, your employer will be deducting PAYE (income tax) before you are paid which generally results in little amounts of tax due at year-end. When you move to be self-employed the payment of income tax becomes your personal responsibility. Depending on your personal circumstances there may be no income tax due in the first year but two years due in year two. It is important that you discuss your obligations with your accountant and this is factored into your cashflow budget.

What is GST

  • GST is a tax added to most goods and services provided. This is charged at a rate of 15%.
  • If you carry out a taxable activity and your turnover was at least $60,000 in the last 12 months, or you expect it will be at least $60,000 in the next 12 months, you will need to become GST registered. You also have the option to voluntary register if your income is below this threshold.
  • GST will need to be paid on milk and other farm income to Inland Revenue and subsequently GST can be claimed on most of the expenses you pay (excluding wages and bank financing costs particularly).

Ownership structure, common types

  • Sole trader
  • Partnership
  • Company – most common
  • Trust – least common under this business opportunity

Software training

We recommend that you utilise accounting software to assist with the preparation and reporting of a cashflow budget, coding of bank transactions and filing of GST returns with Inland Revenue.

We will suggest which option is best for your business.

Business training 101 (GST, payroll etc)

As part of starting out in business, we will train and guide you through how to financially run a business and to manage Inland Revenue’s compliance obligations.

Lastly, relationships

  • What do you know and not know about your new business partners?
  • Do their values align with your values?
  • How has their communication been to date? Are they someone that you believe you can work with?
  • Speak to references

We'd love the opportunity to assist you through this transition. Get in touch today.

Sarah

Sarah Hopkins

Associate

Sarah believes that you often need much more than a filed tax return and a set of financial statements from your accountant. She will work with you to turn the numbers into meaningful information, provide support with your taxation obligations and always lends a friendly ear when you want to have a chat about your business activities.