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Farm Accounting – Everything you need to know

Farm Accounting – Everything you need to know

Running a farm brings many challenges, from government regulations and succession planning to changes in the weather, there are many factors outside of a farmer’s control which can have a dramatic effect on business.

Accounting for a farming business can be complicated, therefore, to effectively manage both the finances and operations we suggest you implement a plan. Bethany Thomas, an Accountant at Whittingham Riddell Chartered Accountants, has highlighted some key considerations:-

1.     Choosing a suitable year end 

The timing of farming operations, such a calving, lambing or harvesting crops often doesn't fall in line with the government’s key dates.

The optimum year end dates will allow your harvest to straddle two accounting years, this is preferable from a tax perspective, rather than changing your year end to match your crops. For this reason, it is vital to keep track of costs which may happen within the current accounting year but are a part of growing crops for the future harvest. 

2.    Valuing your stock at year end allows you to maximise on tax initiatives

We suggest valuing any stock and incorporating this into your accounts as an asset at your year end; animals will have a value per head, which can often be deducted from market values, from the cost of purchase or any rearing costs. Unconsumed produce can additionally be valued at cost, crops at market value and growing crops in the ground can be valued based on the seeds, sprays and fertilisers. This includes any labour that has gone into the production. 

3.   Plan purchases to maximise tax planning opportunities

Tax relief is available for farming businesses on the purchase of new equipment in the form of capital allowances. For qualifying purchases, an annual investment allowance of £200,000 is available for instant tax relief each year, and we suggest planning purchases to maximise tax opportunities.

Please consult with your accountant or tax advisor on the allowances available before making purchases.

4.    Forecast and budget for the future

Investing in accounting software with functions to prepare forecasts and budgets will allow you to plan for the future, monitor cash flow, view variances and trends over weeks, months or years and make predictions based on these trends.

5.    Account for loss

Due to the variable factors in the farming industry outside of a farmer’s control, it is inevitable that some years will be harder than others and profitability may not always be sustainable. When losses are incurred, be sure to record them and get advice on and possible tax benefits available to help.

6.    Move your accounts to the Cloud and gain further flexibility and insight

With the introduction of the government’s 'Making Tax Digital' plans, quarterly reporting and the digitalisation of accounting records will become mandatory for many VAT registered businesses above the £85,000 threshold. We suspect digitalisation will continue to trend so to prepare for future development we are advising clients to move onto a cloud-based accounting software.

Alongside ensuring compliance with HMRC's digitalisation plans, cloud accounting has many advantages; from improved processing, memory functions and instant reporting.

7.    Plan for the future

Nobody wants to have to think about a future without a family member or after them, but a strong succession plan for the future is an important task. We advise seeking advice from a professional with regards to inheritance tax planning and making small structural changes now to ensure that your tax bill is minimised and your assets are protected.

For further information or guidance on any of the points raised in this article, please contact Bethany on 01743 273273 or email marketing@wrllp.co.uk

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