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Eight ways to make your farm’s year-end accounts easier

| | Mark Chatterton | 29 January 2024

As many farm businesses prepare to submit their year-end accounts, doing the groundwork now can help prevent some of the mistakes commonly flagged up by accountants after farm accounts are submitted.

From missing paper trails to backup entries to using incorrect codes for purchases, there are several pitfalls to consider.

Having information documented is always useful so that you have it to hand if you are challenged on it when memories might be less clear. A bit of time and effort ahead of the 31 March year-end will prevent businesses from falling into that trap. Farm accounts drive the final tax calculations. They must be accurate and, above all, evidenced and based on fact.

Some of the ways in which farmers can get ahead include:

Reviewing account code transactions

Most farm accounts packages are now digital and give the opportunity to deal with income and expenditure as they happen.

Over time, however, perhaps several months from when transactions were accounted for, the descriptions used might be less than clear. Reviewing the codes used and making sure they are consistent will save both time and cost when the accounts are submitted, as queries from the farm accountant will be minimised.

Compile an accurate list of debtors and creditors

Check this list against your software reports. If you spot differences then you will be able to alter your original inputting before the data goes to your accountant. This list is a frequent request from accountants, so anticipating it and ensuring consistency will make more efficient use of your accountant’s time.

Accuracy of stock valuation quantities

Over or under-estimating crops and livestock can lead to cashflow issues in the future. Provide accurate calculations for the areas of growing crops or numbers of livestock by age category, as over or under-estimating crops and livestock can lead to cashflow issues further down the line.

Double counting is also a risk. For instance, when crops are moved off the farm around the year-end date, this could mean they are included in both the closing stock-take and in the debtors when receipts are reviewed after the year-end.

In contrast, a crop could be missed out entirely, if it has already moved off the farm and is neither in closing stock nor picked up as a debtor.

Reviewing receipts after the year-end is therefore important. Focus on quantities at this point, as stock values can be assessed later.

Gather documented evidence for unusual or one-off receipts and payments

Land sales or compensation payments don’t always come with a receipt. Quite often, money comes in and out of the account but not everything has an invoice. Aim to provide your accountant with documentary evidence, i.e. a solicitor’s letter, when there is no receipt forthcoming.

Distinguish between new or repair

Help your accountant by identifying whether expenditure was for new items or a repair, in the case of fencing for example, as these are treated differently for tax purposes.

Get depreciation values right

Provide insurance values for large machinery items as this will help your accountant with the depreciation policy - many tractors and other equipment are currently holding their value as supply issues persist. For example, a 15% reducing balance may have been used but a rate of 5% may now be more accurate.

If it’s the case that machinery is holding its value there can be a lower depreciation charge in that year’s accounts.

Provide copies of new bank loans or hire purchase agreements

Many farming businesses have a mix of loans, working overdrafts or hire purchase arrangements. Gather all the paperwork associated with these to allow for accurate entries of interest and repayments.

Provide evidence to support private proportion adjustments

The main areas of focus here are generally vehicle and farmhouse costs:

  • If possible provide a split of business and private mileage for the year.
  • Make it clear in your records which property each expense relates to.
  • Flag any changes to your use of the farmhouse or other properties over the last year to help your accountant justify the percentage used - the costs of running the farmhouse are a grey area and interpretation varies on the correct percentage to allocate to council tax, electricity, heating oil, and other expenses for business tax relief.

HMRC’s instructions at BIM 47820 and BIM 55250 provide useful checklists of fixed and running costs of a farmhouse that may be claimed if it is established that the farming business is being run from the farmhouse.

If you require any advice or guidance, then please contact our team for assistance.


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