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Handy hints: 8 key accounting tips for farmers

Farming is a tough business that is at the mercy of everything from the weather to the price of the pound.

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It’s tied by regulations, reliant on subsidy and buffeted by price wars on the high street.


For these reasons, there has never been a more important time for farmers to have a thorough understanding of their accounts.


To help, here are eight tips from Champion Accountants that can help you keep your accounts in order...


1. Watch for changes in subsidies


Many farms rely on subsidies to keep their businesses financially viable, so it is important that you have a good understanding of what subsidies are available and how these are likely to change in the future, especially after Brexit.


If subsidies are essential, it is worth investing in ways to make your farm more adaptable so that you have the agility to switch to different forms of production if necessary. If you are in receipt of subsidies, remember to keep a record of them in your accounts.

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2. Check fluctuations in land value


The land you farm is your most important asset and, in many cases, the most valuable. If it is well looked after, it should remain productive and may appreciate in value. However, you should always be aware of the current value of your land.


Land value can change for many reasons: environmental changes, changes to governmental farming policy, changes to green belt building regulations, tourism and fluctuations in the value of neighbouring land. Discoveries of mineral deposits and natural resources can also affect value.


3. Record land usage change


If you decide to change the way you use your land, it is important that you make accurate records.


Most farming uses land for crop growing or for livestock, however, some farmers will find alternative uses for parts of their land, such as for carbon capture, camping sites or for the creation of natural habitats.


When you change the way land is used, its value as an asset may change and this needs to be reflected in your accounting.


At the same time, you need to keep a record of all costs involved in the change of use as well as any income which may be generated, for example, if you clear a forest area to create pasture and sell the timber, this needs accounting for.

4. Know the difference between biological assets and inventory


Biological assets and inventory are accounted for differently, so it important that you know the difference.


Biological assets are, essentially, living things, these include animals such as sheep, pigs, cattle, poultry and fish, and plant life such as, forest trees, plants from which things are harvested (e.g. fruit trees) and plants which are harvested themselves (e.g. vegetables).


Inventory, on the other hand, is the produce or harvest from a biological asset, for example, milk, timber and harvested vegetables.


In the case of animals, the animal itself becomes inventory when it is put up for sale. A pig, for example, is an asset whilst being reared but once it is ready for market, it becomes inventory.


For accountancy purposes, when biological assets are transferred to inventory, they do so at fair value less cost.

5. Get to grips with asset depreciation


The value of a farm’s assets can affect its tax bill, so it is important that you understand how to
calculate this correctly.


One factor that many farmers need to think about is depreciation. As assets
get older they lose value and this drop in value needs to be accounted for.


It’s also important that depreciation is calculated correctly so that the value of depreciated assets is accurate.


One of the difficulties for farms is that they tend to have a lot of assets and sometimes it can be hard
to keep track of them all, so it is important to keep records and undertake audits.


These should include every piece of farm machinery, vehicles, tools, IT and other equipment.


Biological assets also depreciate, chickens kept for egg laying will lose their value as they get older,
for example. This form of depreciation needs recording too.


6. Don’t pay twice for losses


Farming can be a risky business and at times farmers suffer heavy losses.


Over recent years we have seen flooding and drought take its toll on arable and dairy farming, while diseases such as bovine tuberculosis and bird flu have led to the necessary slaughter of livestock.


While insurance can offer some relief, it is crucial that farmers record all their losses when doing
their accounts. Doing this ensures that you cannot be taxed for a lost asset or for inventory you
could not sell.


7. Keep track of your costs


Farmers spend substantial sums of money on a very wide range of things and, for accounting
purposes, it is important that you keep records of everything you spend.


This includes utilities, fuel, parts, repairs, animal feed, veterinary expenses, seeds, fertiliser, IT, marketing, transport, market fees, maintenance, irrigation and drainage, etc.


Keeping an accurate record can reduce the amount of tax you have to pay.


8. Use a specialist agricultural accountant


Farming is one of the most challenging businesses to run. It has long days, hard work and few


Seldom is there the time to do all the bookkeeping and stay on top of all the other
accounting obligations.


What’s more, it’s financially more challenging today than it has ever been.


To take away the burden of paperwork, help you with the complicated accounts and get expert
financial advice, the best solution is to seek the advice of a specialist agricultural accountancy firm,
like Champion Accountants, who have years of experience helping farmers.

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