Managing the Future, Not Explaining the Past

Year-end accounts and tax returns are primarily a compliance requirement. While they provide a useful review of the year, they do not enable in-year decisions to be made or provide up-to-date information that can be used effectively.

We all know that accounts are usually at the bottom of the ‘to-do’ list. They are something that no one particularly wants to do. However, it is becoming increasingly important that time is spent reviewing the figures and that the information they provide is actually used.

Accounts are often prepared several months after the year end, with the tax return deadline for a sole trader or partnership generally being 31 January following the end of the tax year. By then, much of the information is out of date. One of the most important things we suggest is having management accounts prepared after nine months.

This provides a much more up-to-date picture of how the year is progressing and enables more accurate estimates for the final three months. It also allows you to review stock values and other key figures, giving a much clearer indication of the likely full-year profit and, therefore, the potential tax position.

With many businesses now recording their bookkeeping electronically, and with Making Tax Digital for Income Tax (MTD for Income Tax) being introduced, it is becoming easier to prepare, meaningful management information during the year. The bookkeeping software being used should be able to provide timely figures needed to carry out this review.

As accountants, we always prepare a mini set of accounts as part of this process, with particular importance placed on the stock valuation at year end. This can include considering expected sales and purchases during the final three months of the year. With livestock values having increased significantly over the past couple of years, farm profits have also increased significantly in many cases, and this is very important to be as accurate as possible when looking at stock.

I find the management accounts meeting to be one of the most important meetings of the year. By looking at the figures during the year, a plan can be made to manage the tax position where appropriate. This could include asset purchases, such plant and machinery.

However, there are important rules to consider. For example, where an asset is purchased under a hire purchase agreement, the capital allowances treatment depends on the terms of the agreement and when the asset is brought into use. It is therefore important to discuss planned purchases with your accountant before making them.

It is also important to be aware that the tax treatment of double-cab pickups changed from April 2025. For Income Tax purposes, most double-cab pickups are now treated as cars for capital allowances purposes, although transitional arrangements may apply to certain purchases made under contracts entered into before the change.

Pensions can also be an effective way of managing your tax position, particularly where you are paying higher-rate Income Tax. The higher-rate threshold is currently £50,270 for taxpayers with the standard Personal Allowance, although the amount of tax actually payable depends on your individual circumstances and other sources of income.

For personal pension contributions made under a relief-at-source scheme, the pension provider normally adds basic-rate tax relief of 20%. Where you are paying higher-rate tax, you may also be able to claim additional relief through your Self-Assessment tax return.

For example, an £8,000 personal pension contribution would normally become £10,000 in the pension after the pension provider claims £2,000 of basic-rate tax relief. The amount of additional tax relief available depends on how much of your income is actually subject to higher-rate tax, so the saving should be calculated based on your individual circumstances rather than using a fixed figure.

When it comes to taking pension benefits, the normal minimum pension age is currently 55 but is due to increase to 57 from 6 April 2028, subject to certain protections. Usually, up to 25% of a pension can be taken tax-free, with the remainder generally subject to Income Tax when withdrawn. Careful planning can therefore help manage the tax position when pension benefits are eventually taken.

Management accounts also provide an important in-year picture of how the business is performing. They allow you to see whether the current business model is working and, more importantly, give you time to make changes where necessary.

A lot of farmers have traditionally ‘done it the way it has always been done’. However, with the loss of BPS and other subsidies, it is becoming increasingly important to review the figures and consider whether the current way of working will remain sustainable going forward.

I would encourage all farmers to speak to their accountant about having management accounts prepared during the year. Having accurate, up-to-date information can help you make better business decisions, manage your tax position and plan for the future.

Kate Moss, FCCA, MAAT

About the Author

Kate Moss FCCA MAAT is Director of BK Accounts Ltd and works with farming and rural businesses across Derbyshire, Staffordshire and surrounding counties