Farming is not like other businesses. The tax rules that apply to a plumber in Birmingham or a software consultant in Manchester do not always fit a mixed arable and livestock farm in Norfolk. That is why you need an agriculture accountant who understands the sector.
An agriculture accountant is a specialist UK accountant who works with farmers, landowners, growers, and rural businesses. They handle the specific tax treatments that apply to agriculture: the herd basis for livestock, averaging relief for fluctuating profits, VAT on agricultural supplies, and the complex rules around subsidies and grants. They also deal with inheritance tax reliefs that can mean the difference between a family farm staying intact and being broken up to pay a tax bill.
At Holloway Davies, our ICAEW qualified team works with agricultural businesses across the country. We see the same questions every season. This article answers them directly.
Why Farming Needs a Specialist Accountant
Farming profits bounce around. A good harvest one year, a drought the next. A disease outbreak can wipe out a livestock enterprise overnight. The tax system recognises this volatility and gives farmers tools that other businesses cannot use.
Averaging relief is one example. If you are a sole trader or partnership farmer, you can average your trading profits over two or five years. This smooths out the tax bill. In a bumper year you pay less tax because it is averaged with a lean year. The opposite applies too, but the net effect is usually beneficial. An agriculture accountant knows exactly when to claim averaging and when to opt out (yes, sometimes it works against you).
Herd basis is another. Most farmers treat production livestock as trading stock. But if you elect for the herd basis, you treat the breeding herd as a capital asset. This means you do not tax the sale of cull cows as trading income. You also do not get relief for the initial cost of the herd. It is an election you make once, and it sticks. Get it wrong and you lose thousands. Get it right and your tax position aligns with your business reality.
An agriculture accountant also deals with capital allowances on farm buildings and machinery. The Annual Investment Allowance (AIA) of £1,000,000 covers most plant and machinery. But grain silos, milking parlours, and slurry stores have specific treatments. Structures and Buildings Allowance gives 3% per year on new farm buildings. Your accountant needs to know which costs qualify and which do not.
VAT for Farmers: The Flat Rate Scheme and More
VAT in agriculture is not straightforward. Many farmers use the Flat Rate Scheme, which lets them charge a lower rate of VAT on sales and keep the difference between what they charge and what they pay. The flat rate for agriculture is currently 6.5% (subject to change).
But the Flat Rate Scheme is not always the best option. If you sell most of your produce to VAT-registered businesses (like supermarkets or processors), you might be better off on standard VAT accounting. That way you can reclaim VAT on your inputs: feed, fertiliser, fuel, machinery repairs, and vet bills. An agriculture accountant runs the numbers both ways. They look at your specific cost structure and customer base.
There is also the Agricultural Flat Rate Additive. Farmers on the flat rate can issue a VAT invoice to a VAT-registered customer showing the additive (the notional VAT). The customer reclaims it. This keeps the supply chain moving without the farmer needing to register for standard VAT. But the rules are precise. Get the paperwork wrong and HMRC can deny the reclaim.
If your turnover crosses the VAT threshold (currently £90,000 in a rolling 12 months), you must register. An agriculture accountant helps you choose the right scheme and handles the VAT registration with HMRC.
Subsidies, Grants, and the Basic Payment Scheme
Agricultural subsidies are a major part of farm income. The Basic Payment Scheme (BPS) is being phased out and replaced by the Environmental Land Management (ELM) schemes. Each has different tax treatments.
BPS payments are generally taxable as trading income in the year of receipt. But there are rules about when you recognise the income. If you are on accrual accounting, you might recognise it when the entitlement arises, not when the cash arrives. Cash basis farmers recognise it when the money hits the bank. An agriculture accountant ensures you treat subsidies consistently and correctly.
ELM payments (Sustainable Farming Incentive, Countryside Stewardship, Landscape Recovery) can be treated differently depending on what you do to earn them. Some payments are compensation for lost income (taxable as trading receipts). Others are capital grants for environmental works (potentially taxable as capital receipts, with different reliefs). The distinction matters. Your accountant needs to see the grant agreement and structure the tax treatment accordingly.
There are also woodland grants, diversification grants, and renewable energy subsidies (like the Renewable Heat Incentive). Each has its own tax rules. An agriculture accountant pulls all of this together into a single tax return that HMRC will not challenge.
Succession Planning and Inheritance Tax
This is where an agriculture accountant earns their fee many times over. Agricultural Property Relief (APR) and Business Property Relief (BPR) can reduce the inheritance tax bill on a farm to zero. But the rules are strict.
APR gives 100% relief on the agricultural value of land and buildings. But the land must have been occupied for agricultural purposes for at least two years (if owned and occupied by the farmer) or seven years (if let). The definition of agricultural value is specific. It is the value of the land for farming, not its hope value for development. If your farm has development potential, the agricultural value and market value diverge. An agriculture accountant works with a rural surveyor to split the values correctly.
BPR covers the business assets: machinery, livestock, milk quotas, and the business element of the farm. It requires the farm to be a trading business, not an investment. If you have let land, you need to check whether it qualifies as a business or just an investment. HMRC challenges this regularly.
Succession planning also involves gifting shares in a farming company or partnership interests to the next generation. An agriculture accountant structures the gifts to avoid immediate capital gains tax (using hold-over relief) while preserving the inheritance tax reliefs. They also deal with the partnership tax implications when a son or daughter joins the business.
If you are a farmer reading this and thinking "I need to sort my succession plan", you are right. The earlier you start, the more options you have. Contact us to discuss your situation.
Self Assessment and Partnership Returns for Farmers
Most farmers are sole traders or partnerships. They file a self assessment tax return each year, with the SA103S (self employment short) or SA103F (self employment full) pages. Partnerships file an SA800 partnership return, plus individual returns for each partner.
An agriculture accountant prepares these returns with the specific adjustments that farming requires. They claim averaging relief where beneficial. They deal with herd basis elections. They handle capital allowances on tractors, combines, and buildings. They deal with stock valuation (livestock at cost or market value, depending on the election).
They also handle private use adjustments. If you use the farm pickup for personal journeys, or you take produce for your own consumption, these are adjustments to profit that many farmers forget. HMRC knows this. An agriculture accountant ensures the return is accurate and defensible.
Limited Company Farming Structures
Some farms operate as limited companies. This is more common for larger arable farms, diversified enterprises (farm shops, holiday cottages, livery yards), and family farming companies that have been incorporated for generations.
A limited company pays corporation tax at 19% to 25% on its profits. The company can retain profits for reinvestment, or pay dividends to the farmer shareholders. An agriculture accountant advises on the most tax-efficient structure. They also deal with associated company rules (if you have multiple farming companies or diversified enterprises) and director's loan accounts (if you take money out of the company informally).
If you are considering incorporating your farm, read our incorporation guide for the general principles. But speak to an agriculture accountant before you do it. The specific rules for farming (like the herd basis election continuing after incorporation) need careful handling.
Making Tax Digital for Income Tax (MTD for ITSA)
From April 2026, farmers with self employment or property income over £50,000 must use MTD-compatible software to keep digital records and submit quarterly updates to HMRC. From April 2027, the threshold drops to £30,000. From April 2028, it drops to £20,000.
Most farmers will be affected within the next few years. An agriculture accountant helps you choose the right software (Xero, FreeAgent, or QuickBooks are common choices) and sets up your chart of accounts to handle the specific farming transactions: livestock purchases and sales, subsidy income, grant receipts, and diversified income streams.
The quarterly updates are not full tax returns. They are summaries of income and expenses. The final return at year end still reconciles everything. But the quarterly discipline means you need better records. An agriculture accountant can help you organise your paperwork from day one.
Diversification and Rural Business Income
Many farms diversify to survive. Farm shops, holiday lets, campsites, livery yards, renewable energy, wedding venues, and equestrian centres all generate income. Each has different tax treatments.
Holiday lets can qualify as furnished holiday lettings (FHL) if they meet the availability and occupancy tests. FHL income is treated as trading income for most tax purposes, which means it qualifies for capital allowances, pension contributions, and reliefs like BADR (Business Asset Disposal Relief). But the rules changed in April 2025. The FHL regime was abolished for 2025/26 onwards. From 6 April 2025, holiday lets are treated as property income, not trading income. This removes many of the previous tax advantages. An agriculture accountant advises on the transition and whether to restructure.
Farm shops and cafes are trading businesses. They have their own VAT rules (some food is zero rated, some standard rated). They also have different capital allowances rules (a shop fit out is different from a grain store).
Renewable energy (solar panels, wind turbines, anaerobic digestion) generates income that can be trading or investment income depending on the structure. An agriculture accountant ensures the correct treatment and claims the available capital allowances.
How to Choose an Agriculture Accountant
Not all accountants understand farming. You need someone who has seen a set of farm accounts before. Someone who knows the difference between a beef suckler herd and a dairy herd for herd basis purposes. Someone who can talk to your land agent about grant conditions and your bank manager about borrowing against BPS entitlements.
Look for an accountant who is ICAEW qualified (that is the gold standard in UK accountancy) and who lists agriculture as a specialism. Ask them about their experience with herd basis, averaging relief, and APR. Ask them how they handle MTD for ITSA. Ask them if they work with your software (many farmers use Xero or FreeAgent, but some still use Sage 50 or paper records).
At Holloway Davies, we work with farmers across the UK. We handle everything from sole trader returns to complex limited company structures. We know the sector because we work in it every day.
If you are a farmer or landowner looking for an agriculture accountant, get in touch. We will discuss your business and show you how we can help.