One set of accounts or two?

Farmer+Engineer

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Farmer client is also an agri-engineer.  Low hundreds of thousands turnover on each.  Separate assets for each business, except if a combine bought for resale just happens to casually get used. Engineering is done from a van which has incidental farm work. Farm workshop 95% used for own farm.  He wants one software subscription, one bank account, one set of accounts, one single self employment page on his ITR.  Am I right or wrong to want to continue to prepare separate sets of accounts and complete separate pages on ITR for what I regard as two substantial entities?

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By JD
11th Jan 2021 18:08

Why should this be different than say a dairy farmer with a sheep or some other enterprise. No real need unless it is required by the bank or for management purposes.

I suspect if you did split into two sets of accounts you will make a substantial rod for your own back. You will spend a lifetime sorting out different expenditure coming out of the wrong bank account, splitting and reconciling supplier accounts or adjusting for expenditure on the wrong VAT return along with may other nightmares. Keep it simple if you can

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By Open all hours
11th Jan 2021 18:30

Thanks for your reply.

Tried to merge another farm and civil engineering business some years ago. Turnovers similar, £25K each, HMRC rejected the proposal because of the ‘substantial sums involved’.

Different from a mixed farm because separate assets and separate overheads. Engineering is almost exclusively mobile.

What does amalgamation do with regard to potential for farm ‘averaging’?

If a hairdresser was an artist and sold pictures from the wall of the salon is this one business or two? Can any two (or more) enterprises be combined under a general heading of ‘self employment’?

(Fully appreciate these questions might have been better left until February)!

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By JD
11th Jan 2021 21:12

Picked up a similar business(es) a couple of years ago, with all sorts of problems relating to the wrong things in the wrong accounts, particularly with loans in one assets in the other, Vat issues and an owner who is rather disorganised.

The whole thing became far more manageable, with the owner, bank and everybody concerned much happier when it was combined. No complaints from HM Revenue and Customs. To be fair in this case the Farm is also the primary place of operation for the engineering business.

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Replying to JD:
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By RetiredTax
12th Jan 2021 12:47

"Why should this be ---- dairy farmer with a sheep ---"
See BM 55115. ALL farming by the same individual is one trade"

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By frankfx
11th Jan 2021 18:43

Having separate trades offers potential planning opportunities, or rather not having separate trades closes door on opportunities.

Loss in one could be carried forward, if profits in other trade were optimal.

Pension contribution in loss year of one trade could be sub optimal.

Trades with different accounting dates could be useful.

Introducing a partner..to one of the trades.

You need to stress test some scenarios.

Would client pay a fee for your diligence?

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Replying to frankfx:
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By Open all hours
11th Jan 2021 19:03

Thanks. I think we’ve tried too hard. The businesses were set up some years apart. We see them as quite distinct and merging them will mean splitting a lot of transactions between parts for resale through the engineering side and repairs on the farm. (If anyone cares any more). Combining the motor expenses will be an adventure in itself, and no, they don’t want to pay for diligence.

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By bettybobbymeggie
11th Jan 2021 21:20

For what its worth, I was thinking about averaging as I read your post and I see you mentioned it later. I agree that combining them would prevent an averaging claim.

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paddle steamer
By DJKL
11th Jan 2021 21:49

One set of accounts which has effectively two P & Ls and one balance sheet, split out income and direct costs into appropriate nominals, apportion overheads, makes life much simpler for MTD re vat as one set of books. I have this with our partnership, it has trading income which although these days is limited (property trading plus limited construction activity ) but also has significant property rental business, it really is not an issue, I plug year end figures into excel, split out, apportion overheads etc, input the different activities into the SA return .

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By I'msorryIhaven'taclue
12th Jan 2021 10:07

Agree with DJKL: one business with one bank account, two P & Ls, two CT600s, and one balance sheet. Good luck getting two fees!

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paddle steamer
By DJKL
12th Jan 2021 10:12

Sole trader we are told, or certainly implied.

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By DJKL
12th Jan 2021 13:47

Not sure on the one bank account, we often use different bank accounts, I used to run one for our residential rents, one for our inclusive rent commercial studio rents, one for mainstream commercial rents and a final one for property development and construction activities, segmenting was helpful. (Plus various deposit accounts) Even these days I still run two distinct rental bank accounts (for one thing it makes squaring each bank easier as fewer transactions in each)

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By adam.arca
12th Jan 2021 13:30

Personally, I'm with the OP and think this should be two separate accounts (even if merged as 2 P&Ls and one B/S) as it's probably two separate trades.

Whether HMRC would take the point is moot but BIM80530 suggests the boot is on their foot (unless you could argue that a bit of light engineering goes hand-in-glove with being a farmer which is quite possibly arguable).

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Replying to adam.arca:
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By Open all hours
12th Jan 2021 13:46

Thanks for that. It doesn’t fit the ‘light engineering’ catagory - turnover in each business is between £200-275K.

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By adam.arca
12th Jan 2021 16:27

Sorry, I see you did say "agri-engineering": don't know why I read that as light engineering.

Given the size of the numbers and the fact that one isn't materially subordinate to the other, I'm even more convinced that these should be treated as separate trades.

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