Accounting for Woodland (and hippies)?!

EAP

Hi, I''m after a bit of advice. My brother and his wife have bought some woodland and are charcoal burning their way to a self-sufficient lifestyle. To get permanent residence they need to show a profit in the first three years and have asked me for help with their books. I only became a MAAT yesterday and have realised how much I still have to learn so am really hoping someone out there can help with some of the following:

Woodland – this is a fixed asset – as it is land am I right in thinking there is no depreciation? If so, does this mean they don’t charge anything to P & L for the land? (remembering that they want expenses to be as low as possible so they can show a profit)

Other fixed assets – they have spent money on materials for outbuildings plus a trailer and a quad bike (ostensibly for the business but I think my brother just really wanted one!) – do they have to depreciate these or can they decide to take the whole hit in the first year, making a massive loss but leaving the next year clear for a bit of profit? Alternatively, can they depreciate at 2% or something silly so that the cost of depreciation is kept really low?

Materials –most of the wood for the charcoal comes from the woodland so is free – it also won’t affect the value of the woodland as they are coppicing so the woodland is improved (if anything the value will be increased) – how do they account for the wood?
Any other wood is given to them in return for forestry and felling work – again, do they have to account for this?

If anyone can help with any of this I’d be really grateful, I’ve just completed the AAT course but don’t remember learning anything about accounting for a pair of hippies living in a wood!

Many thanks

Monsoon

I love hippies!
I've gotta run but I will reply to this later

(ignore the fact they are hippies, pretend it's a commercial business and apply those rules)

EAP

Thanks Monsoon
I love hippies too! They're actually working really hard to make a go of this and have got off to a pretty impressive start, their charcoal is on sale online and in local shops. Apparently the long hair gets in the way of anything involving a pen or a calculator though, which is where I come in handy!
Looking forward to your reply.

Monsoon

Cheers EAP

Right.... I don't know any of the nuances of working land, but in terms of general principles my thoughts are as follows:

Woodland: no depreciation, as per normal rules for land (but, see below).

Other assets: You have to depreciate them at the rate you think is appropriate. Remember that the tax rules are different to the P&L rules - you can claim the whole expense under AIA on some things, even though you only write the appropriate depreciation amount into the P&L. If you think the quad bike will last ten years you only need to put 10% SL through on the P&L account each year... Set a reasonable de-minimus limit under which any assets are just expensed and not capitalised. You have some scope for playing about with this (I usually use £300 or £500 depending on the size of the business).

In terms of costs of materials (and possibly the land itself), you will have to look it up, I know that woodland has very specific tax treatments so it's well worth looking it up (or rather, it's essential!). Get a Tolleys tax guide, that does cover the woodland rules. I'm afraid I'm not familiar with what they are so can't give a run-down, but I know that they exist.

Please do wish them best of luck from me, part of me would love to do what they are doing :-)

EAP

Thanks for this. Especially the Tolley's tax guide - I'll get a copy. I know woodland rules are quite complex as farmers used woodland as a tax break or something for a while. Glad they did though, my brother's woodland is only there because the farmer used the rules to his advantage thirty odd years ago and grew a wood!
Will pass on your best wishes too!