Your return only rewards the costs HMRC accepts. Here is the wholly and exclusively test, what red diesel is still allowed for, and how machinery is claimed.
A farm cost is claimable if it was incurred wholly and exclusively for the business, and you can claim only the business share of anything with private use. Red diesel is still allowed for agriculture, but only in qualifying machines such as tractors doing farm work, not in a pickup. Machinery is normally claimed through capital allowances: the Annual Investment Allowance is £1 million, and the main writing down rate is 14% from 6 April 2026 for income tax. Repairs are claimable, replacing a whole asset is capital. Our farm bookkeeping basics cover the records.
The first test catches people out. A cost is deductible only if it was incurred wholly and exclusively for the purposes of the trade. HMRC's manual reads that as a sole purpose test: if there is a non-business purpose behind the spending, it fails, even where there is also a business reason. The sandwich you buy at market is not a farm cost.
There is one useful give. Where a definite part of a cost is clearly for the farm, that part can be claimed, which is why a phone bill can be split. A cost that is simply mixed in purpose cannot be rescued by guessing a percentage.
For sole traders and partnerships, HMRC's list of allowable expenses runs by category: staff, premises, travel, stock and raw materials, insurance, subscriptions and training. Feed, seed, vet fees and medicines sit naturally under stock and running costs. If you use the £1,000 trading allowance you cannot claim expenses as well, which rarely suits a farm. Write the farm reason on the invoice at the time, and ask your accountant about companies and partnerships with a company partner.
Yes, but only for the right machine doing the right job. From 1 April 2022 the government removed the entitlement to rebated diesel from most sectors and kept it for agriculture, horticulture, forestry, fish farming, rail and non-commercial heating.
HMRC's Excise Notice 75 applies a two-part test: what the vehicle is, and what it is used for. An agricultural vehicle is a tractor, a single-seat vehicle of no more than 1,000kg built mainly for off-road use, a farm-only vehicle licensed to use public roads only between your own land less than 1.5 kilometres apart, or a vehicle with built-in machinery for handling or processing produce, such as a combine. Vehicles designed mainly to carry goods are trucks, not agricultural vehicles.
Qualifying work includes growing crops, rearing livestock, carrying inputs for your farm, taking your own livestock or produce to market, and cutting hedges beside a public road. Hauling for others does not qualify. A pickup or Land Rover is not a listed vehicle type, so as I read the notice it needs duty-paid diesel. If unsure, ask HMRC before filling the tank.
For ordinary farm use, the notice does not ask for a daily fuel log. The daily record rule, kept for 12 months, sits in the section on using red diesel under a licence in exceptional circumstances, which is not most farms.
Two things in the same notice make records worth keeping anyway. It is a penalty offence to use rebated fuel in a machine that is not an excepted machine, to mix rebated fuel with duty-paid fuel, or to fail to provide records when asked. And HMRC can recover the duty evaded going back up to four years, and seize the oil and the equipment.
What I would check first is the tanks. A single can that has held both colours is how mixing happens. Keep red and white in separate labelled containers, keep supplier invoices, and note which machine used the fuel and on what job. The bookkeeping software checklist shows how to store invoices so you can answer from paper, not memory.
Capital allowances give relief on tractors, trailers and handling kit, because buying them is not a running cost. The Annual Investment Allowance is £1 million: you deduct the full cost of qualifying plant and machinery in the period you bought it. It does not apply to business cars or to items you already owned for another reason. The date of purchase is the contract date if payment is due within four months, otherwise the date payment is due. On hire purchase you claim the payments, not the interest.
If you want less than the full deduction, claim writing down allowances instead: the main rate is 14% from 6 April 2026 for income tax, down from 18%, and the special rate is 6%. Sole traders on the cash basis claim everything except cars as ordinary expenses.
For expenditure from 6 April 2025, HMRC says most double cab pickups count as cars for capital allowances, so the Annual Investment Allowance is not available. Pickups with a payload under one tonne were already cars. Vans and lorries are not cars.
Farms are the classic mixed-use business: the farmhouse is also the office, the pickup also does the school run. You claim only the business share. For working from home, GOV.UK asks for a reasonable method, such as rooms used or time spent, not a fixed percentage. Decide the split at the start of the year, write down how you reached it, and have your accountant agree it.
For machinery and vehicles you also use privately, a sole trader or partner must reduce the capital allowances by the amount of private use. Sole traders can use simplified expenses instead, which are flat rates for vehicles, working from home and living on the business premises. You cannot use simplified mileage for a vehicle already claimed in another way.
Where purposes are mixed and cannot be separated, HMRC's manual says the cost is disallowed. That is the trap with one fuel card used for the farm and the family car. Separate cards cost nothing and settle the question.
The line decides whether you deduct the whole cost this year or claim allowances. HMRC's manual draws it in two places. The first is the entirety: the cost of repairing a worn asset is normally allowable, but replacing the whole asset is capital. What counts as the asset is a question of fact: does it look like a separate, freestanding item?
The second is improvement. Restoring something to what it was is a repair. Altering or improving it is capital. In practice, replacing a few worn sheets on a shed roof is a repair, putting up a new shed is capital, and upgrading a building beyond what it had is the grey area.
Where a job mixes repairs and improvements, get the contractor to split the invoice. A lump sum labelled building work invites argument, and before and after photographs cost nothing. Electrical and water systems have special rules, so agree the treatment with your accountant before you file.
Normally yes: vet visits, medicines, feed and wages are day-to-day running costs. Tie vet and medicine invoices to the medicine book, because one invoice supports both the expense and the treatment record, which is kept for five years under the medicine record retention rule. The fields an assessor wants are in the Red Tractor medicine book guide.
On the Agricultural Flat Rate Scheme you do not reclaim VAT on diesel, feed or vet bills, because the 4% flat rate addition stands in for it: see the flat rate scheme guide and the VAT registration threshold guide.
Staff costs are allowable, but pay to a family member has to be for work actually done, at a level you would pay anyone for the job: see employing family members on the farm. Keep wage records as well: minimum wage records are kept for six years.
FarmHQ is a mobile-first farm office app for UK livestock farms, in pre-launch beta with a founding-farms pilot in South-West England. One photo of a vet or feed invoice becomes a medicine-book entry and a VAT-coded expense line, so the receipt is handled once. Ask Farmer Joe drafts, you confirm. It does not replace your accountant. Plans are on the pricing page.
Only the business share, found by a reasonable method such as rooms used or time spent working from home. HMRC sets no fixed percentage. Write down how you worked it out, apply it consistently, and agree it with your accountant.
A pickup is not a vehicle type allowed rebated fuel, so it needs duty-paid diesel. A single-seat vehicle of no more than 1,000kg built mainly for off-road use can qualify on farm work, but a two-seat side-by-side does not fit that wording. Check Excise Notice 75 or ask HMRC.
It is £1 million a year for qualifying plant and machinery, claimed in the period you bought the item. It does not apply to business cars. Instead of the full deduction you can claim writing down allowances, at 14% for the main pool from 6 April 2026 for income tax.
A new tractor is capital, the replacement of a whole asset. You claim it through capital allowances, normally the Annual Investment Allowance, unless you are a sole trader on the cash basis, where it is an expense. Repairs to an existing tractor are a running cost.
For ordinary farm use, Excise Notice 75 does not require a daily log. Failing to provide records when HMRC asks is still an offence, so keep supplier invoices, keep red and white fuel separate, and note which machine used it.