reducing tax payments

whelan1

any magic solutions? i had a a really bad year last year and accountant turns round today and says i made a profit of 50k:eek::eek: drawings where down 25k , feed and fertiliser where down 50K wages where down, so am a bit peevd that i have a profit this size and have to pay more tax than usual when i lived on fresh air for the year.... he also said i reduced my borrowings by 40k

stanflt

whelan1 wrote: »

any magic solutions? i had a a really bad year last year and accountant turns round today and says i made a profit of 50k:eek::eek: drawings where down 25k , feed and fertiliser where down 50K wages where down, so am a bit peevd that i have a profit this size and have to pay more tax than usual when i lived on fresh air for the year.... he also said i reduced my borrowings by 40k

talk to him about reducing the value of land and animals- we were in a situation where the account had machinery(milking plant) etc valued at 350k when it was more like 5k-a few buttons later and we were overpaying tax

Tora Bora

stanflt wrote: »

talk to him about reducing the value of land and animals- we were in a situation where the account had machinery(milking plant) etc valued at 350k when it was more like 5k-a few buttons later and we were overpaying tax

Can't you carry forward losses from last year, assuming you showed a loss.
Is the profit your accountant talking about before or after capital allowances? If not you can claim depreciation against the gross profit, thus reducing ne;)t profit, and tax payable.

If profit your accountant is talking about is after capital allowances, then you need shiney new kit.

whelan1

really cant understand it... have really lived a crap life for the last 2 years and then this... wouldnt mind if i was enjoying myself...if i was to buy a tractor would that be of benefit for this year as my drawings are even lower this year than last year , also tha fact i dont have maize anymore - have triticale which is alot cheaper- reduced my fertiliser/feed/ seed a good bit

moy83

give the accountant a few pound worth of a bonus for every thousand in tax he/she saves you and i bet your tax bill will drop straight away

whelan1

he doesnt work like that unfortunately, he told me to reduce my drawings , i did that and look where iam now

moy83

I had two accountants that used to just tell me what i owed and that was that and charge me enough for a simple piece of work . Then i started with a new one , she gives me a set price for the year and if i dont have alot to spare in october she usually works out something and i give her a bonus im very happy with her

irishh_bob

whelan1 wrote: »

any magic solutions? i had a a really bad year last year and accountant turns round today and says i made a profit of 50k:eek::eek: drawings where down 25k , feed and fertiliser where down 50K wages where down, so am a bit peevd that i have a profit this size and have to pay more tax than usual when i lived on fresh air for the year.... he also said i reduced my borrowings by 40k

has he mentioned income averaging , were you to have earned 50 k profit last year but only 5 k in 2009 and 2008 , the average is only 20 k , only thing is , when you sign up for it , you have to take the rough with the smooth

hello1

Strange to see a farmer willing to talk about accounts and tax in the first few days of june;). I can't even get my farmer clients to anwser the phone.

Anyways, have a look at the following suggestions, from the info provided i can only give general suggestions, and maybe your accountant has exhausted these avenues prior to speaking to you.

- Stock Relief - If your closing stock is greater than opening stock, ensure the relief is claimed, It amazes me how many accountants don't claim this relief.

-Income averaging - Not something I am a fan of and don't normally advise clients to go down this route, But it may save a few pound in the short term ( but will caatch up over time and very difficult to get away from it).

- Go through your cheque books after the year end, any cheqes for expenses that relate to the previous year but written in the current year should be recognised as an expense last year.

- after doing the above excerise, due to the fact on a lot of farms, cashflow was particulary tight last year and some are only catching up with payments at the moment, ensure that everyone you owed money to (if there is any) at your financial year end is recorded as a creditor in the accountas for that year. and as an expense in the p&L.

Again, just a few simple suggestions, pm me if you have any queries.

whelan1

i am on averaging, i suppose i really want to know what i can do different for next year, everyone o owed has been written down ,

JohnBoy

Could you manage to get your accounts sufficiently sorted to run a set of 3/4 year accounts in early december, to give you an indication of where things will end up. it'll cost you extra in accountancy fees, but could well pay for itself.


Have you a pension? is there an option there?

6600

As an accountant in practice I am coming across this situation a lot. Even though people had a bad year their tax liability is more than previously/expected.

Firstly your tax liability is based on your profit, not on your drawings. Profit is your sales less expenses. These expenses don't include drawings, loan repayments or capital purchases.

A lot of farmers are repaying loans at the moment. There is no tax allowance for the capital portion, only the interest.

Same idea for machinery or buildings purchase. You can't write these off in the one year, its 8 years for machinery, 7 for buildings and was 3 for pollution control work. You can't write off land purchase at all.

If you increased stock value in the year only 25% of this is treated as an expense (stock-relief).

So what I'm saying is cashflow is totally different to profit. In your case cashflow is a lot lower than profit because of loan repayments, stock increases and capital purchases.

Also the tax rates are getting ridiculous now. If your oh is working then his 20% band and tax credits are used up, so basically your paying 41% tax on everything over €36k (€32k in 2011). Then PRSI is 5% and Income levy 2% So thats a marginal tax rate of 48% in 2010. This will be 52% for 2011.

This makes life very hard for anybody trying to expand and repay debt.

And please don't be too hard on the accountant I'm sure he's doing everything possible. We're getting it in the neck from all sides too!

A lot of pub talk 'I'm with X and only paid Y last year' etc is usually from those who have no profit and are only scratching anyway. You just have to keep the head down and keep going in spite of everything!!

whelan1

JohnBoy wrote: »

Could you manage to get your accounts sufficiently sorted to run a set of 3/4 year accounts in early december, to give you an indication of where things will end up. it'll cost you extra in accountancy fees, but could well pay for itself.


Have you a pension? is there an option there?

i have a pension, other years i did top up payments but tbh i didnt think i would be needing to do it this year

foundation10

Have you considered doing some work which you wouldn't normally have done such as repairs to buildings, fences etc, reseeding extra lands.

I know you will say why do something if it doesnt be required to be done for another two or three years but if you are on the high tax rate you will end up paying an effective tax rate of near 50% so if you spend €5k on some elelment of work it is only costing you half as you would have to give half to revenue anyway.

whelan1

5.5k of what i have to pay is usc, prsi etc have had a chat with accountant and it is just a pure sickner, we have cut a few euro here and there but the new usc is a total joke , as we are self employed we cant get dole or anything , what is the bebnfit , also the health levy, we have vhi, so we are paying twice and also paying gp charges etc

thats interesting

Ok I'm going to be very controversial here.you should be happy you made a profit and a good one too

This is what is wrong with farming. People always try to reduce their tax. And it doesnt make sense.

Take your profit and run. Sure you'll pay tax on it. So what?

ihatetractors

Do what every farmer does, spend it as soon as you recieve it

whelan1

ihatetractors wrote: »

Do what every farmer does, spend it as soon as you recieve it

thats what i thought i was doing:) imagine if you where told to reduce your feed/fertiliser costs by 50k , you'd say not possible, i am proof it is possible:D

milkprofit

he also said i reduced my borrowings by 40
SURELY you would no this your self
Ask him her to show you -distribution of profits

mattthetrasher

its the levies are getting you and that income averaging is a disaster from my own experience if that doesnt work try buying store cattle at the moment yhat should take care of any profit;)

ihatetractors

whelan1 wrote: »

thats what i thought i was doing:) imagine if you where told to reduce your feed/fertiliser costs by 50k , you'd say not possible, i am proof it is possible:D

Maybe you could right it off for tax?? you were improving the land by adding NPK's !!

pakalasa

Don't make the common mistake that some farmers do - buy something they dont really need, just to keep down their tax bill.
Think of it as an investment, something that will give back a return.
Maybe lime, reseed or stockpile gravel for road repairs. Price of milk may not be so high in the future.
I think on a farm your size, something that will reduce labour into the future is the best bet.

whelan1

i honestly never thought i would make a profit , i was scrimping on everything, at least i have a few months to work something out for this year

thats interesting

whelan1 wrote: »

i honestly never thought i would make a profit , i was scrimping on everything, at least i have a few months to work something out for this year

Listen, celebrate! You made a profit. That's a great thing and well done! Its not a bad thing.

Why would anyone worry if they are profitable? Forget about the tax. You have to pay tax anyway. Buying stuff you don't need, just to avoid tax, makes no sense.

Take your profit and enjoy it!

This advice to farmers to avoid tax at all costs is one of the most damaging things to the actual business of farming.

Farms must be profitable.

whelan1

thats interesting wrote: »

Listen, celebrate! You made a profit. That's a great thing and well done! Its not a bad thing.

Why would anyone worry if they are profitable? Forget about the tax. You have to pay tax anyway. Buying stuff you don't need, just to avoid tax, makes no sense.

Take your profit and enjoy it!

This advice to farmers to avoid tax at all costs is one of the most damaging things to the actual business of farming.

Farms must be profitable.

i have no problems paying the tax seeing as i made a profit- i just wasnt expecting it- its the usc etc that i have the issue with

Tora Bora

whelan1 wrote: »

i have no problems paying the tax seeing as i made a profit- i just wasnt expecting it- its the usc etc that i have the issue with

You will have to get used to paying more and more taxes and levies and charges. USC is a killer, but its here to stay. Now they have introduced the daylight robbery if any pension fund people have built up. Next up, will be the household charge, and water charges.