Farming as a Limited Company

lakill Farm

Ok wednesday was tax dealine as per th extended ROS ad thats all and dusted. :rolleyes:

So is there anyone currently farming with there entreprise set up as a Limited company to reduce there tax liabilities?

I am an accountant and suggested it to 2 clients this year and they were not in for the "hardship" but surely to reduce your tax bill by signficatant figures its worth it. Oh a 3rd one has changed after i proved it would save them over €15k a year at current rates

Tipp Man

A good topic - certainly 1 that i am interested in - I hope you don't mind me asking some questions to kick it off

At what level of tax do you think it is time to consider a company?
What pitfalls are there?
What is the most tax efficient way to get money out of the company?
What level of assets do you need to transfer to the company?
What about VAT implications?

6600

Just make sure and only suggest it to the tidy ones that keep their records well and can adapt to the discipline of it. Oh and the ones that pay their bills without whinging.
Have changed a good few of ours (not farmers) recently but most farmers with high profits tend to still have lots of capital allowances from pollution control to use. When that is finished up those farmers are going to be paying a lot more tax imo.

If a farmer thinks that his profits are going to be consistently higher than his drawings+tax+pension then he should consider the company route. There are other ways of dealing with one-off high profit years.
I don't agree with the way IFAC are constantly pushing it now - it will not suit a lot of farmers.

lakill Farm

Hi 6600, i fully agree with the tidy ones and also the ifac pushing.

Tipp Man,

To be honest the answers for each case is different.

The level of tax - Normally when the profit as a sole trader/farmer outweight your salary needs. ie if you have a profit of €50k but need €25k to survive because OH has off farm income or indeed yourself.

Pit falls - the cost of registering the company (surprising cheap ) , having to submit a form 11 as a director and also a CT1 tax return or the company, and also having to file the accounts with the CRO - if there late you lose audit exemption) audit exempt wount be to much more expnsive than you currently getting charged for accounts as sole trader.

Tax efficent is via a salary, but also as a directors loan (tax free once the company owes you money) is a great way to have a pension set up.

Assets - none if you desire. A company is a seperate legal entity . ie Tipp Man as a sole trader and Tipp Man Farm Ltd . If you transfer assets from you to the company issues of capital Gains, capital allowance treatments etc have to be considered, its a case by case.

VAT - you would need to register for VAT (normally) and as an employer. You canset up the vat to be every 2 months or once per year (if DD mandiat is set up)

(sorry about typos my keyboard is acting up, time to replace the batteries)

remember, this is not for everyone nd needs careful planning,

6600

Lakill can a company be classed as a flat rate farmer for VAT purposes, avoiding the need to register? I never even thought of the VAT registration tbh.

lakill Farm

6600 - thus far i have emailed the unregisterd section in limerick with a detailed explanation of the case and they have forward a reply. Its new ground and is best to have it in writing off themselves.

Tipp Man

lakill Farm wrote: »

6600 - thus far i have emailed the unregisterd section in limerick with a detailed explanation of the case and they have forward a reply. Its new ground and is best to have it in writing off themselves.

Sorry just to clarify - did the farming company keep the flat rate?

lakill Farm

Tipp Man wrote: »

Sorry just to clarify - did the farming company keep the flat rate?

Yes .

Tipp Man

lakill Farm wrote: »

Hi 6600, i fully agree with the tidy ones and also the ifac pushing.

Tipp Man,

To be honest the answers for each case is different.

The level of tax - Normally when the profit as a sole trader/farmer outweight your salary needs. ie if you have a profit of €50k but need €25k to survive because OH has off farm income or indeed yourself.

Pit falls - the cost of registering the company (surprising cheap ) , having to submit a form 11 as a director and also a CT1 tax return or the company, and also having to file the accounts with the CRO - if there late you lose audit exemption) audit exempt wount be to much more expnsive than you currently getting charged for accounts as sole trader.

Tax efficent is via a salary, but also as a directors loan (tax free once the company owes you money) is a great way to have a pension set up.

Assets - none if you desire. A company is a seperate legal entity . ie Tipp Man as a sole trader and Tipp Man Farm Ltd . If you transfer assets from you to the company issues of capital Gains, capital allowance treatments etc have to be considered, its a case by case.

VAT - you would need to register for VAT (normally) and as an employer. You canset up the vat to be every 2 months or once per year (if DD mandiat is set up)

(sorry about typos my keyboard is acting up, time to replace the batteries)

remember, this is not for everyone nd needs careful planning,

Am i correct in thinking that typically the company would lease all the assets (land, stock, machinery etc) from the farmer and would also pay him a wage/salary?

If this is the case how will the company owe the farmer anything significant (bar incidentals) to enable it to give a directors loan without tax??

If all the profits are in the company and land next door comes up for sale (which i want to be in the farmers name) how would you go about this when all the profits are in the company?

Also if the farmer owns the machinery - not the company how does this effect the capital write off for the farmer? Can he still claim them even though he is no longer a farmer?

Also can a company claim stock relief?

lakill Farm

Tipp Man all great quetion.

The land question and i would always say but it in your own name, and rent to the company. You rent the land to the company to match the repayments

Capital allownces on machinery, you can claim in yur name and rent to the comapny and as you replace you buy them in the company.

Goodwill is one way to increase your directors loan.

In my previous case the stock stayed with the farmer currently and is going to sell to the company over a 5 year plan. Almost a lease agreement where the stock doesnt beome the acess of the LTd until fully paid.

trg

Would have thought that the vat would still be at flat rate given that the rate is based on the sale of a product/service and not who is carrying out the sale of said product/service.

Would agree fully that the discipline by client would be needed, the record keeping by directors of a company needs to be top-notch. At the risk of sounding ageist i reckon that the move could benefit young farmers who are interested in tax efficiency and profitability and not just avoiding tax. It baffles me the amount of farmers that are willing to incur an actual cash loss to avoid a tax bill. I came across a lad that was disappointed he had no medical expenses lately for that reason!
If changing to limited company can do so then this is a far better method imho.

The area of assets is complicated and fully agree with Lakill that its best on a case by case basis but since this is a discussion forum.......if one was to leave all assets in the sole trade of the farmer (trg) and have the company (trg limited) rent them from the farmer at market rates would that be efficient? If trg sells to trg limited then trg incurs balancing charges or CGT and trg limited may then dispose of them in the near future and incur similar taxes again. Of course with the renting scenario trg is paying at 41% potentially while saving at 12.5%.

6600

I don't think there's a distinction between trading as a sole trader and as a company for VAT purposes but can't find anything concrete to confirm that. You are right to check it with Revenue.

Two other issues are the SFP and capital allowances. The SFP can be dealt with by informing the Dept of Ag that the farmer is now operating through a company.
It's ok to continue the write off the capital allowances at the same amount as before, i.e. as a % of orig cost rather than the value at transfer to company. I've got clarification on this recently.
Does the farmer have to transfer the farmyard to the company? I saw one case of a neighbour and this was what he was told to do when changing from sole trader to company. This becomes an issue when a farm building is built by the company. How could the company claim the capital allowances on a building it didn't own? Also how would it get a loan from the bank to build something it didn't own.

bob charles

Can a company rent land of a director for 7 year lease, resulting in the rent that is paid to the director/farmer tax free under the long term leasing tax free thingy. I presume not, it would be a nice little earner

dar31

ltd can be a flat rate farmer.
if you choose to go down the ltd route, make sure you accountant knows what he is at.
you would need to be in the high tax bracket for 3/4yrs out of 5 to be worth while.
will you be comfortable with a lesser/ harder ability to access surplus cash.

Timmaay

Very good topic here, thanks for all the info! With the VAT going up to 23% in the budget, it will swing things alittle more in the favour of the Ltd company route!

PMU

would registering for vat eliminate the vat refund we get on the milk price

dar31

PMU wrote: »

would registering for vat eliminate the vat refund we get on the milk price

afaik it would, really need to be buying a lot of non capital items to make it worth while.
dont know that many dairy farmers that are registered

milkprofit

Very good topic here, thanks for all the info! With the VAT going up to 23% in the budget, it will swing things alittle more in the favour of the Ltd company route!

WHY ?????

trg

6600 wrote: »

I don't agree with the way IFAC are constantly pushing it now - it will not suit a lot of farmers.

Hey, i've no link to IFAC at all but i'm curious as to how they are perceived to be constantly pushing it?

They certainly shouldnt be pushing it without at least saying that the merits should be judged on a case by case basis.

Are IFAC registered auditors? They are not as far as I can see. Wonder are they aligned to auditors for those that slip through the exemption net.

lakill Farm

trg wrote: »

Are IFAC registered auditors? They are not as far as I can see. Wonder are they aligned to auditors for those that slip through the exemption net.

The key is to keep the Limited company as audit exempt and make sure it doesnt slip through the net.

Thats where the relationship building comes into its own

MIKEKC

Lease money now subject to USC and could be hit with PRSI after bu
dget. If drawings are high I wouldnt go company route unless profits are very high, close to k100 Iwould think. I have also heard of IFAC pushing company on medium profit farmers, wouldnt agree

funny man

We are clients of ifac for the past 40 years and find them very professional, while they did hold meetings on the company option which i attended they did not "push" this as the way to go, infact i'd say the opposite they stress that it wasn't for everyone and that there were other options for farmers. they also made it clear that clients with high drawings would not suit the company road, so just to put a bit of balance to the discussion i couldn't let it pass.

mozattack

FLAT RATE

Are we 100% sure that a Ltd company can be a "flat-rate" farmer? Trying to find evidence of this but can't. Is it because a 'taxable person' for VAT can be a flat-rate farmer and a Limited Com. is a 'taxable person' for VAT purposes.

milkprofit

Are we 100% sure that a Ltd company can be a "flat-rate" farme
Y E S
I have been for last 20 years

restive

I used to deal with accounts in a previous life. The fees an accountant receives from a limited company are higher versus what he would receive from a sole trader.

Not saying anybody is being misinformed or anything, but I did handle the accounts in both situations.

Farmer Pudsey

Farming as a limited company is only suitable if you have a serious tax bill going forward and are quite young. Also be aware the revenue have a habit of closing loophose very fast such as allowing you to rent land to a company at above its market rental value ( in a purchasee situtation).

Also at present company tax is 12.5% if this was changed to 20% it would change the maths completly. I know that the government are saying it is set in stone but we do not know where the national debt deal will take us. Also they may down the line insist on all company's being VAT registered.

Remember taking money as director loans etc all have to be paid back to the accounts at some stage.

And as other posters stated accounts have to be kept completely up to date.

KCTK

Farmer Pudsey wrote: »

Farming as a limited company is only suitable if you have a serious tax bill going forward and are quite young. Also be aware the revenue have a habit of closing loophose very fast such as allowing you to rent land to a company at above its market rental value ( in a purchasee situtation).

Also at present company tax is 12.5% if this was changed to 20% it would change the maths completly. I know that the government are saying it is set in stone but we do not know where the national debt deal will take us. Also they may down the line insist on all company's being VAT registered.

Remember taking money as director loans etc all have to be paid back to the accounts at some stage.

And as other posters stated accounts have to be kept completely up to date.

Totally agree Farmer Pudsey, going down the company route is really only realistic if you have a large tax bill and the farm makes significantly more profits than your requirement for drawings, dont forget that you will still need to get money for you/family to survive and whatever the company pays you will be taxed at your personal rate (Income tax, PRSI, USC etc) so not like by changing to a company all of a sudden tax bill totally slashed.

If going purchasing land then company may be a very good option due to repayments out of profit after 12.5% tax versus as a sole trader where it would be out of profits after 52% tax.

Also Company law is not to be messed with, such issues as closed company legislation around issue like director loans, keeping proper books and accounts and returns to CRO etc must all be complied with or you could find yourself in serious trouble very quickly, at least as a sole trader you only have Revenue to worry about!!!