Farming as a Company

Dont be daft

Hypothetical situation here for the tax experts.

If land is bought in a company name and is paid for through a companies profits, then when the loan is cleared and you want to transfer the land into your personal name what tax are you hit with here.

Capital gains?

Farmer Pudsey

Dont be daft wrote: »

Hypothetical situation here for the tax experts.

If land is bought in a company name and is paid for through a companies profits, then when the loan is cleared and you want to transfer the land into your personal name what tax are you hit with here.

Capital gains?

The company would be hit with capital gains on any gain and you would be hit with a tax bill or else you would have to put cash into the company in lieu of land.

Dont be daft

Farmer Pudsey wrote: »

The company would be hit with capital gains on any gain and you would be hit with a tax bill or else you would have to put cash into the company in lieu of land.

Right, thats what I was thinking alright.

Would it be a better bet to wind up the company then, and as a 100% shareholder (and presuming no creditors) the land would be transferred to the farmer.

There'd be no real capital gain from the farmer because his gain of land would be the same as his loss of shares if you get me.

Farmer Pudsey

Dont be daft wrote: »

Right, thats what I was thinking alright.

Would it be a better bet to wind up the company then, and as a 100% shareholder (and presuming no creditors) the land would be transferred to the farmer.

There'd be no real capital gain from the farmer because his gain of land would be the same as his loss of shares if you get me.

I would think different, If when company was set up farmer invested 300K ( in machinery stock etc. Now he virtually buys back the company the stock etc will still be the same or more then the value of the share increased so he will have a capital gain which is taxed a 33%. You would want to be have massive profits and little drawing forecast for 5-10 years to consider company option. It is not that easy to extract money from a company. even if you borrow from said company you have to pay it back or else pay tax down the line. At wind up any excess value is a capital gain unless you originally put this money in.

It is hard to put excess value in in the form of machinery or stock as they will have set value in tax returns if you exceed there value you have to pay tax on putting in.

So it a case of heads the tax man win's tails you lose.

grazeaway

used to do a lot of contract work (in the day job not farming) so set myself up as a company. there was a lot of start up work to begin with but i did have a very good accounatant you who would email me every month to remind me to send in my vat, paye and prsi and to orgainse my invioces and recipts. At the end of the year i handed him over a couple of folders of stuff and let him sort it out. When he was finsihed he went through the books with me. The 1st year we kept everything very simple and after that that started looking at where we could make savings.

From a farming point of view i wold look to see how the comapny can be seprated from the family/home/semiential parts of your life. Many farmers that also do contracting have a seprate company for the contracting so the machinary and such would be part of that while the land and cattle would be part of the farm.

One of friends farms with his brother, they took over from thier dad but wanted to have a clear sepreation in case anything went wrong (one of their marraiges broke up so it was easier to reach a settlement without effectign the rest of the family too much). Anyway they had a dairy farm but were restricted with the quota so branched out into to a bit of contracting and also bought some marginal land which they have in forestry. They set up seprate companies for each enterprise and are able to take on thier kids as workers when not in school.

Now that said they have a couple of big enterprises, not sure of the turnover but they have a couple of hundred acres of land now. Liek everything it comes to a individual situtuion.

Farmer Pudsey

You do not have to have company status to employ your kids

grazeaway

Farmer Pudsey wrote: »

You do not have to have company status to employ your kids

that is true but in order for them to have PRSI contrbutions it is much easier to do so through a company. One of their lads works for another local comapny so they can hire him in through thier own company on an hourly rate when he does the milking or other work on the farm.

whelan1

has anyone done anymore on this? any thoughts, was with accountant today and he was half suggesting it

maxxuumman

whelan1 wrote: »

has anyone done anymore on this? any thoughts, was with accountant today and he was half suggesting it

Talked to accountant again, and at advisor and another accountant, they all said that it was the way to go.
My accountant said that they are making a fortune from new farmer customers who they have to take out of companies. Farmers who were advised to go into companies that shouldn't have. So it's not for everyone.
In my case company suits for a number of reasons
- age, relatively young
- low drawings
- large repayments on business loan, and now as I pay down the capital of the loan I'm getting taxed 50% on capital reduction
- wife working
- kids young ( low drawing remaining in place for the foreseeable future)
- no big plans to invest on the farm, at the moment.

There was more, but they were the key points.
Also I have an agreement in place that my accountancy fees won't go up if I change to company, so they are not moving me just for higher fees.

pg141

just be careful, as a company you will pay yourself a salary, but you will also be caught for Benefit in kind on your jeep/car etc also it's not as easy to push "other stuff" through the books for vat etc

Dont be daft

maxxuumman wrote: »

- large repayments on business loan, and now as I pay down the capital of the loan I'm getting taxed 50% on capital reduction

How does this work Maxxuumman?

Is it that the capital allowance is reset when the company takes possession of the asset(s) and it has a new 5/8 year period to offset against tax?

lakill Farm

You shouldnt get caught on BIK on a jeep/van as its commercial and once its parked at the registered business address overnight. Some other rules but you should be ok.

Fees - No reason why fees would go up once you stay audit exempt with CRO and file your B1 on or before the ARD. Have a little more work but whats an hour or 2 amoung friends .

The notion of moving farmers to Ltd company just to increase fees is mad. Its so called professionals like that that ruin the industry.

When doing tax lectures a few years ago our lecture told us.

1. You should move to a company when your earning more than you need to survive - ie paying tax on money you dont need
2. When you have large loans- Why pay high rate of tax when you can tax advantage of the 12.5% corporation tax.
3. Limited liability
4. Tax planning.
5. Future plans of selling shares/ diluting your shareholding.

maxxuumman

lakill Farm wrote: »

You shouldnt get caught on BIK on a jeep/van as its commercial and once its parked at the registered business address overnight. Some other rules but you should be ok.

]

I presume if it's passenger vehicle, BIK does apply.

lakill Farm

maxxuumman wrote: »

I presume if it's passenger vehicle, BIK does apply.

There are rules about once the vehicle is parked at the registered address and " car pooled vehicles" always ways :cool: