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Child Item

TAX

older by the day

I know we talk a lot about cattle, milk and machinery. But do anyone know how to try to reduce a tax bill on a family farm. I know a private pension, and buildings. But are there some tricks (legal of course) that I'm missing. Got a huge shock today, and looking at a worse one this time next year

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Bass Reeves

https://www.boards.ie/discussion/comment/119791043#Comment_119791043

https://www.boards.ie/discussion/comment/119801967#Comment_119801967

If he is the same accountant that will not low you a dairy farmer not show anything for the car I be slow to take his advice.

I actually be moving elsewhere

straight

https://www.boards.ie/discussion/comment/119802454#Comment_119802454

100% for the jeep like. Nothing for the car. Thought it was fair enough. My accountant is known to be very good and I know several people that had tax problems and moved to them and are very happy. I only ever had one accountant so far.

Mooooo

If you are well set up have little capital allowances left incorporating may be the most tax efficient thing to do. Talk to them about possible future plans and how that works in it and also when it comes to retiring, succession, etc

Siamsa Sessions

https://www.boards.ie/discussion/comment/119802878#Comment_119802878

That’s fair enough. I’d be getting a second opinion all the same before making any big changes

Gman1987

https://www.boards.ie/discussion/comment/119801967#Comment_119801967

What would be holding you back currently from incorporating? Interested to understand what the negatives vs positives are as I'm half thinking of making contact with my accountant to explore the option. I'm only part time farming but paying tax at 52% on farm profits of €15-€25k. I'm not drawing an income from the farm so I'm kinda thinking would I be better off to go into a company in order to increase retained earnings.

straight

https://www.boards.ie/discussion/comment/119803072#Comment_119803072

Fear of the unknown is probably a big part of it. Need to educate myself a bit better on the subject.

I often thought it was just for the big boys and girls and that I wouldn't be worthy myself seeing as I only milk 70 -80 cows. From talking to my accountant and banks when I go for borrowings, they genuinely seem shocked with the higher level of profits compared to my peers.

Have all my capital spending and machinery building done. All that I have left to buy is land if I am lucky enough to get the chance. I don't need to draw any money from the farm to any great extent.

Pinsnbushings

https://www.boards.ie/discussion/comment/119803254#Comment_119803254

If your haven't capital allowances and thinking of buying land I'd say incorporating would be a benefit. Remember capital repayments on loan to buy land are paid from after tax income, so buying through a company leaves 30 percent more to go towards that. Only issue is transferring I think not sure on that but I'm guessing your kids are a bit away from that yet.

Bit more more paperwork involved too I think

KAMG

https://www.boards.ie/discussion/comment/119803072#Comment_119803072

This is a situation where incorporation sounds like a runner. But you would want to be sure that the current position is likely to continue for the next few years. We wouldn't have many farmer clients with an off-farm income going into top rate tax band that have farm profits in the region of €25,000. You are either the exception or an exceptional farmer.

We would only advise the incorporation route if a substantial level of income is being taxed at the top rate of tax, after all other avenues have been explored.

mr.stonewall

https://www.boards.ie/discussion/comment/119804169#Comment_119804169

I'm in a very similar situation here and currently weighting it up. Cap ex has been the saviour for the past few years. But that is going to be coming to and end in the next few years.

Quick q can cap ex transfer to a ltd company. I know building works cant, but non fixed cap ex( machinery, motor etc)

This is a very interesting topic and something that needs to be considered by a good cohort of farmers

KAMG

https://www.boards.ie/discussion/comment/119804240#Comment_119804240

Correct. Buildings do not normally go into the company for various other reasons. It just doesn't usually make sense. And buildings allowances cannot be claimed against the rental income that would be paid to the farmer by the company. So, first thing to watch out for is are there much building allowances left to be claimed. These are written off over 7 years, so the stupidest thing to do is build a big shed/parlour etc in 2021 or 2022, claim allowances for 1 or 2 years, then start thinking about a company. Crasy stuff.

The machinery transfers over to company at TWDV at date sole trade/partnership switches to the company. Company then owns the machinery.

A directors current account is created when company is formed. Stock and machinery are 'bought by company from sole trader/partnership. No money changes hands but a loan is created in the company. This should be kept as high as possible. But again, like the earlier discussion re motor vehicles, it cannot be ridiculous either. Farmer can then extract money from the company tax free until the loan is cleared. But also a salary and rent are paid to farmer to maximise the standard rate tax band.

Gman1987

https://www.boards.ie/discussion/comment/119804169#Comment_119804169

Wouldnt say I'm an exceptional farmer anyways!! I wouldnt have much on the capital allowances side so that prob drives up the profit, wouldn't be at €25k every year but would be in the region of €15k to €25k. I could always go off and buy a new tractor to sort the tax bill!!! Like @straight I'd like to be retaining more of the earnings so it would be available in the event that I got an opportunity to buy land.

How long is the process generally to set up a company? Presume most get an accountant to do it for them. You mentioned director loan to the company, I wont be in a position currently to take much advantage of this as I dont have livestock currently but presume a director loan of cash is possible also? I'm thinking in order to buy cattle next year I would like to loan that money to the company from my personal funds if that is possible.

Stationmaster

Company can be set up in a week/ten days. Setting up the bank account in the company name will probably take longer to be honest.

KAMG

A week or so to set up a company. Your accountant should be able to do it.

Ya, it's no trouble putting money into company. It's usually money going the other way that causes problems

Bass Reeves

https://www.boards.ie/discussion/comment/119803072#Comment_119803072

Remember if you incorporate the money is no longer yours. Its now company money

You will pay 15% tax to any profits in an incorporated company and the accountant will be more expensive as they will charge you for both sets of accounts you personal accounts and your company accounts.

On your farm profits of 25 k you now pay 13k. in the new senario you will pay 3750 euro plus another 6-700 extra in accountancy fees minimums maybe even a tad more. There will be extra costs as well such as if you register a child as an employee.

Remember this may only be a short term issue if you have children they will be available when they get to 14/15 to use up tax issues. While you can employee them through the company as well and before paying tax on profits the benefit of incorporation is not as noticeable.

The main advantage of incorporation is if you want to buy land down the line or carry out other investment, however if you want to access the money you still have a tax issue but you have already paid 15% on it and now have personnel tax again. You could have a couple of 100k in the farm account and have no real use within the company for it and accessing it outside the company will see 50% go to the tax man.

Pension contributions for yourself or spouse should be done before incorporation as well

I am semi retired and I have postponed drying my pension as I am using all tax allowances for farm/rental profits.

Over the next couple of years some of the spending will be more lifestyle choices rather than paying tax.

Tonynewholland

https://www.boards.ie/discussion/comment/119806550#Comment_119806550

Why is it 15 and not 12.5.

Wildsurfer

https://www.boards.ie/discussion/comment/119804979#Comment_119804979

You can sell in buildings to increase your directors loan but you will have to pay stamp duty on the sale, so short term pain for a long term gain. On not incorporating because you have capital allowances left I wouldn't agree, we did the sums here and bottom line was even after including capital allowances it still made financial sense to incorporate, and especially for dairy farmers I would think they will be exorbitant tax bills next year. Its not as if one won't ever build again, if anything you will have more cash on hand to consider such projects.

Bass Reeves

https://www.boards.ie/discussion/comment/119806791#Comment_119806791

Sorry I forgot the 15% rate coming in is only for large companies. However you still have the same issue with getting money out

KAMG

https://www.boards.ie/discussion/comment/119807197#Comment_119807197

As I already said, each case is different. That's why people need to talk to their accountant rather than people on Internet.

Re buildings, you clearly don't get my point. Most big dairy farmers are incorporated at this stage.

Most, that had large plans re new buildings, got good advise. Took the advise. Incorporated. Then built, through company, using the after tax profits to help fund it, along with bank finance.

I don't see the point in being tax inefficient and casually throwing away well earned capital allowances when there are often other ways to reduce tax.

straight

https://www.boards.ie/discussion/comment/119807239#Comment_119807239

I guess you could drip feed the money out through wages for yourself up to the top of the 20% bracket. Pay your children out of the company up to the max too? I don't know. I have alot to learn about it but will probably end up incorporating next year. If you leave the money in the company and buy land with it then the company owns the land I guess.

Wildsurfer

https://www.boards.ie/discussion/comment/119807396#Comment_119807396

There will be a lot of people incorporating over the next year or so if milk price stays high and people realise the tax bills they are facing. Its kind of obvious that a person will consult an accountant to discuss the best options, but talking it over with people who have already gone that route be it on the Internet or a discussion group etc is a good first step even if to give you an idea of what you should be asking your accountant.

Wildsurfer

https://www.boards.ie/discussion/comment/119807239#Comment_119807239

As Straight said wages to the Director or directors up to the top of low rate tax band, monies paid to farmer to lease land to company and of course building up a large directors loan should be plenty for most people to live comfortably.

KAMG

https://www.boards.ie/discussion/comment/119807601#Comment_119807601

I agree 100%. But my point is that most of the big hitters lets say, are already incorporated. Those smaller dairy farmers, operating up to this as a sole trader, are facing huge tax bills for 2021 and 2022. Probably biggest ever, even with the newish personal tax credits for self employed, higher tax bands and lower rates of USC. However, in my opinion, most of these farmers wouldn't have much buildings in recent years so aren't losing out on incorporation. So, it makes sense for them. I'm only talking about the person who changed to dairy farming in lets say 2017. First few years, a lot of capital outlay, took a large chunk out of the profits. No tax issues. Now, the building allowances are only taking a smaller bit off the profits, leaving the big tax bills. They are thinking about incorporating. I say, hold on. Think about it very carefully. What are your weekly spending levels? What loans are outstanding for land etc? What are the succession situation like? Its not just a matter of forming a company and no more tax. If there are big families with no other income apart from the farm, there will be PAYE on the wages taken from company.

Bass Reeves

https://www.boards.ie/discussion/comment/119807396#Comment_119807396

I would not discount advice/ information from people on the internet. Ya there can be a lot of BS but this idea that only accountants hold the third secret of Fatima where tax advice is concerned is not correct.

You gave a real plaudit just because a lad had a 25k farm profit at drystock. I need a lot more information before I would not would not give an expression of approval. Last year was an exceptional year for profit for drystock much better than this year will be. That tax problem will not be as bad this year as costs are way up unless he is on a wetter than average farm.

One thing he and his spouse have to be earning above 80k between them to be in the he higher tax bracket for all farming income. They could even be in excess of100+ k

I be very slow to incorporate for what is a 9Kish difference between the two systems. If he has any capital investment plans on farm he will lose the advantage of offsetting farm losses against PAYE income.

As you say there is other ways to reduce tax. However accountants are not the sole giver of that advice.

Bass Reeves

https://www.boards.ie/discussion/comment/119807609#Comment_119807609

Ya but if you want to take 50k out to give to a child or want money for investment outside the company. Yes you can get investment put into the company back out but drawing can be at a significant cost. A lot depends on if the spouse is working off farm.

You said about building going in and drawing back the investment. The disadvantages are these are also around the house. If the company ever went bankrupt then you could have another farmer milking cows in your yard

KAMG

https://www.boards.ie/discussion/comment/119807770#Comment_119807770

What's your point exactly?

Bass Reeves

https://www.boards.ie/discussion/comment/119807815#Comment_119807815

Well if you cannot understand my point we will leave it at that

KAMG

https://www.boards.ie/discussion/comment/119807894#Comment_119807894

I think I understand what you're trying to say but I just want to be sure.

I deal with facts you see. My only point is that each person knows their own situation or at least they should do.

Each person's accountant should know their client's situation also. I'm not for one second saying that all accountants are some all knowing gurus. But simply, they should know better than some random lad off the internet. Its the modern version of some lad down the pub.

Forums such as this as great too. Don't get me wrong. I'm also a part time beef farmer. Love it. And I have learned some great stuff from this forum down the years. And you yourself are one of my go to guys on the stock side of things. I really value your comments on a lot of topics. And in fairness, most of what you say is 100% re this issue. All I'm saying is that there are a lot of variables and people need to keep in mind that what suits one family might not necessarily suit another and in some cases could be very unsuitable.

I wasn't having a go at Gman 1987. Fair play to him. All I was saying is that his situation is unusual. We have approx 200 clients with a 'Farm' Trade. Some are massive farms, others have a couple of hundred in grants and a few donkeys to draw grants. I honestly cannot think of any, off the top of my head, who are part time farming, with an off-farm income, with a taxable income of €25,000 after capital allowances being taxed at the top rate.

Bass Reeves

https://www.boards.ie/discussion/comment/119807936#Comment_119807936

There is a good few out there that would be but have nice shiny tractors, livestock boxes and landcruisers.

Saw a factor agent that has bought a new jeep lately, he went up 10 years. I suspect that it's taxation issues. I bet you he has no pension fund.

I seen a work maybe go and spend nearly 30k on a tractor ten years ago because he had a tax issue. He only told me afterwards. I explained to him about employing children he never knew about that.

Some accountants ( especially smaller sole accountants) can be very poor or reluctant with tax advice. Most farmers are not the most astute business people.

While you need to get an accountant to tailor your particular situation it's the different available options or long term outlook that you get here that often may not be available from an accountant.

KAMG

https://www.boards.ie/discussion/comment/119808023#Comment_119808023

Yes, that's my point. They would be top rate tax payers, if they didn't invest in something that will reduce the tax. Thats is what most do. If one of our clients is on the last year of 8 in capital allowances on a big tractor, we tell them in letter. It is letting them know and covering ourselves in case they point the finger in a years tie when tax bill goes up 3 or 4 grand.

There are very few part time farmers that will pay €12,000 tax on a profit of €25,000 every year without seeking to do something about it.

We get a few new clients every year that have come from other accountants and if what they say about them is true, they should be struck off.

But I still feel a good accountant is invaluable. I know I'm biased but I think its true. Same with a good vet. Other things can be changed very easily.

arctictree

Just bought a new jeep last year. Full capital allowance over the next 8 years. All diesel and running costs are farm expense.

The wife's car doesn't come near the farm accounts.