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Should i VAT register
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17-07-2012 9:16pm#1Hi ya.
I am a part time farmer and a full time PAYE worker. I was looking at buying a second hand tractor. I am not VAT registered. I was just wondering if I was going to shell out around 30k - 40k on a second hand tractor is there anyway I can claim VAT back. The farm doesn't make any major money, mainly covers costs. Tractor is to be got to make life a bit easier.
What do ye think.Tagged:0
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Hi ya.
I am a part time farmer and a full time PAYE worker. I was looking at buying a second hand tractor. I am not VAT registered. I was just wondering if I was going to shell out around 30k - 40k on a second hand tractor is there anyway I can claim VAT back. The farm doesn't make any major money, mainly covers costs. Tractor is to be got to make life a bit easier.
What do ye think.
dont spend 30-40 on a tractor
ask yourself how much income it will generate:eek:
a part time farmer beside me with 120acres spent 11k on a 12year old deutz she a fabulous machine with 125horses and will do the same work as a 100k machine0 -
Buying a new or fairly new machine for a farmer with an off farm job can be "tax wise" and be cheap in the long run. You also have the comfort of FTS (First turn start) and reliability when you need it.dont spend 30-40 on a tractor
ask yourself how much income it will generate:eek:
a part time farmer beside me with 120acres spent 11k on a 12year old deutz she a fabulous machine with 125horses and will do the same work as a 100k machine
Op, you need to talk to your accountant. I don't think it is wise for a part time farmer to be vat registered.0 -
It would not be tax wise a tractor is depreciated over 8 years so a 30K tractor allowance will generate 3750 of capital allowances/year however you can only have 4 years of losses against paye income. So it is likely that you will not get the benifit of the allowances and may have to carry over for years.
Also a new tractor like that will require a lot of maintenance and if anything goes wrong with the electrics:eek:
The vat amount is about 7-9K but you will have to charge vat on all your sales and if you sell cattle in factory or mart you will have to give the vat refunds to revenue. Also you will need to keep more detailed accounts and do returns at least twice if not more often some lads I know do returns every month.
If the difference between sales and purchasses was 20K you would have to give revenue over 1K in vat and maybe the same extra to the accountant.
Also at present if I was investing in farm I be more inclined in putting it into a shed rather than a tractor unless I was well setup.0 -
There is no point in blowing money on a tractor just for the sake of it. A fool and their money......
Maybe life could be made easier with better infrastructure, sheds, fencing, ditches or a holiday more often!
Don't know your situation, be this could be a winter to make money from cattle...0 -
I completly agree with the above posts. Being Vat registered isnt all its cracked up to be. What your saving on one hand your losing out the other. you only think you have more money than you do. You need continuous vat reg purchases of substantial amounts and out goings to play a very tricky balancing act. I,m Vat registered and really considering de- registering.
The way i would look at your purchase is to put it down as a reward or by product of farming profitably. No point spending 40k on something to look at. Work out your depreciation, running costs , maintanance and repayments. break it down and you would be surprised how many hours or even days a week you work for what is essentially a new toy.0 -
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I completly agree with the above posts. Being Vat registered isnt all its cracked up to be. What your saving on one hand your losing out the other. you only think you have more money than you do. You need continuous vat reg purchases of substantial amounts and out goings to play a very tricky balancing act. I,m Vat registered and really considering de- registering.
The way i would look at your purchase is to put it down as a reward or by product of farming profitably. No point spending 40k on something to look at. Work out your depreciation, running costs , maintanance and repayments. break it down and you would be surprised how many hours or even days a week you work for what is essentially a new toy.
Thanks for all the replies. I think I'll have another think about my investment. The way the weather is this year it looks as if it may be a tough winter as well. The joys of Irish weather0 -
Perhaps the op is well set up, has the infrastructure and the land??
At the end of the day, he didn't come on here to ask us if he should buy the tractor or not. he came on to ask if it would be financially viable to register for vat. It is best for each individual to discuss their situation with their accountant or financial adviser. However, i can assure you that you don't have to be making a loss for an investment in an asset to be tax efficient. Indeed, in the case of the op, with an off farm job, if he is on the high rate of tax (ie over 50%), then an investment in an asset such as this would be even more tax efficient. You don't have to be getting a tax refund for an investment to be worthwhile. For most people, a saving on the amount of tax that they have to pay is just as important!!
The whole idea of buying a new or nearly new machine is that you have less maintenance than you would have if you buy an older tractor at a cheaper price???
This ever quoted phrase of "the electrics give problems" is a selling tool of dealers who don't sell tractors with electrics. These days, manual tractors give a lot more trouble than electrics. This is because they are "bog spec", built cheaply with the cheapest parts and asssembled for the cheapest price!!Farmer Pudsey wrote: »It would not be tax wise a tractor is depreciated over 8 years so a 30K tractor allowance will generate 3750 of capital allowances/year however you can only have 4 years of losses against paye income. So it is likely that you will not get the benifit of the allowances and may have to carry over for years.
Also a new tractor like that will require a lot of maintenance and if anything goes wrong with the electrics:eek:
The vat amount is about 7-9K but you will have to charge vat on all your sales and if you sell cattle in factory or mart you will have to give the vat refunds to revenue. Also you will need to keep more detailed accounts and do returns at least twice if not more often some lads I know do returns every month.
If the difference between sales and purchasses was 20K you would have to give revenue over 1K in vat and maybe the same extra to the accountant.
Also at present if I was investing in farm I be more inclined in putting it into a shed rather than a tractor unless I was well setup.0 -
At the end of the day, common sense must prevail. There are better ways to save on tax than buying tractors or machinery. Maybe the infrastructure is well established, and maybe not.
From a few farmers I know who are registered for vat, they regret it. Talk to your accountant.0 -
Manoffeeling wrote: »There are better ways to save on tax than buying tractors or machinery
Not being smart, but can you point some of them out?
It might be useful for people to have them in their head for financial planning.
Some people that I have spoken with have suggested to buy more land or cattle, but this only increases profit and tax liability in the long term. In my personal experience, having a comfortable and reliable tractor and reliable and efficient machines saves me a lot of time and effort. It saves me tax and time and gives me more time to spend with my family.
In the past i invested in a pension, but this was virtually wiped out in 2008. Its not a great incentive for me to invest further in a pension scheme.0 -
Some people that I have spoken with have suggested to buy more land or cattle, but this only increases profit and tax liability in the long term. In my personal experience, having a comfortable and reliable tractor and reliable and efficient machines saves me a lot of time and effort. It saves me tax and time and gives me more time to spend with my family.
Agreed. In the long term buying a new machine isnt a bad investment at all.
My father bought a new New Holland TS115 back in 2000. It was about €50,000 then. It is still worth the bones of €25,000, so has cost about €2100 per annum in depreciation. It has only 4000 or so hours, so still fresh, and is still a nice place to work and has cost zero so far in maintenance apart from oil and filters. If you take into account the tax saving, then it was a cheap machine.
Dont think registering for VAT makes sense for a farmer except in exceptional cases.0 -
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To buy more land and cattle does increase profit and liability in the long term, but after 15 years, you have a bigger asset. There are several investment packages from the banks, but how safe are they?
I agree with buying a certain amount of machinery for tax write off, but some guys go way over board. I know a guy who puts up about 200 hours on a new tractor that costed over 40k. In my mind, that's crazy. Toys for big boys rings true.0 -
Perhaps the op is well set up, has the infrastructure and the land??
At the end of the day, he didn't come on here to ask us if he should buy the tractor or not. he came on to ask if it would be financially viable to register for vat. It is best for each individual to discuss their situation with their accountant or financial adviser. However, i can assure you that you don't have to be making a loss for an investment in an asset to be tax efficient. Indeed, in the case of the op, with an off farm job, if he is on the high rate of tax (ie over 50%), then an investment in an asset such as this would be even more tax efficient. You don't have to be getting a tax refund for an investment to be worthwhile. For most people, a saving on the amount of tax that they have to pay is just as important!!
The whole idea of buying a new or nearly new machine is that you have less maintenance than you would have if you buy an older tractor at a cheaper price???
This ever quoted phrase of "the electrics give problems" is a selling tool of dealers who don't sell tractors with electrics. These days, manual tractors give a lot more trouble than electrics. This is because they are "bog spec", built cheaply with the cheapest parts and asssembled for the cheapest price!!
Reilig I have to take issue with you here in OP's post he more or less stated that the farm was just about washing it face, he also stated that he was a PAYE worker so I presumed that he may have had taught of writing some of the depreciation off as a loss I just explained the issues and the maths as I did with the registering with vat.
And I know lads that are registered for vat and have issues with it one is makes bales and his issue is that with every bale he make he is competing with the unreg guys and at present there is over 90 cent vat/bale and what he claims would not cover this. Not to mind slurry spreading etc and as well he get caught on the vat refund.
If you had a 30K tractor you are going to mind it a lot more than a 10K tractor that you may do the maintenance with yourself and you will have more expensive filters etc. I know guys that have two tractors they maintain the Old one themselves and get a mechanic to do the newish one and a lot of fella's can fix mechanical issues but electrics:eek:.
If he is well set up well and good, but at present farm buildings are being build for good value compared to even 6-10 years ago but if the building industry pick up this may not be the case. Also farm buildings for pollution could be wrote down over three years, I am not sure if this is still the case.0 -
Manoffeeling wrote: »There are better ways to save on tax than buying tractors or machinery
Not being smart, but can you point some of them out?
It might be useful for people to have them in their head for financial planning.
Some people that I have spoken with have suggested to buy more land or cattle, but this only increases profit and tax liability in the long term. In my personal experience, having a comfortable and reliable tractor and reliable and efficient machines saves me a lot of time and effort. It saves me tax and time and gives me more time to spend with my family.
In the past i invested in a pension, but this was virtually wiped out in 2008. Its not a great incentive for me to invest further in a pension scheme.
Buying more land and or stock, which by your own words, increases profit and tax liability, simply emphasises the fact it's a good investment.
The land will be there long, long, long after the tractor is gone to its eternal rest, and has been replaced several times by more tractors, which in turn will go back to the smelter!!!
A farm that only covers its expenses as the OP says, could do better things with money than spend it on a first time start tractor.
There are plenty of twenty year old tractors, working honestly away, and starting on the button.
The number if new and newish tractors about the place doing shag all work is unbelievable. Tax efficiency my posterior!0 -
Well if you're taking issue,
The op came on here asking if he should register for vat when buying a tractor and without knowing anything about him, you advised him that he shouldn't buy a tractor at all. The Op never seeked our advice on whether he should buy it or not. For all we know, he is a multi-millionaire and can easily afford a tractor. It really is none of our business whether he can afford it or not - especially when he didn't see our opinion on it. Its between him, his accountant (and maybe his wife).
I know loads of people with 40k and 50k tractors who are well able to do the maintenance on them. They are no more complicated than most old tractors.
If you buy a 10k powerful tractor with high hours, you're asking for trouble in most cases. Some people can be lucky, but the majority aren't.Farmer Pudsey wrote: »Reilig I have to take issue with you here in OP's post he more or less stated that the farm was just about washing it face, he also stated that he was a PAYE worker so I presumed that he may have had taught of writing some of the depreciation off as a loss I just explained the issues and the maths as I did with the registering with vat.
And I know lads that are registered for vat and have issues with it one is makes bales and his issue is that with every bale he make he is competing with the unreg guys and at present there is over 90 cent vat/bale and what he claims would not cover this. Not to mind slurry spreading etc and as well he get caught on the vat refund.
If you had a 30K tractor you are going to mind it a lot more than a 10K tractor that you may do the maintenance with yourself and you will have more expensive filters etc. I know guys that have two tractors they maintain the Old one themselves and get a mechanic to do the newish one and a lot of fella's can fix mechanical issues but electrics:eek:.
If he is well set up well and good, but at present farm buildings are being build for good value compared to even 6-10 years ago but if the building industry pick up this may not be the case. Also farm buildings for pollution could be wrote down over three years, I am not sure if this is still the case.0 -
Atilathehun wrote: »Buying more land and or stock, which by your own words, increases profit and tax liability, simply emphasises the fact it's a good investment.
The land will be there long, long, long after the tractor is gone to its eternal rest, and has been replaced several times by more tractors, which in turn will go back to the smelter!!!
Ah but as I said, a modern reliable tractor gives me comfort, modern machinery saves me time with less breakdowns and gives me more time to do other things - as I pointed out, modern machinery helps me spend less time working on the farm and more with my family. As you rightly pointed out, if I buy land instead of a tractor, the land wil still be there when the tractor is gone. But more land will mean more work and less free time. Its all about work life balance. The land will be there for a lifetime, but the kids will be grown up before I know it and I don't want to miss out on that.
At least with the new tractor, I have a safe seat for the child too!0 -
Well if you're taking issue,
The op came on here asking if he should register for vat when buying a tractor and without knowing anything about him, you advised him that he shouldn't buy a tractor at all. The Op never seeked our advice on whether he should buy it or not. For all we know, he is a multi-millionaire and can easily afford a tractor. It really is none of our business whether he can afford it or not - especially when he didn't see our opinion on it. Its between him, his accountant (and maybe his wife).
I know loads of people with 40k and 50k tractors who are well able to do the maintenance on them. They are no more complicated than most old tractors.
If you buy a 10k powerful tractor with high hours, you're asking for trouble in most cases. Some people can be lucky, but the majority aren't.Farmer Pudsey wrote: »Reilig I have to take issue with you here in OP's post he more or less stated that the farm was just about washing it face, he also stated that he was a PAYE worker so I presumed that he may have had taught of writing some of the depreciation off as a loss I just explained the issues and the maths as I did with the registering with vat.
And I know lads that are registered for vat and have issues with it one is makes bales and his issue is that with every bale he make he is competing with the unreg guys and at present there is over 90 cent vat/bale and what he claims would not cover this. Not to mind slurry spreading etc and as well he get caught on the vat refund.
If you had a 30K tractor you are going to mind it a lot more than a 10K tractor that you may do the maintenance with yourself and you will have more expensive filters etc. I know guys that have two tractors they maintain the Old one themselves and get a mechanic to do the newish one and a lot of fella's can fix mechanical issues but electrics:eek:.
If he is well set up well and good, but at present farm buildings are being build for good value compared to even 6-10 years ago but if the building industry pick up this may not be the case. Also farm buildings for pollution could be wrote down over three years, I am not sure if this is still the case.
A multimillionaire, coming on here looking for free advice, would deserve to be led astray!!!
The tight hoor, should pay for it somewhere else!0 -
another point no-one has said about being vat registered is that to get vat back on a secondhand tractor it would have to been traded in by a vat reg farmer or business.i am vat reg and this rule changed a few years ago and affected me pretty badly as i usually buy second-hand.my solution has been to buy things that need repair cheaply and buy the parts to get the vat back that way.other choice is to buy in n.i. or uk0
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Well if you're taking issue,
The op came on here asking if he should register for vat when buying a tractor and without knowing anything about him, you advised him that he shouldn't buy a tractor at all. The Op never seeked our advice on whether he should buy it or not. For all we know, he is a multi-millionaire and can easily afford a tractor. It really is none of our business whether he can afford it or not - especially when he didn't see our opinion on it. Its between him, his accountant (and maybe his wife).
I know loads of people with 40k and 50k tractors who are well able to do the maintenance on them. They are no more complicated than most old tractors.
If you buy a 10k powerful tractor with high hours, you're asking for trouble in most cases. Some people can be lucky, but the majority aren't.
Yes relig and I know some as well but I also know farmers with expensive tractors taking them to a tractor mechanic to do work on them. Maybe we should close down boards as if we only answer a question in the narrow sence then there is not much use in boards.
It is the same in discussion groups if we all go along and do not expand the discussion then there is not much point in discussion groups or in boards.
The reality is that in the way the OP structured his orginal question a lot of posters comments on tax efficienty are fair comment. And just because a person is swimming in money is no reason for them to waste it.
A person I work with did the same thing spend 30K on a tractor because he had a tax issue then found out it was spread over eight years. He had a son who works a lot on the farm that will be going to college in September. It was not until I told him he relised that he should have him registered as an employee and pay him for the work that he helps with and that this might help to fund his education.0 -
I registered for vat 5 years ago and it was a great decision for me, I save around 3-4 thousand euro a year, thats not including any vat saving on machinery purchases,no work required, IFAC lady comes around every 2 months and does accounts and vat returns,just need to give her all reciepts, main saving are on sprays,diesel for machinery and jeep,repairs and maintance on machinery and land. lose out when selling cattle and sheep though but for my situation the savings on everything else make it worthwhile. I guess it depends on what your working at,just need to tally everything up0
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I have a half dozen farmer clients who are VAT registered and most would be claiming vat refunds 4 out of the 6 periods.
Go to your last 3 years accounts.
vat on cattle and sheep is just over 5% so calculate your sales vat at that .
vat on MGO (Agri) etc is 13.5%
vat on derv (road diesel)(farm portion), sprays and silage wrap, mobile & landline(portions) is 23%
VAT on repairs is 13.5% for labour and 23 for parts
cost of accounts 23% :rolleyes:
quick calculation will see where you stand.0 -
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When a person posts a thread on an open forum, not all information will be offered, only what seems relevant. This leads to contributions which are influenced by the contributors situation. I posted thread relating to inheritance and disability last year and received a mix of questions and queries from people. Some people though I was taking the wrong route, others thought I was taking the right. I suppose the point I am making is that there is more to see than what is in front of you. Not all situations are the same.0
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Manoffeeling wrote: »I suppose the point I am making is that there is more to see than what is in front of you. Not all situations are the same.
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For anyone interested, here's a link to the tax aspects of investing in an asset and depreciating it over 7 years. The link deals with a farm building, but it would be a similar aspect if you invested in machinery.
http://www.farmersjournal.ie/site/farming-Tax-aspects-of-a-new-farm-building-14462.html0 -
I'll tell you one area where i have a problem - the bloody tractor
In 2002 we bought a new tractor - I think it was about 35k at the time. We then traded in 2008 - we were given 32k for the trade in but the problem is we had 5 or 6 years written down so the profit on it was huge - with the corresponding tax bill
How are most contractors and tillage farmers replacing tractors without this problem? Are they not writting down the tractor? I don't think that technically you have to. but if your not writing down then no impact on your tax bill - so whats the point
In general tractors hold their value very well - inflation often means that a tractor after 5 years can nearly be worth what it cost new. Tractor will probably be changed next year or 2.
So what are fellas doing who change their tractors fairly regularly??
(Don't want a lecture on how i have saved in the years of the write down)0 -
I'll tell you one area where i have a problem - the bloody tractor
In 2002 we bought a new tractor - I think it was about 35k at the time. We then traded in 2008 - we were given 32k for the trade in but the problem is we had 5 or 6 years written down so the profit on it was huge - with the corresponding tax bill
How are most contractors and tillage farmers replacing tractors without this problem? Are they not writting down the tractor? I don't think that technically you have to. but if your not writing down then no impact on your tax bill - so whats the point
In general tractors hold their value very well - inflation often means that a tractor after 5 years can nearly be worth what it cost new. Tractor will probably be changed next year or 2.
So what are fellas doing who change their tractors fairly regularly??
(Don't want a lecture on how i have saved in the years of the write down)
You should get a reciept with the difference between the 2002 and the 2008 tractor add this amount to the depreciation that is left on the 200 2 tractor and then depreciate over 8 years.0 -
ok 2 different areas
1) capital allowance on tractor. 12.5% per year of the value of the tractor against the tax bill
2) depreciation (isnt a taxable expense)
you have your cost price €35k
price it will be in 5/7 yrs 6 years
Diff is total depreciation €32k
divide total depreciation by no of years worked out the price reduced over
Depreciation (€35-32)/6 = €500 per year
if you depreciated by more then a realisable profit on disposal of an asset occured. All about the accountant advising you
How some contractors do is claim the capital allowances but not depreciate each tractor as they trade in 1 every year so make a loss on 1 tractor every year (cost of the traded in tractor when new - trade in price)I'll tell you one area where i have a problem - the bloody tractor
In 2002 we bought a new tractor - I think it was about 35k at the time. We then traded in 2008 - we were given 32k for the trade in but the problem is we had 5 or 6 years written down so the profit on it was huge - with the corresponding tax bill
How are most contractors and tillage farmers replacing tractors without this problem? Are they not writting down the tractor? I don't think that technically you have to. but if your not writing down then no impact on your tax bill - so whats the point
In general tractors hold their value very well - inflation often means that a tractor after 5 years can nearly be worth what it cost new. Tractor will probably be changed next year or 2.
So what are fellas doing who change their tractors fairly regularly??
(Don't want a lecture on how i have saved in the years of the write down)0 -
Depreciation is the same as capital allowance with a CA you are depricating an asset over 8 years
2002 tractor =36k =4500/year so by 2010 allowance gone
in 2012 new tractor with trade in costs 16K
I think not 100% sure you can now just get CA/deprecate just the 16K over the next 8 years
What a lot of contractors do is lease a tractor over 5 years the lease is totally tax deductable with a baloon payment say 500 euro they then trade the tractor and lease the replacement with a baloon payment.0 -
Whats the downside of leasing then?
Is the ballon payment tax deductible?0 -
lakill Farm wrote: »ok 2 different areas
1) capital allowance on tractor. 12.5% per year of the value of the tractor against the tax bill
2) depreciation (isnt a taxable expense)
you have your cost price €35k
price it will be in 5/7 yrs 6 years
Diff is total depreciation €32k
divide total depreciation by no of years worked out the price reduced over
Depreciation (€35-32)/6 = €500 per year
if you depreciated by more then a realisable profit on disposal of an asset occured. All about the accountant advising you
How some contractors do is claim the capital allowances but not depreciate each tractor as they trade in 1 every year so make a loss on 1 tractor every year (cost of the traded in tractor when new - trade in price)
So basically what your saying to me is that we should be claiming only 500 per annum on Cap Allowances on the tractor (based on numbers above) if we don't want to incur a profit on disposal - which is approx €250 tax saving
Only care about tax position - don't really care if tractor is worth €1 or €100k on the books0 -
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Whats the downside of leasing then?
Is the ballon payment tax deductible?
Downside is that if you sell the tractor and it exceeds the balloon payment you have a tax issue, however if you are replacing as you go along it is not an issue.
If the balloon payment is above the value of the tractor then you have a tax deductible amount. However a lot of contractors leave little or no balloon payment and just trade in again. Catch is strictly speaking they should put the tractor/Machine into the stock at its true value (if Keeping) but doubt if the all do.
You seem to be caught as the dealer put a high book value on both your 2002 and 2008 tractor you bought. This leaves you in the situtation that you have a tax issue if the reciept only stated the difference in the value of the tractors you could put a lower residual value on the 2002 tractor. It must have been a very big tractor to have a residual value of 32K and have very little work and been very clean. He obivously had the 2008 tractor at a high book value and did not want to relise a loss at this time on it.0
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