Farming in limited company

mahoney_j

In now in position where my accountant is advising me to go limited company route for few reasons ….I’ve gone thru bit of what’s involved …advantages /disadvantages etc …interested to hear opinions from anyone that has incorporated and pros /cons they’ve encountered .thanks

Castlekeeper

I'm farming in very limited company, just myself here most of the time...

Getting coat 👋

Wildsurfer

One cost that will hurt is the stamp duty on selling buildings and/or land into the company to build up your directors loan which will allow you draw money out of the company for personal use. I was advised to build up a figure of €600K which cost me €45K in stamp duty.

mr.stonewall

Do most farmers rent the land to the company. This probably becomes an issue if the company buys land. I'm really interested in see where this thread goes, as it's something I have to consider in the next few years. Part time farming, full time job, stuck at the higher tax rate and most investment has been done. Very limited building work to do on farm.

The big one seems to be the exit strategy for the company come retirement and what seems to be the best way to work that

blue5000

Timing is another issue. Lots of lads get the sfp/biss delayed the first year while setting the company up.

mahoney_j

https://www.boards.ie/discussion/comment/120766424#Comment_120766424

It’s been on cards here last 2 years ….lots of capital write offs etc up to that small tax bill ….now amongst others tax bill gone thru roof and capital write offs nearly gone ….have been on income averaging too

company structure seems the next natural step ….allows build some wealth ..directors loan etc but negatives too ….interested to see how this progresses too

mr.stonewall

https://www.boards.ie/discussion/comment/120766444#Comment_120766444

It's a decision that needs planning and at least 48 months to plan

duffysfarm

do you lose a part of your single farm payment if you transfer it to a limited? doesnt seem right but read it somewhere - something to do with clawback

kevthegaff

It's costly enough to change over and alot of work. I'm just switched over as I'm similar J to u with capital allowances etc coming to an end. I say accountants prefer it too rather than getting pressure from farmers and businesses

K.G.

The big thing I d ask is what do you want to do with your life.is building wealth your thing or is lifestyle where its at.my reason for asking that is there's no point in going into a company if you are drawing out a big wage to sustain your lifestyle which will be taxed at the higher rates.on the other hand if want aquire agricultural assets then it is a big help to make it work.but don't be blinded by just tax reductions and if you like your toys it doesn't make half as much sense if the government is only paying 12.5 % of them.it just requires you adopt a different frame to your thinking

MIKEKC

https://www.boards.ie/discussion/comment/120766346#Comment_120766346

If the business was doing so well that you were advised to go the company route why would you need such a large directors account?. In most cases land and buildings are leased to the company

Wildsurfer

A directors loan allows money to be taken from the company in the years ahead for personal use, to help children buy houses, retirement etc. Without it any money taken out will be taxed at the normal rates, so the bigger the directors loan the better really.

MIKEKC

https://www.boards.ie/discussion/comment/120766792#Comment_120766792

48 months.? 4 years to plan. Seems a long time

MIKEKC

https://www.boards.ie/discussion/comment/120770670#Comment_120770670

Yes the bigger the directors account the better. You can qualify for retirement relief at age 55 As far as I know you have to have the company formed 10 years before retirement. If you have high personal drawings you would want to be a seriously high earner to go the company route

mr.stonewall

https://www.boards.ie/discussion/comment/120774154#Comment_120774154

Brain freeze meant 2 years

fulldnod

We went down this road 15 years ago, alot of local "experts" thought we were mad, 1 of the best thing we done

mr.stonewall

https://www.boards.ie/discussion/comment/120774805#Comment_120774805

What were the pros for you entering an LTD

MIKEKC

https://www.boards.ie/discussion/comment/120774805#Comment_120774805

18 years ago here..Working well. Rented the land to the company. Was then able to transfer land to next generation when I felt the time was right No need for a big directors account. The only time you need a big directors account is if you want to give family cash. You can also get a directors Loan from the company .

Tonynewholland

https://www.boards.ie/discussion/comment/120766649#Comment_120766649

Do you know what you must pay to come out of averaging.

mahoney_j

https://www.boards.ie/discussion/comment/120775097#Comment_120775097

From what I know for my situation …none ….timing now for me is proably right but it’s been guts of 2 years of lining things up

Tonynewholland

https://www.boards.ie/discussion/comment/120775402#Comment_120775402

That helps alright and if all the building work is done

fulldnod

https://www.boards.ie/discussion/comment/120774927#Comment_120774927

Tax savings

mahoney_j

Any dairy farmer that switched ….did they register for vat and is it worth doing …….general consensus seems to be no

Injuryprone

https://www.boards.ie/discussion/comment/120776522#Comment_120776522

Why would you register for vat? Can't think of a reason.

Also, don't transfer land and buildings to the company, just rent it which can form part of your wages down the line. Directors loan will still be very sizable amount with stock and machinery.

Get yourself a good accountant who's done a good few of these if your current one hasn't. I switched to one in your county and there was a fair difference in the advice between a few different practices I enquired with (along with some eye watering fees)

Ps don't know how you're still a sole trader. Your tax bill must be heading towards six figures for 2022. Got my own back last week tax for 22 is approx 30% what it would've been had I stayed sole.

mahoney_j

https://www.boards.ie/discussion/comment/120776929#Comment_120776929

On the vat Yeadh agree …..can’t see benefit

leasing the land and buildings and using that as a wage is interesting take …presuming that lease money is treated as a wage then with associated taxes 🤔rather than transferring them all in and ending up paying stamp duty ….but bigger directors loan

I’m in process of securing a mortgage also to buy a house which will be primary residence for rest of our days any pros to lumping that in …..company structure going to be long term thing for me 20 years to my mid 60s kids still young …..farm debt now at manageable level but 1/2 opportunities may come my way in near future

Injuryprone

https://www.boards.ie/discussion/comment/120777042#Comment_120777042

Your directors loan is going to be the best part of 500k as it is. Can't remember now but there's probably other reasons not to put the land in other than stamp duty. Maybe how do you get it back out, I forget.

Tbh, you sound like you're in need of a good sit down with 3 or 4 different accountants to thrash out all the different options. They'll all give you an hour if you're a potential customer

mahoney_j

https://www.boards.ie/discussion/comment/120777167#Comment_120777167

👍….meeting alternate accountant for second opinion next week ….

Wildsurfer

I am leasing the land to the directors(wife and I) at a value up to limit of lower tax threshold. But you can't carry debt into the company so if you have debts of say 300K the first 300K of selling stock and machinery into company will be used up offsetting that and won't be available for your directors account.

K.G.

https://www.boards.ie/discussion/comment/120777042#Comment_120777042

In my opinion I wouldn't transfer property to a farming company but I would and did buy a property through it.you have to think a head as to how you might transfer assets to the next generation and personally I'd be slow to hold all the property through the company.for instance.i m thinking about using the loan to buy a property which would not be in the companies name which I forsee m8ght go to of the children

Wildsurfer

When you say you bought property through the company do you mean land or a rental property?

yosemitesam1

https://www.boards.ie/discussion/comment/120777042#Comment_120777042

Can you do a long-term tax free lease to the company. Don't know what the limit is?

Incorporated here. Don't see any downsides. Allows me more flexibility for savings/pension as demand for drawings would be low.

Went unlimited as there wasn't going to be any benefit for the extra work.

wrangler

You can't lease tax free to a company if you're closely related

K.G.

https://www.boards.ie/discussion/comment/120778933#Comment_120778933

Land

DrPsychia

https://www.boards.ie/discussion/comment/120770670#Comment_120770670

Yes but a directors loan has to less than 10% of the sum of everything the company owns minus the costs of all the companys debts. If you go over this threshold you will be fined and possibly get penalties like possibly becoming personally liable for all the company's debt. The company has to include the directors loan as a part of its Corporation Tax Return and pay tax at 25% of the loan amount before the deadline. If the loan is repaid within four years, the company can request a refund of the income tax paid.

Boards is no place for this type of advice. Anybody considering a company route should seek advice from a good accountant or firm that knows this area like the back of their hand.

mahoney_j

https://www.boards.ie/discussion/comment/120786499#Comment_120786499

Thanks for that ….but disagree great place to get advice/suggestions and pointers from others who have gone company route ….everyone has differing reasons and dose things different nice to get them without getting into private/personal stuff …..anyone considering this route will and should be getting considerable advice from accountant and solicitor

DrPsychia

https://www.boards.ie/discussion/comment/120787249#Comment_120787249

I'm saying this solely in the context of forming a company for taxation benefits as there are lots of terms and conditions, lads can give opinions but it doesn't provide the full story which may or may not be applicable to your situation, and can potentially dissuade people from seeking professional advice. You need an experienced accountant in this area to avoid headaches. There's an analogy "Accountants diverge, fortunes submerge".

Boards is indeed a great place for certain advice.

mahoney_j

https://www.boards.ie/discussion/comment/120787680#Comment_120787680

👍👍I’d doubt many on here would be jumping down the company route based on what they read here or various other places online …good accountant a must and I’d even go further and say an accountant that is well up to speed and has many clients that have already incorporated ……I know from small discussions on the topic in discussion groups some lads have accountants that are quite obviously not up to speed maximising benefits and tax savings for sole trader farmers never mind forming a company

Wildsurfer

How do you know if you have a good accountant unless you inform yourself first! At least then when you have your meeting you are armed with the questions you need to be asking and you won't be long finding out if he/she knows their stuff. I wasn't aware that the directors loan could only be 10% of company assets, I'm hoping my accountant knew that but it will be something I will be asking in yearly review.

mahoney_j

https://www.boards.ie/discussion/comment/120788015#Comment_120788015

Accountant is meant to be the expert and should know various ins/outs ….bit like asking accountant to work for you in spring for calving/calf rearing ….not his area of expertise

Tonynewholland

https://www.boards.ie/discussion/comment/120788015#Comment_120788015

Is there a difference with the assets a farmer puts in with machinery and stock compared to just getting a loan from your company.

DrPsychia

https://www.boards.ie/discussion/comment/120788015#Comment_120788015

The best way to inform yourself is read about a PLC and search for terms you see people mention here like "directors loan Ireland". You should also browse the Office of the Director of Corporate Enforcement website @ odce.ie , they have decent pdf booklets explaining pertinent company information. Read material published by accounting firms, or a corporate solicitor, you'll see some relevant blogs on their firms websites. Directors transactions and beneficiaries for succession planning can be a complex area so best to consult accountancy firms and a solicitor/firm who specialises in corporate law. It's quite possible to find yourself before the courts if the value of your assets fall for whatever reason as the loan value will be greater than 10% of your total assets(minus debts).

https://www.boards.ie/discussion/comment/120787763#Comment_120787763

That's the problem with forums. You read stuff that will dissuade you because someone maybe had a bad experience due to an inept or unqualified accountant with little experience in the area.

Everyones situation and plans are different, their asset values vary wildly, as do their debts. You may very well benefit from a LTD company and I believe its worth the investment to consult because it could save thousands in tax, it certainly won't break the bank.

If you are seeking professional advice I would look at firms instead of sole individuals as they would tend to have a pool of knowledge to dip into. Personally, I would avoid IFAC, try smaller more localised firms.

yosemitesam1

https://www.boards.ie/discussion/comment/120788770#Comment_120788770

Does that directors loan value of ten percent refer just to the company lending to directors and connections or does it also include directors lending to the company also?

K.G.

I suppose there s accountants advice and that's fine but in terms of the practical running of the company from a farming point of view it's no harm to bounce it around here.i think the biggest mistake that could be made is to go into a company solely on the basis of large tax bills

mahoney_j

https://www.boards.ie/discussion/comment/120788770#Comment_120788770

With my local Ifac and nothing bad at all against tgem or head guy …..really really good so far

DrPsychia

https://www.boards.ie/discussion/comment/120788912#Comment_120788912

There's no issue when a director loans to a company. It's only when the loan is from the company to the director that's it's subject to a the 10% limit. The loan from company to director is also subject to BIK, and other tax implications on the directors part if given interest-free.

https://www.boards.ie/discussion/comment/120789002#Comment_120789002

Teagasc have a good pdf on the advantages and disadvantages of running a farm through a company. I can't post links, Google "teagasc farm company"

awaywithyou

https://www.boards.ie/discussion/comment/120789002#Comment_120789002

i presume the reason most lads go for it is for the prevention of large tax bills.... i assume 100k profit taxed at 12.5% is alot more appealing than 100k taxed at 53%...?? i actually dont see any other reason for a farmer to form a company other than reduce tax liabilities

Injuryprone

https://www.boards.ie/discussion/comment/120788770#Comment_120788770

You're giving out about taking inaccurate information from threads on boards, yet you're the one who's jumped into this thread out of nowhere and threw out a complete red herring of this 10% directors loan craic when everyone else understands a directors loan to mean the company paying back the director for assets transferred to the company

https://www.boards.ie/discussion/comment/120789536#Comment_120789536

That’s the problem right there. The ignorance of thinking its a case of tax of 12.5% v 5x%, makes a great headline. The amount of people who think that forming a company is that black and white not to mention the chance of being able to tell everyone at the mart that they have a company.

In the case of the former, profit (or cash) is now in your pocket free for you to spend, in the case of the later it’s stuck in a company and it will take a dividend or salary which is anyway taxed at 5x% to get it into your pocket.

Deciding whether to form a company is so much more than just the immediate tax rate.

Wildsurfer

I'd still rather have the money in my company account than in the Collector Generals though...

Injuryprone

https://www.boards.ie/discussion/comment/120793413#Comment_120793413

You can take a sizable lump sum on retirement tax free

DrPsychia

https://www.boards.ie/discussion/comment/120791783#Comment_120791783

What are you talking about, red herring? I'm not misleading or distracting from OPs question. You can't assume everyones understanding of a directors loan(DL) is the same as there are two types( director -> company, company -> director). OP asked about the pros/cons of a LTD, Someone mentioned about DL, I simply elaborated on aspects of a DL to inform OP, I provided sources for what I mentioned so people can read the regulation and rules for themselves(odce).

when everyone else understands a directors loan to mean the company paying back the director for assets transferred to the company

What do you mean by paying back? If assets are transferred to a company, that business owns the assets. In your statement, for a director to be repaid, they would need to, for example, draw a salary from company income. But that's not a directors loan. The assets were not loaned to the business. Transferring ownership of assets, and loans are two different things.