Farming in limited company

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.

DrPsychia

https://www.boards.ie/discussion/comment/120793674#Comment_120793674

Can also pay family salaries tax free(rules apply). More money to repay loans because less tax paid. But incorporating only makes sense if one pays a lot of tax at the higher rate.

atlantic mist

https://www.boards.ie/discussion/comment/120793875#Comment_120793875

Farmer/individual sells his/her stock and machinery into company, receives no cash for sale....gave a personal loan to company, will draw loan back out at later stage

loan and stock and machinery will be same value, company needs to show a profit for net assets to remain positive

a company taking out a loan to give to a director is something entirely different and would be very unusual on a formation of a company

rounders

https://www.boards.ie/discussion/comment/120789492#Comment_120789492

Here is the link you mentioned. Gives a good overview

https://www.teagasc.ie/media/website/rural-economy/farm-management/Farming-Through-A-Company_2018.pdf

Bass Reeves

https://www.boards.ie/discussion/comment/120793674#Comment_120793674

You can take a sizeable lump sum as a sole trader as well, it's just accessing the method to take it.

Pension provision can shelter tax as well.

https://www.boards.ie/discussion/comment/120794508#Comment_120794508

You must have decent stock and machinery values on the books. If you have your cows on the books at a base value of 6-700 each ( often reducing stock values has a tax benefits a sole trader) the transfer value may not be as high as you would imagine.

Machinery is trickier. Often it's completely depreciated so there maybe no residual value to transfer without a personal tax bill. As the main purpose is to reduce a tax bill there is seldom room to manoeuvre on these.

https://www.boards.ie/discussion/comment/120793914#Comment_120793914

You can do this as a sole trader admittedly a company set up allows a bit more freedom.

One advantage of a company set up is it allows more freedom on spending on business sponsorship and entertainment, hotel accomodation etc that as a sole trader.

https://www.boards.ie/discussion/comment/120793601#Comment_120793601

Yes but it's in the company account. You pay 12.5% for that privilege. However you have to pay normal tax on any income or dividends drawn from it. Directors loans are really only deferred depreciation except for stock values

The main advantage often can be the income from the land rental which is paid from the company before 12.5% tax.

Accounts are a bit more expensive as well as there is an onus on your accountant to get them filed.

I would not be against going into a company, however many shelters are available outside as well as inside a company. If you have children approaching 14 years of age they can be used to shelter income outside a company structure nearly as efficiently but it depends on your tax bill. Remember as well if the children have other income ( part-time jobs) this limits the shelter whether inside or outside a company

As well last year was a particularly profitable year for dairying and may be impacting farmers thinking. However you have to look at the liability over a 3-5 year term and factor in changing circumstances.

sandman30

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

I think people are mixing up director loans to the company and director loans from the company.

The rules on the company making loans to directors are very strict, some of the rules mentioned above. However there are no rules as to how much a director can loan to a company.

It is the director loans to the company where the tax saving opportunities are: Generally speaking when you set up a company you sell all the assets (except land) to the company. Rather than the company pay cash, you give the company a loan. As the company makes a profit it pays tax at 12.5%. the first profit can be used to repay the loan to the director. Because it is a repayment of principal and not income there is no further tax liability to the director. It makes the first years of company ownership very tax efficient

Bass Reeves

https://www.boards.ie/discussion/comment/120823693#Comment_120823693

There is one issue you can only sell it at there book value. If machinery is deprecated substantially the amount of the loan may not be substantial. The other issue is now they belong to the company not to you.

yosemitesam1

https://www.boards.ie/discussion/comment/120823733#Comment_120823733

There's no issue there. You put it in at what it's worth and you could justify the price at. Value can go up over what you paid as well for some things also

KAMG

https://www.boards.ie/discussion/comment/120823733#Comment_120823733

That is incorrect. I used to enjoy your posts but recently you have posted a lot of stuff that is complete nonsense.

Bass Reeves

https://www.boards.ie/discussion/comment/120823764#Comment_120823764

If you put it in above book value it's considered as profit on your sole trader account or am I wrong

Bass Reeves

https://www.boards.ie/discussion/comment/120823757#Comment_120823757

Problem is if the value it's put in at is higher than the book value it's a trading profit on your sole trader account ( well it was the last time I was told anyways) then it's treated as a disposal and it's taxable income . It's exactly the same as selling a piece of machinery you have deprecated