Economics of buying a new Tractor

Silverdream

I know folks would advise buying one with a few years up as they would be a lot cheaper, but I cannot see the value in second hand Tractors, the prices have sky rocketed to the point that I'm think I'd be as well to buy new. I've a few questions with regard to buying a new Tractor,

first is the VAT, I'm not VAT registered but can I still claim the VAT back?

Is there straight prices vs trade in like with Cars?

I guess I can depreciate the value of the Tractor over 8 years, (12.5% per year) but can I use a longer or shorter time frame?

Also with regard to the depreciation am I correct in say I make 20k profit on the farm so saying a 70k tractor I'll have 8750 as an expense so now my profit is 11250

Finally I'm finding it hard to get list prices of Tractors, is there any publication that has a list?

Grueller

No way to get the vat back without registering.

No differ in straight prices as dealers actually want good trade ins.

You are correct on depreciation but as far as I know it is only available over the 8 years. Finance packages on new can be gotten out to 7 years to match this.

Forget list prices. The journal magazine could be up to 15% out in my experience depending on brand. You will need to speak to the dealers.

mickdw

Yes the profit will be reduced by 12.5 percent of cost of tractor each year for 8 years.

If you get vat back, the 12.5% will be based on the before vat cost.

Your actual saving will only be a percentage of that €8750 depending on your tax rate.

cjpm

Bass will be along shortly….

KAMG

You cannot get VAT back unless you register for VAT. Which would be an unusual thing to do, but some of our clients have been determined to do it, and have done. Its a right pain though for them and us.

If you want to get a quicker write off against tax, you could go the lease route. A leased asset is written off against tax over the term of the lease. So it could be 5 years etc. However, from an accounting point of view, leased assets get messy when they are being got rid of. So I wouldn't advise this route personally.

SodiumCooled

https://www.boards.ie/discussion/comment/121733852#Comment_121733852

Why is there such a reluctance to register for VAT for farmers. I have a friend/distant relation (calf to beef enterprise) who has been VAT registered for years and can't understand why it's not common place. He has VAT back on tractor, jeep, diesel (tractor and road), servicing, machinery, laptop, phone, esb and almost anything else that can be loosely related to the farm. You are only paying VAT at 4.8 on cattle sales then but are claiming all the above at 13.5 or 23%.

He is encouraging me to register since I am looking at buying a jeep and on the face of it I'd be saving 10k or so alone on the jeep leaving leaving out the savings on all the other things - yes there is items you can claim vat on when unregistered but its quite limited. Maybe I am missing something which is why I am asking (I haven't broached the subject with our own accountant yet).

KAMG

https://www.boards.ie/discussion/comment/121734521#Comment_121734521

32reasons.

First is the record keeping needed and the extra time this takes. Then, the cost. If you are doing it yourself, grand. But if you are getting an accountant to do it, it could be anything from €500 to €1,000 a year extra. All depends on the level of receipts etc.

Secondly, if VAT registered, it is the net of VAT expenses that are offset against net income. Most people prefer just claiming the gross cost of the expenses as an expense.

Furze99

https://www.boards.ie/discussion/comment/121734521#Comment_121734521

The principle behind VAT is that you can claim VAT back on your legitimate expense alright but you must charge VAT to any customers on your products or services you sell. VAT is generally zero for most foodstuffs but the divil is in the detail and you need to be careful to charge it where required e.g. for farming services of some sort.

weatherbyfoxer

Makes sense for most beef sheep and tillage farmers to register for vat I reckon,claim vat back on everything you buy bar feed and fertiliser,Also claim back on vets and any other service provided on the farm

KAMG

https://www.boards.ie/discussion/comment/121734891#Comment_121734891

I don't mean to be smart, but if it made sense to be registered for VAT, all farmers would be registered.

Only 8% are registered nationally and in our office, it would be roughly that amount too.

Those who are registered are generally registered by default. As in, years ago, they had 2 trades, say as a self employed person. For example, a plumber. Then, when the plumbing business took off they registered for VAT, as they were obliged to. Then when the plumbing business really took off, they formed a company for the plumbing business. But they kept the VAT registration for the farm.

weatherbyfoxer

https://www.boards.ie/discussion/comment/121735030#Comment_121735030

Not true in alot of cases, Alot of farmers don't know how much vat they pay out and most accountants aren't working in the farmers intreast but just what the minimum they are paid for

KAMG

https://www.boards.ie/discussion/comment/121735306#Comment_121735306

Are we not. Thanks for letting me know.

Cavanjack

Finishing farm here. I worked it out for a couple of years and turns out we’d end up losing money if registered for vat.

FintanMcluskey

https://www.boards.ie/discussion/comment/121734628#Comment_121734628

Buying any middling tractor and claiming VAT back would be worth multiples of a €1000 yearly accountancy fee.

Often wonder why so many accountants advise against it, is it got to do with being unable to charge correctly for it

Bass Reeves

https://www.boards.ie/discussion/comment/121736890#Comment_121736890

It might be but you will only buy a tractor on a beef farm every 10 years at the most. If you buy second hand machinery there is a premium paid for machinery that the vat can be reclaimed.

I killed 60 cattle last year tg8e difference between purchase and selling vat is 3K ish, add accountant costs and it will be 3.5-4k.

Silage contractor cost 3250 vat 387

Plastic 1140 vat vat 215

Accountant 1050 vat 75 euro

500L tractor diesel 600 vat 83

Car diesel 4500L cost 8100 euroX 0.66= 5346 vat 1k

Digger hire 400 euro vat 48 euro

Things like electricity and phone are miniscule when you take add backs into accounts. Probably less than 150 euro.

Most lads buy second hand jeeps or van again you pay a premium for a vat that has a vat receipt

Basically if you vat register you would want to have machinery disease.

Contractors pay more than they claim back in vat

As wellyou are more likely to have an audit so accountant will be more thorough about your accounts

Silverdream

I'm not a fan of getting VAT registered just to buy a new Tractor, I'd take the hit on the VAT as it ends up being added to the value of the Tractor I would be depreciating over the 8 years. Also down the line when it comes to sell or trade it in then it can be sold without having to pay the VAT on the sale, however how does the accounting side of that work, say if you've depreciated a 70k Tractor to 0 on the books but then go on to sell or Trade it in for 35k 10 years later?

KAMG

https://www.boards.ie/discussion/comment/121737847#Comment_121737847

If the tractor has been fully written down against tax, i.e, its into its 9th year or more, and you decide to sell for 35,000, if you do not replace it, you have a balancing charge of 35,000 (basically, taxable income) in the year you sell it. Not good.

If you trade it in against a new one, and get 35,000 for the trade in, this balancing charge is offset against the new one. Effectively, you claim tax relief on what you end up paying out for the new one. Example, new one costs 80,000. Trade in of 35,000 for a tractor fully written off against tax, you claim tax relief on the 45,000.

weatherbyfoxer

https://www.boards.ie/discussion/comment/121738044#Comment_121738044

Very good info....I know of 2 different farmers who ended up paying tax on the trade in value of tractors as they were unaware of being able to roll it over again the new one

Tonynewholland

https://www.boards.ie/discussion/comment/121738044#Comment_121738044

The 35k is still being taxed as you losing out on the full 80k write off.

Silverdream

https://www.boards.ie/discussion/comment/121738044#Comment_121738044

Are you sure, this seems like a no brainier to that! So bassically I have a tractor on my farm at the moment that originally cost me 30k, I've written down the value to zero. I've made enquiries and it looks like I'll get around 13.5k in a trade in against a new one, it almost seems like free money. Sure if that is the case any farm should be trading their tractor as soon as it goes to zero value on the books. or am I looking at it the wrong way

White Clover

https://www.boards.ie/discussion/comment/121738137#Comment_121738137

Was it the accountant made the error or how did they end up paying tax on the trade in?

Tonynewholland

Also if your tractor makes more than you paid for it, you pay CGT on the difference.

weatherbyfoxer

https://www.boards.ie/discussion/comment/121738163#Comment_121738163

No sure to be honest but one man was down a few 1000 over it

https://www.boards.ie/discussion/comment/121738188#Comment_121738188

Only if you sell it

SodiumCooled

https://www.boards.ie/discussion/comment/121738141#Comment_121738141

You are looking at it the wrong way. You now have 13.5k less to write off on the new tractor.

This is (one possible reason in my opinion) you see some people looking for “cash only” when selling a tractor privately as it would otherwise be unusual for a farmer/business. But if they sell for cash and keep it off the books they can write off the new tractor fully (and not pay vat if vat registered). Very dodgy ground but definitely happens I feel.

Thing is buying for cash suits very few so not sure how they actually sell as their market is tiny.

SodiumCooled

https://www.boards.ie/discussion/comment/121737234#Comment_121737234

There is a lot more that could be added to that - vet/doses etc, servicing and repairs (car, tractor, sheds (repairs are not supposed to be claimed for non registered farmers), insurance, every bit and bob you buy from the hardware/co-op basically which could be 1000’s at the end of the year when added up. I think if you were only around breaking even on it most years it might be worth it for the big purchases (tractor, trailer, changing the jeep every few years).

as regards prices being higher with a VAT reciept - I know with crew cabs with I’m looking at a lot (2 or 3 years old) there might only be one with no VAT for every 20 plus VAT and they look for similar money as the vat included price. I know when we bought a tractor last anything we looked at (and the one we bought) was plus vat.

I’m going to sit down and do some numbers on it myself anyway assuming a few decent machinery and vehicle purchases in the coming years along with the day to day and see how it looks over say 5 years or so.

Bass Reeves

https://www.boards.ie/discussion/comment/121738492#Comment_121738492

Yes you can add lots more but I had put up a sample and it only came to 1.8k ish. It's relatively hard to to hit 4k.

Ya if you are a machinery junkie it makes sense. I have two tractors here and neither had the option of vat on them when buying.

I bought a cattle box last year and vat was not in the equation either. Admittedly you buy what you go looking for. I have a RAV 4 it was 9 years old when I bought it and it had no vat either. You would have to be going fairly new all the time to get a vat receipt

KAMG

https://www.boards.ie/discussion/comment/121738140#Comment_121738140

Not really. You think a person should get tax relief on €80,000 in this case?? If that was so, you would effectively be getting double tax relief on the original tractor which cost 35,000. Everyone would have fancy new tractors if that was the case.

KAMG

https://www.boards.ie/discussion/comment/121738188#Comment_121738188

Yup. Happening a good bit recently with the uplift in machinery prices. If held for over 3 years, its only 10% tax on the capital gain though. Then there is the annual exemption of €1,270.

farawaygrass

So if farmer a is non vat registered and buys a tractor, he pays the price of the tractor plus the vat, and the total can be depreciated.

farmer b is vat registered so he only pays the price of the tractor.

if both farmers go to sell their tractor after they fully depreciated it, does the buyer of farmer a’s tractor not have to pay vat but the buyer of farmer b’s does?

you see adds on dd for jeeps/tractors etc and the ad say no vat. Does that mean you only pay the advertised price and can still depreciate it yourself or does it mean that’s the price and if not vat registered you have to pay the vat on top of it?

KAMG

https://www.boards.ie/discussion/comment/121738807#Comment_121738807

I think your overthinking it.

In this case, lets call the person buying the tractor from a/b, farmer c. Farmer c pays the same regardless.

However, farmer a keeps all the proceeds.

Farmer B would need to pay the VAT element over to the Government. Now, farmer B really should know this, and give an invoice to farmer C, with full details on it. A copy of this should then be used for the VAT return. If for some reason, it was ignored for VAT purposes by farmer B, at the time of the sale, it would be discovered when the accounts are being prepared and the VAT element would eventually be paid.

Now of course, if farmer B is determined to avoid paying tax on the sale of this tractor, he would either look for a cash sale or lodge the check to the wife's account. Both of which are fraud and will eventually come back to haunt them. Those 3 monthly reports from Revenue usually include people such as this.

farawaygrass

https://www.boards.ie/discussion/comment/121738946#Comment_121738946

Well explained. Thanks for the response

SodiumCooled

https://www.boards.ie/discussion/comment/121738807#Comment_121738807

No VAT means there is no VAT to be paid and the the price advertised is what has to be paid. Even if VAT registered you still have to pay the full advertised price.

My understanding is that once something is bought by a non-vat registered farmer/person then the VAT element is never seperable again and it will always be sold on with no VAT to be paid or reclaimed.

Jb1989

Most of Northern Ireland farmers are vat registered and they are surprised to hear the southern boys are not.

Bass Reeves

Very hard to dodge the vat on resakebof registered equipment such as tractors or similar equipment that can be registered for motor tax.

It more likely to happen on a livestock box or implements. However you could be completely out of luck and the person that bough it off you might have an audit.

Personally if I am buying something off DD I always keep a copy of the add if I have to pay cash

Bass Reeves

https://www.boards.ie/discussion/comment/121739289#Comment_121739289

Yes unless the vat is claimed when new there is no vat on that item again. Tge law regarding that was changed a good while back.

Donald Trump

I often wondered if you could get away with setting up a separate company registered for VAT, and then "hire" that company to do your work.

You'd be billed + 13.5% VAT on the work, but for bigger lads with a lot of machinery, it might make sense. It would also insulate that end of things from your overall farm (although that in itself might leave it harder to get loans).

Tonynewholland

https://www.boards.ie/discussion/comment/121739387#Comment_121739387

Some farmers in companies are doing that. They’ll have the machinery in a family members name.

SodiumCooled

https://www.boards.ie/discussion/comment/121739387#Comment_121739387

I am pretty sure you can be VAT registered in a trade say and keep the farm out. Certainly scope for getting some items applicable to both though the trade (jeep, builders trailer etc) but stuff like tractors would be a major red flag. Then if you have a trade that has to be VAT registered probably best to just have everything VAT registered and put everyting against VAT as I'd imagine you would be high on the audit list in the scenario above.

Tonynewholland

https://www.boards.ie/discussion/comment/121738725#Comment_121738725

What part of what I said was incorrect.

KAMG

https://www.boards.ie/discussion/comment/121739444#Comment_121739444

Every single bit of it.

Donald Trump

https://www.boards.ie/discussion/comment/121739433#Comment_121739433

I meant as in setting up SodiumCooled Ltd purely as an agricultural hire/contracting business. Buying all your machinery through them and then billing your farm for work which coincidentally matches up with SodiumCooled Ltd costs and repayments. Where you would be SodiumCooled Ltds only customer. Obviously wouldn't be applicable for grant aided machinery. Any savings would only be due to VAT rate differentials.

What you are talking about is lads who already have a company, buying stuff for the farm through it but paying for it with (and writing it off against) income from that other company.

AntrimGlens

https://www.boards.ie/discussion/comment/121739332#Comment_121739332

Livestock for human consumption are Zero rated up here for VAT and our VAT rate is 20%. Everything and I mean everything here is claimed back for VAT, Vets, drugs, diesel, fertiliser, Mart fees, quarry stones, machinery hire, phone and anything in between. It's an extremely simple procedure since they went digital a couple of years ago, an hour every quarter and all you have to do is submit an excel sheet to HMRC and it's repaid to your back account in a matter of days. Would be some hit not to be able to claim it back.

KAMG

If you want to get full tax relief on the new tractor, costing €80,000, all you have to do is keep the first tractor.

But then you have to fork out 35,000 more. Some people might prefer to do that but most don't have the luxury of having 2 good tractors on the farm.

So, why should you get tax relief on the full €80,000 tractor is you are only forking out €45,000. Makes so sense. The deferring of the balancing charge of 35,000 is a concession. Its not to be abused.

Bass Reeves

https://www.boards.ie/discussion/comment/121739387#Comment_121739387

Technically it would not be worth a lot to you, most lads doing that are involved in a bit of contracting as well. You have to put enough back into the company to pay off any loan or the cash value of the machinery anyway and pay extra accountancy fees.

80K tractor vat = 15k ( tractor 65040 net)

To pay the 65k back into the company @13.5% vat =73 820

However if you borrowed 50K@7% over 5 years it's 8750 vat on that going into company adds another 1150 euro to the bill.

Net savings would be about 5k less accountancy fees

As well you would lose the ability to freeze the depreciation if it suited as against that you could write the tractor costs off faster against the farm if it suited

patsy_mccabe

Farmer Phil put up a video yesterday of the Fleming Company, that make the various farm machinery. Watch the video from 26 mins on, he talks about how they are still playing catch-up from the effects of Covid. I'd imagine it's teh same with all tractor manufacturers. This has led to the crazy prices for secondhand ones. ...... or is it just wishful thinking on my part.

A "FLEMING" GOOD TRAILER THAT!!!!! (youtube.com)

Jb1989

https://www.boards.ie/discussion/comment/121739612#Comment_121739612

Straight from the horses mouth there antrim. Hmrc could teach the irish revenue a thing or two.

Also how you find having a government once again antrim?

Tonynewholland

https://www.boards.ie/discussion/comment/121739518#Comment_121739518

please show me all the incorrect parts so.

mr.stonewall

@KAMG what way does it work for a farmer who would become vat registered and may be trading a vehicle or a piece of machinery for a newer model.

On a side note, I really enjoy and value your contributions here

KAMG

https://www.boards.ie/discussion/comment/121740653#Comment_121740653

Thank you mr.stonewall.

I do my best to offer good advice.

In that case, they can claim VAT back on the full amount of the new machine. But as they did not claim VAT on the first machine, they do not have to pay VAT on the trade in proceeds.

funkey_monkey

https://www.boards.ie/discussion/comment/121739332#Comment_121739332

Yeah. This is an interesting read. Most would be registered here. It's not an onerous task to keep the records and with most purchases having 20% vat then it makes sense.

No vat on livestock sales, only the commission. None on fodder inc meal.

So most purchases for maintenance and machinery have vat applied. It means that usually there is a refund for the vat period. A big purchase like a tractor would crazy if not put through for vat.

funkey_monkey

https://www.boards.ie/discussion/comment/121739612#Comment_121739612

Just seen this after i replied. Definitely. You'd be mad not to be registered up here.

@AntrimGlens - have you gone digital yet with your vat returns?