Setting up a Farm as a limited company

Hedgecutter

Just curious to understand why you would set up a limited business for a dairy farm.

Has that always been the norm ?

mr.stonewall

I'm a part-time beef farmer and the farming business is limited. It's an opportunity to maximise the differential between the higher rate of personal tax and corporate tax rate. Also gives an opportunity to develop the business. Only stacked due to having completed all necessary major fixed infrastructure on the farm.

Also makes it easier to bring the next generation into the farm structure.

Hedgecutter

https://www.boards.ie/discussion/comment/123475761#Comment_123475761

Modern farming so. Any draw backs?

mr.stonewall

More accounting cost, about 50%more. Just a few extra bits of paperwork with different things from time to time. Suits as I don't take a wage from the farm per say.

Directors pension contributions are a big help.

Only worthwhile going into a company if you have a goal and a need. Going into one to save tax is foolish. It's a benefit of being in one but should not be the main reason

Hedgecutter

Would that effect a fair deal for an elderly farmer.

mr.stonewall

It would similar to a sole trader, but the aim for all of us is to transfer around the 65 age mark. Having a company makes it easier to bring the next generation into the business and the culture of partnership is already there. The exact facts would be best discussed with a tax planner or good accountant.

Hedgecutter

https://www.boards.ie/discussion/comment/123475876#Comment_123475876

I remember my cousin have awful issues when my uncle got dementia. Nothing was in place. God love my uncle is still in a home.

Bass Reeves

In beef you would want some serious operation to consider going into a company. You would want to be disinclined to spend money, thinking you were smart paying cash and not able to keep receipts. Nearly everything is tax deductible from catfood to car expenses, to god know what else.

I grin at people that think that at 65 you "retire"…I retired just before I was 57 for the first couple of years it was grand but you get bored…I digressed you can swamp a pension in your 50's and 60's. However remember as you get into an income above 45k you hit the higher tax bracket. Neither accountant or pension advisor could figure that one.

The only one that benefits if you go into a company in farmig especially in beef is an accountant

farawaygrass

was looking at trading the tractor and there was a saving of about 18k if vat registered. I haven’t talked to the accountant yet to see how it stacks up. Not finished with fixed infrastructure yet either, I’m about 3/4 of where I’d like to be

older by the day

https://www.boards.ie/discussion/comment/123476443#Comment_123476443

I would love you as my accountant, it is a battle every year. He is very safe and would not let things through as an expense, unless he was certain.

visatorro

https://www.boards.ie/discussion/comment/123480412#Comment_123480412

There's a lad around here people think is a great lad. You won't pay tax etc. In reality he will put through what he thinks will cook the books. But if you get on audit that's where the fun starts and he won't have a silver bullet for you then. Iv dealt with 3 accountants in the one company. One was straight as anything, wanted everything air tight. Other 2 are middle of the road but if an audit landed should be able to back things up.

SodiumCooled

https://www.boards.ie/discussion/comment/123480268#Comment_123480268

You can Vat register as a sole trader no need to be in a limited company. I don’t really see any major advantage for your average farmer in being in a limited company but seeing one or two vat registered farmers it seems very advantageous and I keep wanting to properly look into it but haven’t got around to it yet.

amacca

https://www.boards.ie/discussion/comment/123476443#Comment_123476443

I have to say I'm interested in going into a company structure with a beef farm...I thought the ability to contribute separately to a pension, the lower tax rate, better access to financing, directors loan, no vat on machinery etc were things to consider over and above the lower tax rate...

But I'm waiting until capital allowances exhausted, may make a decision and need to do a lot of research...would be interested to hear yours and others take in more detail

Not quite sure I'm understanding all your points above

Cavanjack

Finishing farm here. Done the sums on getting vat registered. Would end up costing me money.

yosemitesam1

https://www.boards.ie/discussion/comment/123480268#Comment_123480268

If you're claiming tractor vat back, how much will it cost you on your sales? Could be more than that annually

farawaygrass

https://www.boards.ie/discussion/comment/123480619#Comment_123480619

I don’t know, i need to have a chat with the accountant during the week.
but i would be very much surprised if the vat on sales would be anywhere near it.

Deeec

Farming through a limited company is only worthwhile for large profit farms. There is no good reason usually for an average farmer to trade as a company.

Yes you pay less tax on trading profits but if you need to take money out for personal use you end up paying tax again so in fact you could end up worse off!

As regards using a company as a clever way to succession plan - that only works if you transfer land/house into the company aswell which could trigger a cgt liability. It's usually very foolish to transfer property from personal ownership into a company.

If you are thinking of trading as a company get proper ( and I mean proper - taxation and legal viewpoint) advice before making decisions. It's usually not the best option.

Wildsurfer

https://www.boards.ie/discussion/comment/123480566#Comment_123480566

How do you mean contribute separately into pension? I would think a pension is far better value as a sole trader due to tax write off. Also getting vat back on machinery isn't down to being in a company, it's whether you're registered for vat or not, and you can do that as a sole trader, you don't need to be in a company. Most farmers in a company are not vat registered in fact.

yewdairy

In a company here for nearly 10 years not vat registered, works grand, very straightforward to operate.

It has and will save us a huge amount of money in tax in good years like this. Saving on tax was a big reason why we entered a company structure

older by the day

I was wondering, if the company has a million in the bank and there is no one to take over the company, when the man/woman gets old or dies. What are the tax implications of getting the money out

amacca

https://www.boards.ie/discussion/comment/123480874#Comment_123480874

I don't know but I was under the impression that's the trick...exiting without giving all the gains back!

Bass Reeves

Farmer Vat rebate on sales is 5.25%. This year sales will probably exceed 150k that is 7.5+k. I think mif you deregister you havevto refund the difference of the previous three which for farmers is three year vat claim but I think it .ay include capital.

https://www.boards.ie/discussion/comment/123480566#Comment_123480566

With the retained profits what is the plan. Unless the money is working for you it sitting in a bank account devaluing. You can still pay into a pension admittedly not as much. However anyone that puts into a pension the maximum allowed from there late 20's on will have an over funded pension . There is other options such as property or external investment. How many farm have an old unused dwelling. There us 75k too it up of a grant. You have to rent it for five years, or you coukd forego tge grant and go Airbnb straight away.

How much of a pension do you need the old age pension for a full contribution record is virtually 15.5k. We will deal with a couple that is 31k a year. After that a 600k fund will allow a lump sum.of 150 k and a yearly income of 18K. If invested at level 4 it will probably on average grow a couple percent above drawdown…...... that is if Donald Trump would f@@koff.

That Is an income of 49k per year or 900 a week after tax for a couple

https://www.boards.ie/discussion/comment/123480874#Comment_123480874

Every year there is people that pay tax bills of tens of millions . These are people who.own companies who as they get older want to give money to family members. There is two realities in life death and taxes. A person may use the retirement allowance of 750k or double it for a couple provided company both were owners to remove lump su.s as you retire. You have to be over 55 and under 75 I think.

HHowever That is available to a sole trader as well he can sell assets to the value if 750k and hold on to it.

Most business people use a company to build a business and wealth. Paying 15% to retain cash and pay an accountant another couple of K for a second set of accounts to have money you cannot easily access is stupid.

https://www.boards.ie/discussion/comment/123480426#Comment_123480426

I deal with a large firm as well. It's not about cooking the books ot about putting expense through your accounts. It's amazing the amount of people that do not get a reciept for small items whether it's the Farmers Journal or the bit of petrol for the chainsaw.....or lawnmowe for that matter.

After an audit I prefer to be giving revenue 15-20k than overpaying tax for decades. The reality is you claim for what you have receipts for. Less than 1% of tax payers are audited every year. People that get really stung are those that do stupid ****.

amacca

https://www.boards.ie/discussion/comment/123480692#Comment_123480692

I was thinking director's pension....

In the back of my head I was thinking about the possibly unrelated loophole introduced in 2022 that allowed unlimited bik free pension contributions to prsa for employees of limited companies that saw a small number put millions in and get the tax back..there was no link to salary like most other pensions

I think now that loophole is closed you are allowed contribute up to the amount you draw down in wages....

If the business is profitable enough and you were unlikely to get the full 200k tax free lump sum and then the 300k @20% after that from a paye employment...then you might consider being a limited company to avail of the 40% tax relief to maximise those retirement benefits etc....there's a lot more flexibility in the directors pension too I think (when you drawdown etc)

I could be wrong, I was only playing around with the idea in my head, needs a good bit more thought on my part...and obviously depends on a big if…or even a number of them

If its profitable enough

If you have the exit strategy right

If you aren't robbing Peter to pay Paul...maybe you will push yourself into thr 40% taxation on your drawdown on other pensions by bumping that one up therefore just getting the benefit of compounding (not to be sniffed at) but not getting the ideal 40% relief on way in and 20% on drawings outside of tax free lump sum afterwards

Etc....I'm probably missing a lot, hence the interest in people's thoughts...

SodiumCooled

https://www.boards.ie/discussion/comment/123480615#Comment_123480615

Relation of mine in a calf to beef finishing farm is a massive advocate for vat registering keeps telling us (a suckler farm) we are mad not to be registered as is any farmer he says. I find it hard to argue you are claiming vat on nearly everything at 23% and only paying it at 4.8% on cattle sales. Similar to what Bass says about writing off against income tax the amount of stuff you can claim VAT on is significant.

Cavanjack

https://www.boards.ie/discussion/comment/123481873#Comment_123481873

Just looked over my sums that I had saved on the phone for last year. Stock purchased had 13000 vat which I could reclaim. Sales had 26000 vat which I’d have to pay back.
so I’m down 13k already.
My other main expenses are meal and fertilizer which have a zero vat rate.
Contractor charges were roughly 20k at 13.5% vat. Not even €3000. So I’m only down 10k now.
Fuel at 23% might return €1500 at the very most. I’m down 8500 now.

Suppose there are a few other things, vet, machinery repairs etc but I’d be doing well to get near to break even.
Most repairs and fixed item purchases I can claim the vat back already.
Also the vat that I can’t claim back is tax deductible. So for a lot of extra work for me it has no benefit. Or it would actually cost me money.

MIKEKC

W.here did you get the facts to back up your statement that only the accountant benefits if go into a limited company? Thousands of farmers have taken this route over the past few years .All cant be wrong. Most would be dairy farmers but there would also be some drystock farmers .We formed a limited company 20 years ago when we had finished all our buildings and reliefs had run out. We run a medium sized beef a nd sheep farm.A good farm payment made this move possible.Noregrets so far

HHH

https://www.boards.ie/discussion/comment/123482547#Comment_123482547

Bass was shooting from the hip here a bit. Everyone's situation is different and should be assessed separately. A good accountant is the crucial for any farming enterprise. Lots of the big farmers in my area have their accountants on speed dial and meet them several times a year.

Hard Knocks

https://www.boards.ie/discussion/comment/123482489#Comment_123482489

You’d be surprised on all the bits and pieces purchased through out the year that has vat. I can see us all being vat registered soon just like farmers in NI

KAMG

https://www.boards.ie/discussion/comment/123482547#Comment_123482547

Bass knows everything about everything. He has a serious dislike of suckler farming and accountants.

I'd take his opinion on an issue with a large pinch of salt.

Farming through a company has massive benefits, in the correct situation. However, if there are large drawings from the farm profits, its probably not the best idea in the world.

I'm a full time accountant and part time beef farmer. So I know what I'm talking about on this issue.

Jim2007

https://www.boards.ie/discussion/comment/123475761#Comment_123475761

So you make a profit in the farming company, pay corporate tax on it and then distribute it paying income tax on the net…. how exactly is that optimising your taxes?

mr.stonewall

https://www.boards.ie/discussion/comment/123482952#Comment_123482952

In essence the farm company is not providing a net income to via paye, it's providing pension contributions to the directors and building retained profits for further investment