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Child Item

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

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Cavanjack

https://www.boards.ie/discussion/comment/121139560#Comment_121139560

First child can start getting paid next year. What’s the max I can pay him? Yeah 30k ish

yosemitesam1

https://www.boards.ie/discussion/comment/121140217#Comment_121140217

All you can do is add it up for yourself. Vat registered here and it makes sense, but would be very different to most.

mr.stonewall

https://www.boards.ie/discussion/comment/121140153#Comment_121140153

ESB, vet, general maintenance materials would have it aswell. Would have a diesel bill of about 5-6k last year (Jeep and tractor diesel). Most years would have had a bit of an upgrade on the machinery front.

It's an excerise that will require a bit of a look back over the past few years to see the lie of the land.

Is there anyone here who went vat registered and regretted it

yosemitesam1

https://www.boards.ie/discussion/comment/121139942#Comment_121139942

Doubt it would be worth your while being vat registered. Unless you've very big diesel, machinery/contractor or spray costs.

mr.stonewall

https://www.boards.ie/discussion/comment/121139401#Comment_121139401

Similar enough, but suckler and calf to beef. I'm at the stage between the job and the farm of being able to fully fund 2-3 on the rock and roll. Very young kids, no major building work or investment to undertake. Pension is taken care with the job and that is defined benefit as well as topped up by a private pension. The business is now at a nice sweet spot, with sufficient turnover, profit and cost control. Its now looking at a means of hanging onto this cream since the hard work is done. It's probably the next logical step for me going limited and possiblly vat reg

On the vat reg. The only outgoing on vat would cattle sales at just over 5%.

Bass Reeves

https://www.boards.ie/discussion/comment/121139401#Comment_121139401

Start sending the money. What age are your children.

What kind of a tax problem 20-30k in tax?

Cavanjack

Anyone finishing cattle through a company and working full time? Getting hammered with tax and Accountant has mentioned that it might be an option to look at.

Donald Trump

https://www.boards.ie/discussion/comment/120825838#Comment_120825838

You are transferring it to the company. So it is effectively no different to if you were selling it to a neighbour.

If you transfer it worth 50k then you would have to pay tax at your marginal rate on that 50k profit. But it would be a directors loan which you would be able to draw out later. You would be paying the tax now up front (so that would defeat the purpose)

mr.stonewall

https://www.boards.ie/discussion/comment/121138890#Comment_121138890

Thanks a mill for that

HHH

https://www.boards.ie/discussion/comment/121138701#Comment_121138701

The herd number remains the same so it doesn't count as a movement.

mr.stonewall

Some folks here maybe able to help on this one regarding stock.

On the beef side moving stock from the sole trader to a ltd company, does it count as a movement on Cmms or not.

Bass Reeves

https://www.boards.ie/discussion/comment/120829649#Comment_120829649

As well the land belongs to the company not to you. If anything ever happens to the company the land goes with it. If you are over 55 or if you are near it you can take the cash out through retirement relief

yosemitesam1

https://www.boards.ie/discussion/comment/120829649#Comment_120829649

Yes but the rental income gets taxed at a higher rate and you get hit with more tax if you don't take the rental income out of the company

arctictree

I have an existing limited company with a good cash balance. Can I use that to buy a land block instead of having the cash sitting in the bank? The company has nothing to do with farming.

KAMG

https://www.boards.ie/discussion/comment/120825969#Comment_120825969

No. You are depending on machinery which has been depreciated/claimed against tax capital allowances previously. And value of stock which has been in the accounts up to date of cessation of sole trade.

Accountants tend to value stock in the accounts in or around 60% of market value. If profits were low in a particular period, they would often increase stock if unused tax bands exist. Or for a person who is normally in top rate of tax, if they dipped into the standard rate in a once off situation, we would increase stock values a bit.

KAMG

https://www.boards.ie/discussion/comment/120825838#Comment_120825838

Exactly. The money must be in the bank account though first obviously. Which, could take some time as you are starting with a zero balance.

But, people don't tend to do that. They like holding onto a high director current account incase an immediate need for cash into the future arises. Such as money needed to buy land. Or gift to child for house deposit or wedding etc.

Bass Reeves

https://www.boards.ie/discussion/comment/120825774#Comment_120825774

So in other words you are dependent on stock values and unclaimed capital allowances to generate director loans along with creditors

Tonynewholland

https://www.boards.ie/discussion/comment/120825774#Comment_120825774

For example what happens with say a 10 year old tractor fully written off that's still worth 50k. Can the farmer transfer it to the company and get the 50k back in the DL with no tax liability

KAMG

https://www.boards.ie/discussion/comment/120823811#Comment_120823811

Stock, debtors, creditors etc go into company at the value they were carried at in sole trade accounts. So, no tax consequences. Obviously, usually the reason the company is formed in first place is high profits. So, naturally you wouldn't be 'overstating them'. U would tend to keep debtors etc as low as possible and make sure you don't forget any creditors, regardless of how small.

The big once of gain in forming a company is the creation of the directors loan. As much machinery as you can find on the farm should be included, regardless of how old it is. Now, it has to be market value. For tax purposes, the only capital allowances that can be claimed are the written down value at date of cessation of sole trade.

Wildsurfer

To build up directors loan. I bought land a few years ago and had a large loan on that. Apparently you can't brings debts with you into company and a nice bit of the stock and machinery value got used up to negate that.

MIKEKC

https://www.boards.ie/discussion/comment/120824702#Comment_120824702

Why did you put the buildings in? Mostly people put stock and machinery in and leave land and buildings out

Bass Reeves

https://www.boards.ie/discussion/comment/120824702#Comment_120824702

Local small contractor with a dairy enterprise went LTD's over 10 years ago. The dairy enterprise was kept outside because it allowed him to get the vat on milk and livestock sales where previously it was retained.

His machinery was causing him an issue. The book value was below actual value. I think it had vat implications if he kept it outside I cannot remember that part. I think low stock values was another reason the cows were kept outside. The company charges the dairy farm for all work provided which helps manages the tax liability on the dairy side now.

However at the time the machinery had to go in at book value he said in a conversation at the time. He was using IFAC as his accountants so I presume they knew the ends and outs.

Wildsurfer

My stock and buildings went in at the value on the day certified by an auctioneer and no negative tax implications. You'll have to research that one Bass. Although what you're saying does make sense too.

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

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

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.

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

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.

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/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.