There is still a large number of high personal tax paying farmers who will be benefited immensely by incorporating their agribusiness.
But they are reluctant to do so for a variety of reasons, many of which make no sense.
In the course of my daily work, I often encounter very hefty tax bills from sole-trader farmers, and I ask them why they haven’t considered incorporating.
Their concerns are many and varied but the following are most commonly expressed:
may give up in a few years
Thought they would have to register for VAT
Adequate agricultural building allowances are available
TAMS will not be able to maximize the grant
money will be tied up in the company
The company will have to transfer the land
A company can be a barrier to succession.
The average farmer in Ireland is closer to 60 years old, so it should come as no surprise that many thought incorporators may feel that given their age it is not worth their time. This is not the case in most of the cases as the tax savings that can be secured in fewer years can be quite significant.
Also, waking up in the morning knowing that the taxpayer is going to get more than half of what you earn that day could be dementia, while knowing that he is only going to get 12.5%, Can put a spring in your step and prolong you. working life.
When you decide to exit, winding up your company can be a simple and tax efficient process.
There is an urban myth that limited companies are obliged to register for VAT. This is not the case and the same rules apply to companies that are sole traders or partnerships. The right to reclaim VAT on buildings, stationary plants and land improvements is no different to sole traders or partnerships.
agricultural building allowance
Unused capital allowances on agricultural buildings cannot be transferred to a company, nor can they be offset against the rent that you may charge the company for the use of your land or farm.
The amount will be on the tax savings that these allowances will provide to you as a sole trader versus the potential tax savings that the limited company will create over the same period. If the availability of agricultural building allowances is the main impediment to incorporation, then it should be the case that if, rather than when, the amounts will determine exactly when it would be beneficial to incorporate it as waiting until all allowances are exhausted. It is possible to do not make good financial sense.
The participation of a youth-trained farmer may qualify for doubling the TAMS investment limit from €80,000 to €160,000.
Unfortunately, this incentive does not apply to companies involving youth-trained farmers. In addition, if an agricultural partnership decides to incorporate within five years of receiving the TAMS grant, they must return some or all of the benefits related to the additional €80,000 investment incentive.
However, the higher 60% subsidy rate will still apply where a youth-trained farmer has 20% or more stake in the company. The loss of the higher investment limit may not be a sufficient justification for canceling the incorporation because the estimated tax savings over the five-year period must be weighed against the loss of the grant. The tax savings will be higher in many cases.
It is the case that the cash held in the company is readily accessible for farm-related expenses, but not so for personal use without being subject to income tax. However, there are ways and means to withdraw money from a company tax-free.
In most cases the owner will initially sell his stock and machinery to the company and collect what is known as the director’s debt.
In other words, the company will pay them for stock and machinery, which it can exempt from all taxes when funds are available and when funds are required by the director. In addition, where the company has been in business for 10 years, and where the shareholder is over 55 years old, they can withdraw up to €750,000 free of tax by selling their shares back to the company (share buy-back). This is usually done in collaboration with a succession plan. There are strict rules for share buybacks but in some cases where the money has accumulated in the company, it can be an attractive option.
transfer of land to the company
It is not necessary for the company to transfer its land. In most cases the land is leased or given on rent to the company, or it is given free of cost to the company depending on the special circumstances.
In some circumstances, it may be advantageous to sell land to the company for a cash issue or, if one is buying land it will generally be purchased by the company as the after-tax cost of purchasing land individually can be prohibitive.
There should be no impediment to incorporation succession. In fact, this may present an opportunity to be phased out in succession because you now have two entities, the company and the land. The heir may be given a share in the company initially to give him a measure of participation and responsibility and eventually the land can be transferred when the time is right. Major capital tax reliefs such as agricultural relief, business relief and retirement relief are still available under a company structure.
suitability tick box
If you’re paying taxes at a higher rate but can’t tick all the boxes, you should get an independent assessment of your suitability for incorporation, focusing specifically on the boxes you tick. can not do.
Paying tax at higher rate?
Have you taken medium to low level of debt?
Do you have moderate levels of personal pictures?
Have you used up most of their Agricultural Building Allowances?
Are you considering buying land?
Are you considering starting a succession planning?