Looking for the right time to incorporate your farm business? IFAC has got you covered

When is the right time to incorporate your farm business?

Farming through a Limited Company can be the right choice for profitable businesses, but you should only consider changing your farm structure if you have explored all other options, explains Eugene Higgins.

For farmers with rising tax bills, forming a limited company to take advantage of the 12.5%.

Corporation Tax rate can look attractive, but incorporation should only be considered if you have explored all other options to reduce your tax bill within your present structure.

Deciding to incorporate

An advantage of the Limited Company structure is that profits can be retained within the business to facilitate expansion. Debts can be reduced, and a reserve built up to tide a company over poorer periods.

If you are currently paying the top Income Tax rate, then incorporation’s pros and cons should be considered.

• Do you plan to expand your business?
• Are your projected personal and non-farm expenses lower than your farm’s profits, and are they likely to remain lower in future?
• Are any changes in farm management or ownership planned?

How you answer these questions will help decide if incorporation is right for you. Some matters to discuss with your accountant include:

• Are you hitting the high tax rate on a large portion of income?
• What are your depreciation/capital allowances?
• Has income averaging been availed of?
• Are you paying family wages that will decline in the years ahead?
• What are your living expenses?
• Do you have further education costs?
• Have you thought about Succession?
• Are you paying into a pension to save tax rather than as part of a proper retirement savings plan?
• Are you strapped for cash with loan repayments, tax repayments, and living expenses?
• Does the farm need further investment that you are unable to fund?

Depending on how you answer these questions, particularly if you are paying a higher income tax rate and have taken advantage of all the available reliefs, farming through a Limited Company could benefit you and your business.

Before deciding to change your business structure, it is advisable to seek accounting and legal advice from professionals with expertise in the farming sector, as incorporation will have lasting consequences for you and your business. 

Reach out to Eugene in our Limerick office for an initial chat on (061) 337 833.

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