The pros and cons of switching your farm to company status
Our legal expert outlines the benefits and drawbacks to putting your farm into a limited company structure.
Question: I am a young trained farmer who has inherited a farm from my granduncle. Although the farm is returning a good level of income I intend to expand the farm before I become totally reliant on it as a source of income. I have an off-farm job which will maintain me financially until I can rent/buy enough land for a more viable farm business. The farm makes about €30,000 net profit and I want to use this income to expand. Am I better to put the farm business into a company structure or to operate it as a sole trader?
Theresa replies: The biggest difference between operating a business as a limited company and operating as a sold trader is the rate at which tax is paid on the profits. With corporation tax still resting at 12.5pc by comparison with the higher band tax rate of upwards of 50pc, it is certainly worth any farmer's time considering the pros and cons. In recent years operating a farm business as a limited company has certainly become an option for dairy farmers as well as larger tillage and drystock farmers. The following are some of the main considerations involved.
Incorporation or forming a private limited company can provide farmers with an opportunity to plan and manage taxes more efficiently but succession and finances are the critical issues to consider.
A limited liability company is a separate legal entity. In most cases the land and buildings are not transferred to the company, but the stock, tools and equipment are transferred. If the machinery with loans attached are transferred, the owner will need to get agreement from the financier or bank to proceed with incorporation. You will also need to transfer your herd into the company name.
Where entitlements are transferred into the company it is advisable to check with your agricultural consultant to ensure entitlements are 'activated' to prevent losing them to the national reserve.