Farm Ireland

Sunday 18 February 2018

20pc increase in tax bills 'knock farmers sideways'

Darragh McCullough and Caitriona Murphy

Large increases in tax bills caused consternation in farming households last week as dairy and beef operations struggled to come to terms with tax increases of up to 20pc.

Despite the dreadful conditions that prevailed last winter, thousands of farmers faced significant increases in their tax returns. Dairty farmers milking 80-100 cows had tax bills averaging €25,000-35,000.

The hikes were due to a combination of strong output prices and the end of capital expenditure reliefs for buildings erected during the Farm Waste Management scheme.

And tax bills are set to take another jump next year, according to IFAC's senior tax consultant, Declan McEvoy.

"A lot of dairy farmers have made as much in the first nine months of 2013 as they did in the whole of 2012," said Mr McEvoy.

He attributed the dramatic surge in farm profitability to record milk prices. However the improved cash flow on dairy farms did not prepare many farmers for tax bills that increased by €5,000-10,000 ahead of last week's deadline.

"There was a misconception that profits were going to be back in 2012 because of the weather. But cattle prices were very strong in the first half of 2012," commented Mr McEvoy, whose firm handles accounts for over 14,000 farmers.

"What really caught guys out though was the end of the capital allowances that had suppressed their tax bills over the last five years. That, coupled with the impact of the Universal Social Charge (USC), resulted in a big increase in tax, even where income was the same," he said.

Also Read


He used the example of a farmer who was getting a capital expenditure relief of €20,000 a year.

"That €20,000 is often being taxed with a USC of 7pc which works out at an extra €1,400 straight away," he said.

However, Teagasc's financial management specialist, Kevin Connolly, had few words of comfort for farmers struggling with their tax bills.

"Farmers have been knocked sideways by their tax bills this year but they shouldn't be arriving at the end of October to be shocked by their tax bills.

They need to start talking to their accountants way before the tax deadline and using them as planners rather than just bookkeepers," added Mr Connolly.

The Teagasc specialist also cautioned farmers against making rash investments to reduce their bills.

"A lot of people are jumping into companies, which may be a good move if they are expanding and taking on significant debt. But the panic reaction is not a good move," he said.

IFAC consultant Declan McEvoy said many farmers were choosing to pay their tax in instalments over the winter, even though this exposed them to interest penalties on the balance.

"They are worried about leaving themselves too exposed cashflow-wise to another tough winter, so they are playing safe by holding back a bit of money, even if it costs them a little extra in interest payments," he said.

Dairy farmers have been exposed to higher tax bills than their beef counterparts, partly due to the fact that three years have now lapsed since the last really bad milk price year of 2009.

"Dairy guys suddenly lost 2009 as one of their years in their income averaging, which also contributed to higher bills," said Mr McEvoy.

Irish Independent