Farm Ireland

Monday 26 February 2018

Save ¤10k in tax by flicking company switch

Darragh McCullough

Darragh McCullough

Huge numbers of farmers are opting to incorporate their farming businesses in an attempt to reduce their tax bills.

A dairy farmer with a taxable income after allowances of €80,000 will typically save more than €10,000 in tax by turning his business into a company, according to agri-consultant, Martin O'Sullivan.

"I see plenty of farmers with 100 cows that can benefit significantly from incorporating their businesses," he said.

However, livestock and tillage farmers will be next to jump on the company band-wagon, according to IFAC's Declan McEvoy, who says that incorporation is the hottest topic among IFAC clients at the moment.

"Most non-dairy farmers with decent sized single farm payments (SFPs) were concerned about locking themselves into a corporate structure when there was still a possibility of the SFP being dismantled after 2013," said Mr McEvoy.

"But with the SFP looking stable until 2019 and incomes rising, more of these guys are going down this route."

Other issues that previously discouraged farmers from incorporating their businesses are also beginning to recede according to Mr O'Sullivan.

"Almost every farmer thought they had to be registered for VAT, which is totally untrue," he said.

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No issue

"They were also worried about getting money back out of the company, which shouldn't be an issue for the vast majority of farmers either.

"Most farmers reinvest wealth back into the farm and land anyway, so it wouldn't change anything there. Extracting wealth back out of a company was never an issue for other businesses so it should be no different for farmers," he said.

Up until two years ago, Mr O'Sullivan had less than 10 clients who had chosen to incorporate their farms. Today, that figure is well over 40 and growing on the back of several enquiries every week.

"Take the example of a farmer who has €80,000 in taxable earnings after all allowances and drawings of €50,000," said Mr O'Sullivan. "He stands to reduce his tax bill on €30,000 of his income from an effective rate of 52pc to 12.5pc. That could be worth almost €12,000 a year to that farmer."

However, there are extra costs associated with switching from sole trader to company status according to Mr O'Sullivan.

"Typically a farmer will spend €400-500 on quota leasing plus an additional €1,000 on accountancy fees each year," he said. "They'll also need a little bit of extra advice during the first couple of years of incorporation."


The vast majority of farmers that are pursuing incorporation at the moment are dairying.

"This wave of incorporations has been driven by deregulation of quota leases in 2008," said Mr McEvoy. "But with milk prices being so bad in 2009, farmers are only realising the benefits of making the switch now, especially when the tax returns for 2010 and 2011 are starting to come into focus now.

"But I think this is still really only relevant to the top 20pc of operators.

"A profit monitor might show that a farm has a profit of €80,000. But this would often translate into a taxable income of €60,000.

"Corporate tax rates are only a benefit if a couple with no off-farm income has a minimum taxable income of €70,000 or more than €25,000 from the farm if there is an off-farm income coming in too."

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