Farm Ireland

Sunday 19 November 2017

Small farmers braced for 'Double whammy' tax bills

... but here's some simple steps you can take that might help to ease the burden

Darragh McCullough

Darragh McCullough

The widening of the tax net, combined with the better incomes generated in farming this year, has left many farmers facing much larger tax bills this autumn. In some cases, it will be the first time that farmers will ever have faced a tax liability.

The IFA's James Kane said that these smaller farmers will face a double whammy, since they will be liable for a tax bill relating to their earnings last year and a preliminary tax bill for this year all at the same time.

"Farmers earning less than €10,000 a year tended to be ignored by the Revenue because they fell outside the tax net," said Mr Kane.

The latest budgetary changes mean that a farmer with an income of up to €10,000 is now liable for a USC of €200, a PRSI bill of €300-400 if they are under 65, and an income tax bill of €230 if they are single.

"So now a farmer earning €10,000 has a tax bill of up to €830 for 2010 plus another €750 to cover his preliminary tax for the coming year," added Mr Kane.

However, the fact that any capital expenditure on farm machinery or buildings is now deductable before the USC charge is calculated will be a big help in keeping the tax bill manageable for the vast majority of farmers, according to Declan McEvoy of IFAC accountancy firm.

"I think the real problem is going to be getting farmers that haven't been required to file a return as their income was too low to attract a tax liability," said Mr McEvoy.

"Heretofore the State tended not to consider older farmers with income less than €10,000 to be liable for tax returns. But now that they are after every penny, everybody earning more than €4,004 a year (in excess of State pensions) needs to file a return or else they will face a penalty. Not only will they be penalised for not making a return, they will face additional penalties for late payments and interest on any money due."

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Mr McEvoy said that every farmer should be planning on a bigger tax bill this year, even with like-for-like earnings.

"Both the tax bands and credits have been lowered, which combined with the increases in levies, PRSI and USC, means that a married couple with two children with a gross income of €55,000 a year will see their tax bill rise by 4.1pc or €1,625."

What can be done?

There are several simple steps that can be taken to reduce the tax bill that any farmer will face next October 31, according to Mr McEvoy.

•Invest in your farm -- This is the year to invest inside the farm gate, says the IFAC expert. "Anything that needs to be done in relation to investment in machinery or buildings should be done if cash flow allows it this year. There's plenty of areas that were starved of investment over the last number of years. By spending on necessary capital expenditure now, you can reduce your taxable profit.

•Pensions -- Despite the poor performance of pension funds over the last number of years, Mr McEvoy still believes that they are a wise home for hard earned profits. "From a tax perspective, putting money into a pension fund makes sense because you are getting tax relief of 41pc, even after the pension levy of 0.6pc is applied. "The only word of caution is of course, how the pension fund is being operated," added Mr McEvoy.

•Business Expansion Scheme -- Many farmers will be reluctant to get involved in any off-farm investment following the disastrous performance of many property funds here and abroad during the economic downturn.

However, Mr McEvoy is adamant that the 30pc tax relief that is available for money that is invested into Business Expansion Schemes that vary from wind farms to feature films still makes sense. "The return on these investments is capped at 20pc but to be honest, most investors are happy to get their original sum back after X years.

•Look at your farm structure -- The last option that farmers struggling with large tax bills should be looking at is the idea of re-structuring their business by entering into a partnership or incorporating it into a company where tax rates are currently 12.5pc compared to the top rate of income tax of 41pc.

As a final word, Mr McEvoy says that now is the time to start planning how to deal with upcoming tax liabilities.

"There is no point in sitting in front of your accountant next October wondering if you should have re-floored that silage pit or rejigging the parlour," he says. "By then, it'll be too late to have any impact on your preliminary tax bill for this year."

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