Your tax strategy for an off-farm enterprise is key
Choosing right approach makes the difference
Many farmers have diversified into off-farm enterprises over the years, and this will continue into the future. But what is the most efficient way to deal with tax for these enterprises?
The increase in personal tax rates for self-employed individuals to the point where it is now as much as 55pc. This makes structuring a person's affairs through a company structure, whereby trading income is taxed at 12.5pc, more attractive than ever. However, the decision is not as simple as that.
If you decide to go with a non-corporate structure, you remain a sole trader or a partnership if two or more people are involved in the business. Trading profits will be taxable at a person's marginal tax rate -- as high as 55pc.
Trading losses incurred by a sole trader, a partnership or a co-ownership can generally be set off against other income, such as a salary, rent, or farm profits. For example, if you incur a loss from an off-farm enterprise, you can potentially shelter some or all of your rental income from land. This is subject to the proviso that you are actively engaged in the management of the off-farm enterprise and not merely a passive investor in the business.
As a sole trader, you will be required to register for income tax as a self-assessed person with Revenue. Registration as an employer will also be required if you employ anybody. VAT registration will be required where the turnover from non-core farming activities, such as agricultural contracting, is likely to exceed the thresholds.
The thresholds are €37,500 per annum in the case of the provision of services and €75,000 in the case of goods. If you find yourself in a position where you are required to register for VAT in respect of an off-farm enterprise, you will also be required to account for VAT on your core farming activities. Therefore, you will no longer be regarded as a flat-rate farmer. Registration under each tax head can be achieved by filing a Form TR1 with Revenue.