Tax return and payment deadline looms

By Jim Devlin

As the income tax return filing and payment deadline looms at the end of the month, farmers should recognise that they have a number of options for the payment of their preliminary tax payment for 2005. October 31 is also the final deadline for filing income tax returns for the 2004 tax year.

To avoid interest on under paid tax, farmers and self-employed persons should pay preliminary tax equivalent to at least 90% of their final tax liability for 2005, or 100% of their tax liability for last year (2004).

In addition, there is also an instalment preliminary tax payment option whereby tax can be paid in 10 equal instalments starting in January and based on 105% of the liability of the pre-preceding tax year, i.e. 2003.

Farmers have been receiving 2004 EU premia payments in 2005. This is in addition to the first Single Farm Payment which it is expected will be paid in 2005 - but also in respect of the 2005 tax year. Most farmers have been accounting for direct EU farm supports on a cash receipts basis, recognising the income in the accounting period in which the payment is received rather than the tax year to which it relates.

In this changeover period to the Single Farm Payment, significantly higher tax charges could arise. However, this difficulty for farmers was recognised in the 2005 Budget and special provisions have been introduced which allow 2004 Premia Payments received in 2005 to be spread and assessed to tax in equal instalments over three tax years of 2005, 2006 and 2007.

Impact of falling stock values

Some farmers have questioned what the impact that falling year end stock numbers might have on farm profits for tax purposes. Stock should be valued at cost in farm accounts. For immature livestock, the Revenue Commissioners have allowed an approximation of cost to be calculated at 60% of its market value for bovines. As stock values may only be written down where market values fall below cost as included in the accounts it is unlikely that an argument can be made to reduce stock values.

As profit is essentially a measure of the increase in net assets between the start of an accounting period and the end of an accounting period, a reduction in stock values might be expected to reduce total net assets, increase cost of sales and, therefore, reduce profits.

However, farmers may have their breeding stock valued at historic levels which could be low when compared with market values. When a farmer reduces stock numbers by disposing of this breeding herd, the profits on the individual animals can be high due to the low valuation they have been carried at in the farm accounts. Furthermore, farmers disposing of breeding herds will have a higher than normal level of trading activity in the accounting period in which they are disposing of the herd. This in turn could also increase profits in this period.

Disposals of Capital Assets:

In addition to paying preliminary tax by the end of the month, self-employed taxpayers must also pay any Capital Gains Tax due on disposals of chargeable assets that occurred between 1 January and the 30 September this year. Tax due on disposals from 1 October to 31 December has to be paid by the following 31 January.