“It is an option that should be considered by farmers who are paying tax at the higher rate having reviewed at least the last three years sets of accounts” she said. She commented that it is dairy farmers predominantly making the decision to incorporate and larger tillage and beef farmers. Farmers who run their farms through a company are subject to a tax rate of 12.5% versus income tax and levies at a rate of up to 54% payable by sole traders.

Tax

“The decision to incorporate is largely based on a need to minimise tax,” she said. “However, farmers need to have a plan for their money once it’s in the company”.

She continued “If all the profit is needed by the farmer to meet annual commitments, then a company structure is unsuitable for them. This is because the transfer of company money to a farmer is taxable in the hands of the farmer”.

However she added that “this tax exposure can be minimised by restructuring loans in the company name and/or maximising the benefit of a director’s loan.”

Meehan explained that in most cases where farmers decide to run their business through a company, they will retain the land in their own personal name and will only transfer the trade to the company.

Typically, the farmer will lease the land and buildings to the company and transfer the stock and machinery to the company. However, if the farmer can avail of CGT Retirement Relief, they tend to transfer land worth up to €750,000 to the company tax free as a directors loan and draw this amount tax free from the company over a number of years.

Young farmers

Meehan commented also that a family farm trading through a company does not exclude a young farmer from availing of the benefits under the Young Farmer Scheme and National Reserve Scheme. She explained that in the case of a person hoping to qualify for the Young Farmer Scheme, they must be a director and a minimum 20% shareholder of the company in order to qualify under the scheme.

In addition, all participants in the company must complete a declaration form confirming that the young farmer has effective control either solely or jointly with other members of the company. She also explained that if the farmer commences to trade through a company prior to 15 May 2015, that they will need to be mindful of transitional requirements under the new Basic Payment Scheme in 2015.