Head of taxation at Tullamore-based BCA accountants, Caroline McGrath said that after sitting down with a lot of farmers interested in transitioning to a limited company, many chose to continue as sole traders.

Only some farmers paying the higher rate of tax at 40% would benefit from incorporating their farm, she said: "If the profits you're making in your farming enterprise are used to cover debt and living expenses, there is little merit for incorporating."

According to McGrath, the advantages of a limited company are:

  • More options to manage debt.
  • Good planning opportunities for pension planning.
  • You can involve family members.

    • The disadvantages are:

  • If you take money out of the company to cover personal debt or living expenses, the advantage of the 12.5% corporate tax rate is cancelled as these withdrawals become subject to income tax.
  • Farmers need to be careful with the timing of an incorporation as it may impact on their existing tax arrangements, including income tax averaging, land capital allowances and trading losses of previous years.
  • VAT clawbacks may apply to recent activity as a sole trader.

    • McGrath also advised that farmers forming a limited company get solid advice on:

  • Proper transfer of their payments entitlements to the company.
  • Which assets are transferred to the company. While land is usually not transferred to a company, machinery is and so valuations are required.

    • "As sole traders, people often do not distinguish between personal and business expenses, and have only one bank account. This mindset has to change in a company," McGrath added.

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