Dear Money Mentor,
Last year, you wrote about electing to split the profits of the farm between a husband and a wife in order to gain the increased lower rate tax band of dual earners and pay PRSI contributions for both partners to quality for pensions in the future.
At present, I am the sole earner, but my wife has paid contributions from 1986 to 2012. Since then she has worked on the farm full time. I employed her on PAYE, but she was not eligible for PRSI contributions. After reading your article, I let her go in August 2014.
I have been preparing and submitting accounts myself for 20 years, including PAYE to my son recently. It sounded pretty simple in your article to just elect income to my wife, but the Revenue said we needed to start a formal partnership by completing Form TR1.
I am preparing 2014 accounts at the moment. Will I need two sets of accounts or just one split in two? Would a partnership affect my costs or cause a clawback of anything? I spoke to Revenue staff at the Ploughing, but they seemed vague and had not encountered this issue before.
I phoned my Revenue office while writing this email. At first, the operator said I had to start a partnership and put the land into joint names. I insisted Peter Young from the Irish Farmers Journal said it was a simple matter of splitting profits in the joint tax return. I also said that local dairy farmers had formed partnership without transferred land, so why should a husband and wife have to go to that expense.
Fifteen minutes later the Revenue rang back to say that a normal Form 11 would do. In general, my profits are averaging over €40,000. I am a suckler farmer with no loans and fully stocked. Cattle price and efficiency will be the main influence on profits.
I would really appreciate advice on where to go from here with the accounts. I am now wondering should I get a good accountant after all these years of managing on my own.
David
Hi David,
When you said you let your wife go in 2014 after reading my article, I presume you mean that you stopped paying her a wage. Farmers’ spouses do have the opportunity to make Pay Related Social Insurance (PRSI) contributions in their own right, even if they are not directly employed on the farm. This is due to new legislation passed earlier in the year. The extension comes into effect for this tax year – 2014.
The fact that it is new is probably why there was confusion when you talked to the tax office. You definitely do not have to go into a partnership. It is simply a matter of attributing at least €5,000 to your wife under the trade 2 box on Form 11 that you have been submitting yourself.
So if your profits are averaging €40,000, you would attribute €5,000 to your wife and €35,000 to yourself. This will allow your wife to pay the minimum flat rate contribution of €500/year to continue making PRSI contributions in her own right for the pension. Your wife will be required to demonstrate that she performs the same, or ancillary, tasks as you and that her income from all sources exceeds €5,000 per annum. This process should be straightforward, but we will see.
In the past, farmers’ spouses either had to prove they were farming in partnership or qualify for the homemakers scheme. That scheme only allowed that the years they missed out on paying PRSI contributions were not counted for when working out the average for pension purposes.
Otherwise, farmers’ spouses had to prove that they were working in partnership with their partner in order to be eligible to make PRSI contributions in their own right.
The new changes make it less onerous for spouses and benefits families paying tax at the lower rate, where it was often not worthwhile to split the income.
The changes will ensure that it is easier for farmers’ spouses to get up to the minimum of 10 contributions per year to be eligible for a contributory state pension.
The exclusion from PRSI contribution eligibility remains where a spouse is employed directly by their partner who is self-employed. This is not just aimed at farmers and applies across the board. In a number of cases where farmers have employed their spouse and actually made PRSI contributions, they are just being returned when the issue has being identified.
Finally, on your question of getting a good accountant, you have been saving you money each year by filling your own returns. At the very least, you should get a consultation from a good farm accountant, especially with the recent changes. They can look at what you have been submitting and identify if there are any issues. There could be reliefs/expenses which you could have being putting in for. You could also look to see if income averaging is right for you.
There is a move from three- to five-year income averaging, so it would be good to look at the pros and cons of each from your point of view. You can still submit tax returns yourself after the consultation.
In brief
SHARING OPTIONS