QI commenced farming earlier this year having inherited a small farm from my uncle. My level of farming has been quite low as I work off farm also. I have bought and sold some stock and claimed the Single Farm Payment. Have you any tips on how I can reduce any tax payable?
A I assume you have registered for income tax as a self-employed person. If you have not already done so, you should register for self-assessment by completing form TR1 available on the Revenue website.
The pay and file system requires you to pay your preliminary tax for the current year and the balance of income tax in respect of the previous tax year by 31 October. However, as you have only commenced your farming trade this year, you can chose to pay preliminary tax of 100% of the previous year’s liability, which means that no payment is due this year.
You should bear in mind that you will have the full amount of tax to pay in respect of your farming activities in 2013 and preliminary tax of 90% of your 2014 liability (or 100% of your 2013 liability) by 30 October next year.
Records of expenditure
It is important to determine what your income tax bill for this year is likely to be. You should keep your farm accounts up to date rather than waiting after the year-end to prepare a set of accounts when it is generally too late to minimise your income tax liability.
If you do not keep accounts up to date, it is worth doing this in the new year at the end of each month by either preparing a simple record of receipts and purchases or sending this data to your accountant and asking them to do so. This is also a useful exercise in managing cashflow for the year.
Assuming you have not kept your farm account records up to date, you could review a copy of your farm account bank statements for the year which should give you an idea of your receipts, e.g. cattle sales, Department of Agriculture scheme payments (SFP, REPS) and expenses (fertilizer, feed, veterinary fees and medicines, repairs and maintenance, motor and machinery running costs, accountancy and bank charges, etc).
Tax deductible expenses
It is important to remember to claim all allowable expenses against your farming income.
The general rule is that any expense incurred ‘wholly and exclusively’ for the purpose of your farming trade can be set off against your farming income.
However, as farmers tend to work from home in operating their business, a proportion of the household bills can be written off as a business expense, including light, heat, insurance, telephone, broadband, etc.
Expenditure on farm machinery, motor vehicles and farm buildings cannot be set off as an expense against your farming profit but rather is set off against farming profits over a number of years as a capital allowance.
The cost of plant and machinery is written off over an eight-year period at 12.5% each year.
The cost of farm buildings and land improvement can be written off over seven years at a rate of 15% for the first six years and 10% in the final year.
All motor vehicles registered before 1 July 2008 and vehicles with emissions categories A, B and C registered after 1 July 2008 are allowable at 12.5% of the cost capped at €24,000.
Stock relief
Stock relief at a rate of 100% is available for young qualifying farmers for the tax year in which the individual begins farming and for the three successive tax years. In order for you to claim 100% stock relief, you must satisfy the following conditions:
Have qualified for grant aid under the Scheme of Installation Aid for Young Trained Farmers; orCommenced farming in the year in which the claim is made; andSatisfy the minimum agricultural education requirements, i.e. green cert or its equivalent.Submit a business plan to Teagasc unless a business plan has otherwise been submitted to Teagasc or the Minister for Agriculture, Food and the Marine for any other purpose.An example of the operation of the relief is included in the table above.
Assuming you have first qualified for stock relief this year, the amount of relief is restricted to €40,000 in a single year of assessment and €70,000 in aggregate over the course of the scheme (i.e. four years).
You should carefully examine your current stock levels to ensure that you have sufficient stock on hand at the end of the year in order to maximise the benefit of stock relief.
If it appears that you are still facing a sizeable tax bill. It might be worth considering making tax deductible purchases now rather than holding off until the new year in order to reduce your taxable profits further.
It is worth highlighting also that relief for farming losses incurred may be claimed against other income in three consecutive years (or four consecutive years in certain cases). However, stock relief cannot be claimed to create or increase a loss.
Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors, does not accept responsibility for errors or omissions. E-mail ameehan@farmersjournal.ie
QI commenced farming earlier this year having inherited a small farm from my uncle. My level of farming has been quite low as I work off farm also. I have bought and sold some stock and claimed the Single Farm Payment. Have you any tips on how I can reduce any tax payable?
A I assume you have registered for income tax as a self-employed person. If you have not already done so, you should register for self-assessment by completing form TR1 available on the Revenue website.
The pay and file system requires you to pay your preliminary tax for the current year and the balance of income tax in respect of the previous tax year by 31 October. However, as you have only commenced your farming trade this year, you can chose to pay preliminary tax of 100% of the previous year’s liability, which means that no payment is due this year.
You should bear in mind that you will have the full amount of tax to pay in respect of your farming activities in 2013 and preliminary tax of 90% of your 2014 liability (or 100% of your 2013 liability) by 30 October next year.
Records of expenditure
It is important to determine what your income tax bill for this year is likely to be. You should keep your farm accounts up to date rather than waiting after the year-end to prepare a set of accounts when it is generally too late to minimise your income tax liability.
If you do not keep accounts up to date, it is worth doing this in the new year at the end of each month by either preparing a simple record of receipts and purchases or sending this data to your accountant and asking them to do so. This is also a useful exercise in managing cashflow for the year.
Assuming you have not kept your farm account records up to date, you could review a copy of your farm account bank statements for the year which should give you an idea of your receipts, e.g. cattle sales, Department of Agriculture scheme payments (SFP, REPS) and expenses (fertilizer, feed, veterinary fees and medicines, repairs and maintenance, motor and machinery running costs, accountancy and bank charges, etc).
Tax deductible expenses
It is important to remember to claim all allowable expenses against your farming income.
The general rule is that any expense incurred ‘wholly and exclusively’ for the purpose of your farming trade can be set off against your farming income.
However, as farmers tend to work from home in operating their business, a proportion of the household bills can be written off as a business expense, including light, heat, insurance, telephone, broadband, etc.
Expenditure on farm machinery, motor vehicles and farm buildings cannot be set off as an expense against your farming profit but rather is set off against farming profits over a number of years as a capital allowance.
The cost of plant and machinery is written off over an eight-year period at 12.5% each year.
The cost of farm buildings and land improvement can be written off over seven years at a rate of 15% for the first six years and 10% in the final year.
All motor vehicles registered before 1 July 2008 and vehicles with emissions categories A, B and C registered after 1 July 2008 are allowable at 12.5% of the cost capped at €24,000.
Stock relief
Stock relief at a rate of 100% is available for young qualifying farmers for the tax year in which the individual begins farming and for the three successive tax years. In order for you to claim 100% stock relief, you must satisfy the following conditions:
Have qualified for grant aid under the Scheme of Installation Aid for Young Trained Farmers; orCommenced farming in the year in which the claim is made; andSatisfy the minimum agricultural education requirements, i.e. green cert or its equivalent.Submit a business plan to Teagasc unless a business plan has otherwise been submitted to Teagasc or the Minister for Agriculture, Food and the Marine for any other purpose.An example of the operation of the relief is included in the table above.
Assuming you have first qualified for stock relief this year, the amount of relief is restricted to €40,000 in a single year of assessment and €70,000 in aggregate over the course of the scheme (i.e. four years).
You should carefully examine your current stock levels to ensure that you have sufficient stock on hand at the end of the year in order to maximise the benefit of stock relief.
If it appears that you are still facing a sizeable tax bill. It might be worth considering making tax deductible purchases now rather than holding off until the new year in order to reduce your taxable profits further.
It is worth highlighting also that relief for farming losses incurred may be claimed against other income in three consecutive years (or four consecutive years in certain cases). However, stock relief cannot be claimed to create or increase a loss.
Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors, does not accept responsibility for errors or omissions. E-mail ameehan@farmersjournal.ie
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