On Friday last, the Tax Appeals Commission determined that a farmer and his son were liable to pay income tax amounting to over €1m, including penalties and interest, on direct payments received between 2010 and 2014. They had transferred the farm business to a limited company in 2009 and the land farmed was leased to the company.
There was no written lease agreement in place, as rent amounts differed each year.
The company commenced operation in September 2009, yet the Department of Agriculture had not been informed of the new trading entity, the change of ownership, the leasing of the lands or the licensing of the Basic Payment Scheme entitlements.
Neither the herd number nor the payments were formally transferred to the company.
The farmer and son continued to receive these personally, even though they were no longer farming the land, as the company was operating the farm, and thus treated by Revenue as personal income, and taxable as such.
All of this led to the tax liability of €493,267 or worse, if penalties are included.
The Commission determined that the payments received by the company “constituted annual profits or gains arising from property situated in the State.”
Sole traders pay income tax, PRSI and USC upwards of 50% and retained farm profits in a company are taxable at 12.5%.
In order for payment under the Basic Payment Scheme to be deemed income of the limited company, it is necessary to register the herd number in the name of the company and also transfer the entitlements.
This can be done by lease or sale, or following the Department of Agriculture guidelines ‘change of legal entity’.
The farmer and son can appeal the decision to the High Court, however the case highlights how professional advice is critical in any tax saving, legal or accounting plans on farms.
Availing of such, despite the cost, and being fully informed will prevent these type of issues.
No one wants an unexpected huge tax liability and risking their farm operation due to incorrect documentation.