While recognising that farm income in some sectors will be down in 2014, you should not lose sight of the income/corporation tax position of the business. Proper tax planning can help to minimise cash extraction out of the business, ensuring that the maximum amount of profits are retained. Preliminary tax payments are due over the next couple of months and awareness of your profit could lead to you paying the minimum amount.
Income tax
Income tax is paid on a current year basis; in 2014 you make a payment on account of your 2014 income tax liability using one of the following options to avoid penalties on underpayment:
Pay 90%, or more, of the total tax that will eventually be due for 2014, orAn amount of 100% of the income tax bill for 2013 (ignoring EIIS/film relief).An amount of 105% of 2012 income tax liability – need to pay by direct debit.Corporation tax
Paying corporation tax
and filing obligations:
The self-assessment system Pay & File applies to companies. The obligations of a company with regard to paying corporation tax and filing its return are:
Compute and pay its preliminary tax liability by the specified date.File its return of income (including audited accounts, where applicable) within nine months of the end of the accounting period. Pay any balance of tax due when lodging the return, ie within nine months of the end of the accounting period, subject to the 21/23-day rule.Special provision is made for small companies whose liability does not exceed €200,000 in the preceding chargeable period.New or startup companies
New or startup companies with a corporation tax liability of €200,000, or less, for their first accounting period will not be required to pay preliminary tax in respect of that first accounting period and will instead be required to pay their final corporation tax liability for that accounting period at the same time as they are required to submit their corporation tax return, ie within nine months after the end of the accounting period, subject to the 21/23-day rule.
When is preliminary corporation tax due?
For companies with a tax liability not exceeding €200,000 (in their previous accounting period), preliminary tax is payable in one installment.
Tax planning
In considering tax planning, a practical approach is required. Ask yourself the following questions:
1. What do I need within the farm gate that makes economic sense?
2. Can I utilise tax allowances to minimise the cost of the expenditure?
3. Can I afford same? Does cashflow/finances permit the expenditure?
4. If I don’t need the investment, what alternatives do I have?
If the answer to points 1 to 3 is “yes”, the person should consider:
1. Family wages: Can I pay wages to children who have made a commercial contribution to the farm?
2. Can I claim expenses for repairs instead of capital expenditure?
3. Examine the personal add-backs in the adjusted profit. Are the adjustments too high for ESB?
4. Bring forward capital expenditure and ensure asset in use before your accounts year end.
5. Stock relief: Can I purchase extra stock and avail of stock relief of up to 100%?
6. Income averaging: Review use of averaging and examine the benefits.
7. Motor car allowances: Can I avail of €24,000 cost even if I have spent less?
8. Are you claiming all of your personal allowances, ie medical expenses, incapacitated child credit, permanent health insurance?
9. Look at off-farm tax investment shelters.
10. Examine the structure of the business.
In addition, PRSI and levies of 4% and 7% will be due, giving a tax take of between 31% and 52%. As a self-employed person, if your taxable profits are over €100,000, the rate goes to 55%. With the high level of personal taxes, one needs to examine your structure:
Sole traderPartnershipLimited company: This should only be examined after all other options are explored.Pension payments
Payments to an approved personal pension scheme, subject to the percentage ceilings, are fully allowable against a farmer’s taxable profits from his/her farming business. Taxable farm profits would not include rental income, deposit interest, etc. Since 2002, it is no longer necessary for earned taxable farming profits to continue to exist to receive a tax allowance for pension contributions. This may be of interest and relevant to certain Early Farm Retirement Scheme participants.
Employment & Investment
Incentive Scheme
The Employment & Investment Incentive Scheme (EII), formerly known as BES Relief, is a euro-for-euro tax relief for investment in certain types of companies. The maximum amount which qualifies for the relief in any one year is €150,000. The scheme is subject to European Commission approval.
EII differs from BES in that the period for which shares have to be held has been reduced from five years to three years and the maximum rate of tax relief for subscriptions for eligible shares has been reduced from 41% to 30% in recognition of the reduced holding period. But a further 11% of tax relief may be available at the end of the holding period, provided the company concerned has increased its number of employees since the investment was made, or the company has increased its expenditure on research and development.
Film investment
Special tax incentives are available for qualifying investments in the film industry. Tax relief is available at the 41% tax rate on 100% of an individual’s annual investment up to a maximum investment of €50,000 per annum and the return of your capital is not guaranteed. Ensure all tax credits are claimed.
While it may seem with every budget that tax reliefs are getting scarcer, there are still some tax credits and reliefs out there that can help to reduce your tax bill, for example:
Home carer’s credit.Maximise the use of individualisation.Incapacitated person – employing a carer.Artist’s exemption.Deduction for maintenance payments.Certain medical and dental expensesThe Revenue has a list of tax credits and reliefs on www.revenue.ie
When one considers the rate of tax at 12.5% in a company, individuals who enter companies often overlook tax planning. The retention of profits for the business and the extraction of tax-free money for the directors should always be under review.
Have you claimed the maximum in tax-free subsistence/expenses?Pension payments: Beneficial, but proper planning is required.Benefits to directors: Review the tax cost of any benefits take.Tax credits are available for research, development and green energy investment: Could this apply to you?Review salary being extracted from the company.
While recognising that farm income in some sectors will be down in 2014, you should not lose sight of the income/corporation tax position of the business. Proper tax planning can help to minimise cash extraction out of the business, ensuring that the maximum amount of profits are retained. Preliminary tax payments are due over the next couple of months and awareness of your profit could lead to you paying the minimum amount.
Income tax
Income tax is paid on a current year basis; in 2014 you make a payment on account of your 2014 income tax liability using one of the following options to avoid penalties on underpayment:
Pay 90%, or more, of the total tax that will eventually be due for 2014, orAn amount of 100% of the income tax bill for 2013 (ignoring EIIS/film relief).An amount of 105% of 2012 income tax liability – need to pay by direct debit.Corporation tax
Paying corporation tax
and filing obligations:
The self-assessment system Pay & File applies to companies. The obligations of a company with regard to paying corporation tax and filing its return are:
Compute and pay its preliminary tax liability by the specified date.File its return of income (including audited accounts, where applicable) within nine months of the end of the accounting period. Pay any balance of tax due when lodging the return, ie within nine months of the end of the accounting period, subject to the 21/23-day rule.Special provision is made for small companies whose liability does not exceed €200,000 in the preceding chargeable period.New or startup companies
New or startup companies with a corporation tax liability of €200,000, or less, for their first accounting period will not be required to pay preliminary tax in respect of that first accounting period and will instead be required to pay their final corporation tax liability for that accounting period at the same time as they are required to submit their corporation tax return, ie within nine months after the end of the accounting period, subject to the 21/23-day rule.
When is preliminary corporation tax due?
For companies with a tax liability not exceeding €200,000 (in their previous accounting period), preliminary tax is payable in one installment.
Tax planning
In considering tax planning, a practical approach is required. Ask yourself the following questions:
1. What do I need within the farm gate that makes economic sense?
2. Can I utilise tax allowances to minimise the cost of the expenditure?
3. Can I afford same? Does cashflow/finances permit the expenditure?
4. If I don’t need the investment, what alternatives do I have?
If the answer to points 1 to 3 is “yes”, the person should consider:
1. Family wages: Can I pay wages to children who have made a commercial contribution to the farm?
2. Can I claim expenses for repairs instead of capital expenditure?
3. Examine the personal add-backs in the adjusted profit. Are the adjustments too high for ESB?
4. Bring forward capital expenditure and ensure asset in use before your accounts year end.
5. Stock relief: Can I purchase extra stock and avail of stock relief of up to 100%?
6. Income averaging: Review use of averaging and examine the benefits.
7. Motor car allowances: Can I avail of €24,000 cost even if I have spent less?
8. Are you claiming all of your personal allowances, ie medical expenses, incapacitated child credit, permanent health insurance?
9. Look at off-farm tax investment shelters.
10. Examine the structure of the business.
In addition, PRSI and levies of 4% and 7% will be due, giving a tax take of between 31% and 52%. As a self-employed person, if your taxable profits are over €100,000, the rate goes to 55%. With the high level of personal taxes, one needs to examine your structure:
Sole traderPartnershipLimited company: This should only be examined after all other options are explored.Pension payments
Payments to an approved personal pension scheme, subject to the percentage ceilings, are fully allowable against a farmer’s taxable profits from his/her farming business. Taxable farm profits would not include rental income, deposit interest, etc. Since 2002, it is no longer necessary for earned taxable farming profits to continue to exist to receive a tax allowance for pension contributions. This may be of interest and relevant to certain Early Farm Retirement Scheme participants.
Employment & Investment
Incentive Scheme
The Employment & Investment Incentive Scheme (EII), formerly known as BES Relief, is a euro-for-euro tax relief for investment in certain types of companies. The maximum amount which qualifies for the relief in any one year is €150,000. The scheme is subject to European Commission approval.
EII differs from BES in that the period for which shares have to be held has been reduced from five years to three years and the maximum rate of tax relief for subscriptions for eligible shares has been reduced from 41% to 30% in recognition of the reduced holding period. But a further 11% of tax relief may be available at the end of the holding period, provided the company concerned has increased its number of employees since the investment was made, or the company has increased its expenditure on research and development.
Film investment
Special tax incentives are available for qualifying investments in the film industry. Tax relief is available at the 41% tax rate on 100% of an individual’s annual investment up to a maximum investment of €50,000 per annum and the return of your capital is not guaranteed. Ensure all tax credits are claimed.
While it may seem with every budget that tax reliefs are getting scarcer, there are still some tax credits and reliefs out there that can help to reduce your tax bill, for example:
Home carer’s credit.Maximise the use of individualisation.Incapacitated person – employing a carer.Artist’s exemption.Deduction for maintenance payments.Certain medical and dental expensesThe Revenue has a list of tax credits and reliefs on www.revenue.ie
When one considers the rate of tax at 12.5% in a company, individuals who enter companies often overlook tax planning. The retention of profits for the business and the extraction of tax-free money for the directors should always be under review.
Have you claimed the maximum in tax-free subsistence/expenses?Pension payments: Beneficial, but proper planning is required.Benefits to directors: Review the tax cost of any benefits take.Tax credits are available for research, development and green energy investment: Could this apply to you?Review salary being extracted from the company. 
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