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If you are self-employed you must file an annual tax return. If you fail to do so on time – or at all – you may be subject to interest, fines and penalties. Interest can be chargeable at up to 8% per annum. Where a tax return is submitted less than two months after 31 October, there is a 5% surcharge, up to a maximum of €12,695. If returns are still outstanding after this date, a higher surcharge of 10% of the tax liability will apply.
Ensure you pay the correct amount of preliminary tax to ensure you do not pay interest.
27 Tax credits:
Ensure you are availing of all the credits you are entitled to. These reduce the amount of tax that would otherwise be payable. The table overleaf gives details of the main personal tax credits for the tax years 2016 and 2017.
28 Local property tax
Ensure you have paid your local property tax so that you do not incur a surcharge on your income tax liability.
29 Medical expenses
Tax relief is available on non-recoverable medical expenses incurred by the tax payer, spouse and children. Certain items are not allowed. This relief is confined to the 20% rate. 2017 is the last year to claim unclaimed credits for 2013.
30 Add backs for Motor/Web/Telephone
Have you revisited the percentage you are adding back for personal use? The higher the addback the higher your income liable to tax. Review the person addback element.
31 Family wages
Are your family working on the farm? Where a family member is full-time employed on the farm, they are entitled to the employee tax credit. They can only claim this if they earn a sufficient farm wage that incurs a tax liability. For 2017, this tax credit is €1,650. Therefore if a single person is an employee with no other earnings, they can earn up to €16,500 before incurring any tax. Furthermore, a child living at home can earn €8,250 with no tax, PRSI or USC. The child must make a commercial contribution to the farm, must be registered as an employee and an annual employer return must be made.
32 Spouse
If both partners are earning, ensure you are availing of the dual-income tax benefit. A dual-income couple can earn substantially more at the low-rate than a single-income couple. However, there may be situations where couples wish to be treated partially or entitled separately for tax purposes. Make sure you choose the method which is best suited to you – joint assessment, separate assessment, single assessment. Under joint assessment, the tax credits and standard cut-off point can be allocated between partners to suit. A married person with a non-earning spouse can earn a maximum of €42,800 at the 20% rate whereas a couple in partnership can earn up to €67,600.
33 Paying a wage to your spouse
If you do not create a partnership with your spouse, it could be equally beneficial to pay your spouse a wage. This would extend the 20% tax band. Usually, farming spouses are involved in the running of the farm and can justify the wage.
34 Stock relief
There are currently three bands of stock relief available. In any accounting year, a farmer is allowed to reduce his/her trading stock by 25% of the increase in value against profits.
When it comes to disposing of this stock, there is no clawback position. He/she will only be taxed on the amount by which the sale proceeds exceed the actual value that had been placed on those stock for tax purposes.
There is a stock relief available at 50% for registered partnerships. There is also 100% relief for a young trained farmer. This saves the farmer significantly as he/she may be expanding and the relief is never clawed back. It is important to note that stock relief cannot be claimed to create or increase a loss.
35 Income averaging
Review the use of income averaging.
Is it still beneficial?
If you opt out you must review the previous four years. You must stay off averaging for four/five years after opting off so consider the effect of an increase in profits.
36 Succession tax credit
A new succession credit of up to €5,000 is available for transfers of the farm for up to five years. You must agree to enter into a registered farm partnership and then transfer to a registered succession partnership to avail of the credit.
37 Capital allowances
When farm machinery, tractors, cars, vans and farm buildings are purchased, they are not treated as deductible expenses in the normal way. Instead, their cost is allowed over a number of years. For plant and machinery, it must be written off over eight years at 12.5% per year. 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 seventh year. Cars are given a capital allowance based on their emission category (if first registered on or after 1 July 2008). A car in emission categories A,B or C can avail of capital allowances of 12.5% per annum up to a cost of €24,000 – even if the car cost more. Cars in higher emission categories have reduced allowances.
38 Milk quota:
Have you claimed the balancing charge on quota on the ceasing of quotas?
39 Forestry:
All profits from forestry and forestry partnerships including premiums and timber sales are exempt form income tax but are liable to PRSE and USC. Planting grants are not liable to any tax.
40 Energy-efficient equipment:
There is a scheme in place, which is due to run until the end of this year, which aims to encourage farms to invest in energy-saving equipment. Farmers who use the scheme are allowed to write off 100% of the purchase value of qualifying energy-efficient equipment against profit in the year of purchase. The equipment must meet the specified energy criteria and be designed to achieve high levels of energy efficiency. They include, electric motors and drives, lighting equipment and systems, building energy management systems, electric and alternative fuel vehicles and equipment, refrigerating and cooling equipment and systems etc. A full list of the qualifying equipment is available on the SEAI website.
41 Land leasing:
If a farmer (of any age) decides to lease his/her land for a period of five years or more, some or all of that income may be exempt from income tax. If the lease is for 15 years or more, up to €40,000 can be earned tax-free. If it is for 10 years or more, but less than 15 years, it is €30,000 tax-free. For seven years or more but less than 10 years, it is €22,500 tax-free. And, for five years or more, but less than seven years it is €18,000 tax-free. If you have older leases would a review and update of the lease be worthwhile to avail of the higher allowances? A qualifying lessee cannot be the lessor’s immediate family (e.g. grandparents, parents, brothers, sisters, children, and grandchildren), the spouse of the lessor or the immediate family of the spouse. There are some other limitations also. Nieces or nephews qualify as eligible lessees. Where lands are jointly held, e.g. husband and wife, both parties can claim the exempted amount – i.e. up to €80,000 can be exempt.
42 Investing in personal pensions:
Could the payment of pension against the farm income reduce your income tax liability? Making a contribution towards a personal pension is fully tax allowable, however it is subject to certain limits. On maturity, it will depend on which option you take with your fund as to how and when you will be taxed. If you opt for the straightforward annuity scheme – and assuming you take your 25% tax free lump sum – you will be liable for income tax and USC at the normal rates on the balance of the fund.
43 Covenant:
A farmer, who may be a higher-rate taxpayer, could save on his/her tax bill by giving money to support a family member through deed of covenant. To avail of this, the person whom you give or covenant money to must be 65 or over or be permanently incapacitated. You can then claim tax relief on an amount up to 5% of your taxable income. There is no limit if the person is permanently incapacitated.
44 Rent a room relief:
Could you rent a room in your house and avail of tax-free income? The rent a room relief entitles a homeowner to earn up to €14,000 rent in a year, which is not subject to any tax. The room must be rented out from the principle primary residence. A son or daughter cannot avail of this scheme.
45 Home renoVATion scheme:
As either a homeowner or landlord you can get a tax credit of 13.5% up to a spend of €30,000. Only available where all taxes are up to date and you use a registered contractor who has charged VAT at the reduced rate.
Introduction: the top 50 tax saving tips for farmers in 2017
Click here for tips regarding Stamp Duty
Click here for tips regarding Capital Gains Tax
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