Who should consider setting up a company?
- Farmer who is paying significant income tax at 41% (53% with USC and PRSI).
- A farmer who does not need a significant portion of their farm profits for living expenses.
- Has already looked at all other tax deduction options like family wages, partnerships, pensions.
- Has more than 10 years left before they retire
- Plan on expanding their business over the next 10 years and will require borrowings to fund expansion.
- Has substantial net assets to transfer to the company
Advantages:
- Corporation tax rate is 12.5% compared with a 53% marginal rate of tax.
- If the farm business is expanding and you have secured loans inside the company, the loans are paid back much quicker due to only paying 12.5% corporation tax. Loans are repaid from after tax profits.
- There is limited liability in a company. If the business fails your liability is limited to the amount of the net assets of the company.
- You have more flexibility with pension contributions within a limited company. Pension contributions is a common method used to remove excess funds from a company.
Disadvantages:
- Higher accountancy costs, more paperwork.
- Money retained is not for director’s personal use.
- No income averaging available within a company. This is not a major problem as corporation tax is only 12.5%
- Balance sheet is on public view via the Companies Registration Office.
- Succession planning can be more complicated.
Before you consider forming a company you should sit down with your accountant and go through all the pros and cons. Every farmer is different and you have to look at all the obstacles and weigh up the advantage.
