22 Jun, 2021

Getting Strategic About Structure

Paddy Cowman, Senior Tax Consultant highlights key advice for new entrants to dairy farming.

Advice for New Entrants

Most new entrants to dairy farming don’t show a profit until year three. However, with careful planning and the right business structure, there are potential savings to be made.

New entrants usually follow the same path when starting a dairy enterprise. The process begins with research, followed by a series of steps leading up to commencing milking.

Typically, these steps include:

  • Preliminary dairy research

  • Preparing building plans

  • Finalising costings

  • Approaching bank for funding

  • Applying for planning

  • Purchasing stock

  • Commencing operations

Business structure

New entrants often don’t spend enough (or any!) time considering if their business is correctly structured. Most farmers automatically operate as sole traders or partners, although the number of limited companies in the dairy sector has increased in recent years.

Look at the projections and examine the following

  • Effect of Stock Relief

  • Is 100% Stock Relief available

  • Remember the tax saving limit on young farmers of a tax saving of €70k

  • Have you been farming before and can you use Income Averaging

  • How long will the benefit of averaging be worthwhile

  • What are the capital allowances and what are they each year for first 5 years

Armed with this information you can then implement a tax projection for the years and more importantly examine are you in the best structure.

If tax is becoming an issue from year 3 onwards have you considered the option of a company from day 1.

If you move into a company

  • Borrowings are in the company

  • Buildings are in the company

  • No Stamp Duty on transfer of buildings in as they are in as they are being built

So who should consider the company?

If the following indicators apply please consider it carefully:

  • Profit per cow will be above €750

  • No off-farm income and milking at least 70/80 cows

  • Capital spend of less than €3k per cow

  • Likely to expand

  • Willing to look at minimising tax

  • Your own or spouses off-farm income

Take time and examine the options early in the day to ensure you are in the right structure.