Overall, 2022 has been a reasonably good year on Irish farms with profits in sectors other than pigs and poultry higher than in previous years. Unfortunately, better profits usually come with a higher income tax bill. Planning ahead is the best way to get around this. Usually, tax-saving opportunities can be found both inside and outside the farm gate.
Under our tax system, you will be paying preliminary tax for 2022 with your 2021 income tax return. The balance of your 2022 tax will then be payable in October/November 2023, when preliminary tax for 2023 will also be due.
Inside the farm gate
When looking for opportunities to save tax inside the farm gate, key points to discuss with your accountant include:
any necessary adjustments to add backs for personal expenditure
whether all relevant tax credits, allowances and reliefs are being claimed
timing of any planned capital expenditure and whether any incentives/reliefs apply
timing the purchase of necessary supplies such as fertiliser, seed, feed
timing the purchase of materials for any necessary repairs
timing of stock sales
wages for family members working on the farm
pros and cons of income averaging
With soaring fuel and energy costs, it’s important to re-examine what percentage of your utility bill is business expenditure. Any downward adjustment in your profit for the personal element of motor, electricity and telephone expenses will reduce your taxable income. Ask your accountant to check that you are calculating and allocating these expenses correctly.
Outside the farm gate
Business structure is one of the main areas to focus on outside the farm gate. Questions to consider include whether it would be beneficial to form a registered farm partnership/succession farm partnership. If you have ruled out partnership, have you considered forming a limited company? What are your plans for the next few years? Will your current business structure still be appropriate?
Other tax saving opportunities
Depending on your circumstances, other areas to look at include:
Have you maximised your pension contributions?
Could bringing your spouse into the business and paying them a salary reduce your tax bill?
If your spouse works off-farm, could you top up their income so that they benefit from the maximum personal tax allowance?
Would it be beneficial to gift your employees a tax-free non-cash bonus of up to €1,000 each under the Small Benefit Scheme?
Could you contribute to a pension and/or provide additional benefits for your employees?
Could you push out your year-end so as to bring Spring 2023 costs into the current year?
Could you hive off part of your business into a company?
Could you avail of the Employment Investment Incentive Scheme (EIIS)?
If you have surplus cash on hand this year, it might be worth paying additional preliminary tax to reduce your 2023 tax bill. The most important thing to remember is that there are almost always ways to reduce your tax liability if you plan ahead in time. Most of the opportunities listed in this short article apply to companies as well as to sole traders and partnerships. However, individual circumstances vary, so as always, if you require further information and/or advice on your specific situation, contact your local ifac office.