What is a Limited Company?
For some farm businesses, forming a limited company has huge advantages. A company is a separate legal entity with its own bank account. When setting up the company, the farmer sells assets such as stock, machinery and land to the company which then owns these assets. The farmer becomes an employee of the company and earns a wage which is subject to Income Tax.
Is a Limited Comany for you?
Every farm is unique, therefore, no one structure is the right answer for every farm business. Having the right structure in place is crucial in ensuring your business is operating as effectively and efficiently as possible. Farmers who should consider setting up a company are those who:
- Have significant retained profits
- Have large capital repayments on loans with 5-7 years left to completion
- Planning significant farm development
- Capital allowances are reducing
- New entrant to dairying
- On income averaging with profits rising, causing the averaging to level out
- Single tax treatment and above the low-rate tax band
- Part time farmer with income taxed at the high rate
- For succession planning purposes
- Considering purchasing land
Is there a tax-saving benefit?
A key advantage of this structure is that it allows the farm to achieve significant tax savings. This is because companies pay the 12.5% Corporate Tax rate whereas sole traders pay up to 55% in Income Tax if they’re in the higher rate tax band.
Get in touch with one of our experts todayRobert Johnson - Senior Tax Consultant
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