Tips to reduce your income tax bills
MANY farmers are facing the daunting reality of significant Income Tax liabilities for 2017 payable by the 31st October
2018, however, if you pay and file on line the deadline is extended to 14 th November 2018.
There are a number of items that you should discuss with your accountant when reviewing your Accounts and Income Tax return to ensure all available reliefs are being claimed and your expenses are classified correctly.
Whilst 2017 year has now long finished one can still look at a number of items - most of the items would refer to 2018 and beyond so proper planning is a must.
Repair v Capital:
Farmers are constantly upgrading and developing their farms, how your accountant treats this expenditure in your farm accounts has a big effect on your Tax liability.
Claiming vat back on this expenditure classifies this as capital. Consider classifying it as Repairs if appropriate. You can get an immediate write off. The main difference between repairs and capital is that the tax allowances are allowed in the year you do the work. Personal Addbacks:
The standard rate of addbacks in your farm accounts is 33% which applies to phone, ESB and motor expenses incurred during the year. Accountants apply this 33% rate however often the addback is too high or in some cases should not be applied at all. Farmers need to discuss these addbacks with their accountants because ultimately it increases their tax liabilities and accountants can take it for granted that the addback applies.
Stock relief:
Farmers are entitled to claim stock relief when the value of their stock increases at a rate of 25%.
100% stock relief is available to Young Trained farmers. Enhanced stock relief is available to partners in a registered farm partnership as follows; Young Trained Farmer 100% Other partners 50%. It is important that you discuss stock relief with your accountant to ensure you’re claiming the relief when available. Stock relief reduces your Income Tax liability.
Other topics worth discussing are
Income averaging
Maximise Lower Tax rate bands Review of Family wage
Personal pension Contributions Limited company structure
If you would like to discuss Tax saving options available to your farming business and how to reduce your Income Tax exposure contact your local IFAC team in Tralee.