Companies

Discussion in 'Talking Point' started by podge 23, Dec 6, 2018 at 5:09 PM.

  1. podge 23

    podge 23 Well-Known Member

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    Just said I would through it out there are many of ye in a company for tax purposes, what are the pros and cons ?
     
  2. 6600

    6600 Well-Known Member

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    It can make sense in four scenarios; if you are consistently paying over €10k in income tax every year go through it with your accountant, if not its not worth the hassle, there are easier ways to reduce tax,
    1. Your farm profits are more than what you withdraw from the business for personal use, mortgage repayments etc. The balance of the profits are taxed at 12.5% Corporation Tax rather than the top rate of Income Tax, 48.5%.
    2. Pensions - you can make greater contributions to a pension fund through a company and get tax relief, useful for someone approaching retirement and wanting to maximise their tax free lump sum when they retire. High rollers only need apply for this one.
    3. A business is being carried on by unrelated persons and you need a firm ownership structure, sometimes a partnership can be too loose.
    4. You need limited liability, e.g. you own a shop and are afraid of a big public liability or negligence claim that could come back on you personally. That's what insurance is there for. If this was a real fear every farmer in the country would be forced into a company in case some passer-by tore himself on wire.
    If you form a company the company pays you, the director/owner a wage. The company pays your income tax on these wages every month as it would any other employees. If your farming with your parents it would be the same for them, i.e. they would be directors/shareholders too.

    Any profits left over after paying these wages the company pays 12.5% Corporation Tax on. Now here's the crux, that money is the company's not yours and whenever you decide to take that money out you will have to pay income tax on it. It doesn't matter if you call it rent, wages, fees, it will be taxed as income i.e. either 28.5% or 48.5% Income Tax, USC and PRSI, depending on whatever band you are in when you take that money.

    Any assets (not land) that is transferred into the company form what is called a Directors Loan, i.e. you have lent that money to the company. You can take that money back whenever the company has sufficient funds to do so. See the previous paragraph. The company is not allowed lend money to the director, remember Seanie Fitz.


    My opinion on companies is that they really only defer when tax is paid. You can end up in a situation where you pay corporation tax one year on profits not taken out only to pay Income Tax the following year on the same money if it has to be withdrawn. You could end up paying two taxes on the same money. I do a lot of companies in work and with peoples lifestyles now there's very little profit left over to save tax on. Very few of them pay any amount of Corporation Tax as the already have it spent on holidays, booze and haircuts.

    On the TAMS grants, a company counts as one person so the max grant aided investment is €80k. If you formed a partnership with a parent the maximum is €160k.

    A partnership with your parents could be a better option, you will be splitting the profit across two or three peoples' 20% thresholds. So if three people in the partnership the business could have €105,900 profits (3 X €35,300) before any of that profit is taxed at the higher rate of tax.
    A partnership also has more attractive stock relief rules than a company. 50% as opposed to 25%.

    If you are thinking of doing any building work the remember the cost of the building will be spread over 7 years for tax purposes so that will reduce your taxable profits for those years too.

    Talk through it with your accountant. We are all getting sick of the tax we are paying. You hear of people advocating companies that haven't a clue, guarantee you their businesses make f##k all. Just worked it out there, a fella who has a profit of €40,000 next year will pay €8,663 in Income Tax, USC and PRSI. What's left to cover living and loan capital repayments is €31,337. There's not much point a lad in that situation forming a company unless he's married to a public servant and she'll keep him !!

    You might have figured out there's no yes or no answers with tax. Spend a bit on the farm every year to make life easier, and build up your earning capacity to keep all those civil servants, politicians, lads on the dole/illness/economic migrants, you might even save a bit of tax doing it!
     
    Last edited: Dec 6, 2018 at 7:03 PM
  3. jay gatsby

    jay gatsby Well-Known Member

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    That is one hell of a post . Fair play and Thanks!
     
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  4. podge 23

    podge 23 Well-Known Member

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    It sure is thanks 6600 , are you half an accountant or what ☺
     
  5. 6600

    6600 Well-Known Member

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    If I was a full one I'd be bald, wear a suit and glasses and be living in exile somewhere.
     
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  6. legsandland

    legsandland Well-Known Member

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    Reminds me of a joke ... What do accountants use for contraception? .........Their personality .

    But seriously great post Thanks @6600
     
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  7. nashmach

    nashmach Moderator

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    Excellent informative post 6600 :Thumbp2:

    You'd need that cigar then and to borrow Bog Man's yacht.:Whistle2:
     
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  8. Tim818

    Tim818 Well-Known Member

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    Can you explain this through a little better? Say in a good year your farm company earns 70k profit, you draw down 40k of it which you pay your normal income tax of, leaving 30k balance at 12.5%? Next year it's a difficult year and farm company only makes 30k profit, you draw down 40k again to live on, it's in this extra 10k that you end up double paying tax?, the 12.5% previous year and as part of your 40k income tax in that year? If you can stomach drawing down only 30k that 2nd yr you avoid this?

    Another question here, if you say go into income averaging, from a low base 4 out of the 5 previous years, and after 3 good years your average income is giving you almost no saving against being not in income averaging, is there any big advantage in going into a company then, and exiting out of your income averaging which is gonna eventually bite you in the ass if the farm has a particularly poor year, but has a whopper of a tax bill from 4 of the 5 previous years being good in the income averaging?
     
  9. 6600

    6600 Well-Known Member

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    The first part of your question is correct.
    On income averaging if you cease trading or form a company you have to reassess the previous year and pay tax on any income that might have been sheltered by income averaging.
    I don't like income averaging myself. In a poor year following a good one it is simpler just to pay less preliminary tax that October. At that stage of the year you would have a fair idea what the tax liability was going to be anyway. IA might suit some people of course but it can bite as you say.
     
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  10. Bog Man

    Bog Man Well-Known Member

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    We gave up income averaging. Sure most of our money is made from subsidies which are fairly constant. It’s driving around on tractors flicking fertilizer and chemicals interferes with income.
     
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  11. podge 23

    podge 23 Well-Known Member

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    How do you no all this stuff 6600 !?
     
  12. nashmach

    nashmach Moderator

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    As well as pulling teats, he admitted above that He's half an accountant :laugh::lol:
     
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  13. glengare

    glengare Well-Known Member

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    U just described my accountant
     
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