Reviewing your farm business structure

Farm families are now meeting with accountants to discuss Accounts for the most recent financial year. In many cases, succession planning is being considered together with Inheritance Tax.

A farm business can operate as a sole trader, partnership or company. Considerations that feed into the decision-making process as to what entity is chosen, include the level of profits, the rate of tax, amount of borrowings and the family succession plan.

An individual, trading as a sole trader or a partner in a partnership, pays tax at the basic rate, including National Insurance, at 26 percent on taxable income up to £50,270 per year and at 42 percent on taxable income above £50,270with a higher rate for taxable income over £100,000 per person.

A company pays Corporation Tax at the rate of 19 percent on taxable profits up to £50,000, with a progressive rate of 19 percent to 25 percent on taxable profits between £50,000 and £250,000. Company taxable profits in excess of £250,000 are taxed at 25 percent. Individuals pay tax on two instalments, whereas, generally, a company pays its Corporation Tax in one lump sum, nine months after its accounting year end. There is no difference in the rate of Capital Allowances on agricultural buildings, plant and machinery between sole traders, partnerships or companies. Where the farm business incurs expenditure on eligible Research and Development, a company only is entitled to claim the Tax Credits.

A limited company is required to file its Accounts with Companies House, whereas an unlimited company is exempt from Companies House filing. Both types of company pay the same rate of Corporation Tax.

In some family farm situations, succession planning may be easier if a company is involved. The ownership of a company is defined by shareholdings. A company may facilitate the introduction of new family members by the allocation of shares on an agreed progressive basis supported by a Shareholder Agreement and updated wills.

The decision to trade as a sole trader, partner in a partnership or a company is unique and specific to each farm family. It requires careful consideration with detailed discussion with the members of the farm family, bank, solicitor and accountant.

For further information, contact Seamus McCaffrey on 028 8224 1515