Tax implications of family members working on the farm

Omagh based accountant Seamus McCaffrey
Omagh based accountant Seamus McCaffrey

Where family members work on the farm there are many options in order to obtain tax advantages, writes Seamus McCaffrey, accountant, Omagh.

If the farm is structured as a sole trader, it is worth considering whether the spouse should be involved as an employee or as a partner. The factors to consider are the annual taxable profits of the farm and the annual taxable income of the spouse in his/her own right.

Where the son or daughter of a farmer works on the farm, payment can be made for this work. In order for the payment to be allowable as a deduction in arriving at taxable profits, the young person must have reached his/her 13th birthday and the money must actually be paid. The amount claimed for tax purposes must be reasonable and proportionate to the age of the young person and the work done. A proper record must be maintained of the payments, and, when the young person attains 16 years, the National Insurance Number must be recorded. Depending on the number of employees on the farm and the amount paid to each, advice should be obtained for the accountant as to whether the farm business is required to be registered as an Employer with Revenue & Customs. If registration is required, then this involves tax filing obligations and strict time limits, which, if not complied with, will result in penalties from Revenue & Customs.

If the young person who is working on the farm and receives a wage attends agricultural college, there is a further tax planning opportunity provided a number of conditions are satisfied. In addition to paying the young person a wage for working on the farm, the farm business can pay a Training Allowance to a maximum of £15,480 for an academic year: 1 September to 31 August. This amount is an allowable expense in calculating the taxable profits of the farm business and is tax free and free of National Insurance in the hands of the young person. The farm business must ensure that the young person is enrolled as a student with a recognized educational establishment for at least one year, and, that the young person attends for at least twenty weeks in that academic year. If the course is longer, the young person must attend for at least twenty weeks on average in an academic year over the life of the course. Where the farm business is registered as an employer with Revenue & Customs, the amount of the Training Allowance paid by the farm does not require to be included in PAYE Returns to Revenue & Customs.

Where the farm business is registered as an Employer with Revenue & Customs and complies with PAYE obligations there is a £2,000 National Insurance Employment Allowance. To claim the allowance, the employer ticks a yes/no indicator on the payroll software which is used to comply with the Real Time Information (RTI) system. The employer will then offset the allowance against each Class 1 National Insurance payment that is payable to Revenue and Customs until the allowance is fully claimed or the tax year ends. The allowance is available even where the only employee is a director in a company.

There are many opportunities to obtain a tax advantage where members of farming families work on the farm. Regular contact with the farm’s accountant is required to determine the most appropriate structure to reflect what is actually happening on the farm.

For further information, contact (028) 82241515.