Corporate Tax Concerns | agricultural life
He added: “Put simply, corporate tax increases serve to reduce the levels of profit retained by agricultural businesses and therefore the amount of money available to reinvest in those businesses.
“And, of course, the opposite happens when rates are cut.”
A growing number of local farms are making the decision to become businesses.
In these cases, the directors of the company pay personal income tax at the PAYE level, usually 20%, while the company itself is subject to corporation tax: the main rate currently set at 19%.
Seamus McCaffrey again: “However, the main corporate tax rate is expected to increase from 6% to 25% by the end of March next year.”
But all that could change, given the different positions taken on taxation by the two candidates in the ongoing Conservative Party leadership race.
Liz Truss wants to cut tax levels with immediate effect if she becomes the next prime minister on September 6, while Rishi Sunak wants to keep rates at current levels.
Seamus McCaffrey is an expert on tax issues related to agricultural sectors.
He continued, “The structure of their farming business is discussed with clients on a yearly basis. Farmers can trade as one of three legal entities: sole traders, partnerships or corporations.
“The decision to trade in a certain way is dictated by the circumstances prevailing at any given time.”
Meanwhile, McCaffrey strongly advises all agricultural businesses to update agricultural accounts now.
This reflects the growing challenge of rapidly rising input costs that have impacted all farms in recent months. During this period, fertilizer costs quadrupled while feed and energy costs doubled.
The Omagh-based accountant further explained, “Farmers should seek professional accounting advice on this, if necessary.
“But alongside this, producers should also undertake a comprehensive cash flow assessment of their businesses.
“Given the reality of where we are, increasing pressure on cash flow is now a reality for all agricultural businesses.
“The cost of inputs continues to rise and the tax situation remains difficult.
“There are also indications that silage quality has declined this year, compared to 2021. In turn, this may well necessitate feeding improved levels of meal to the stock next winter.”
McCaffrey further concluded, “All of these issues add to cash flow pressures. In many cases, farmers may wish to obtain increases in their overdraft facilities.
“And while banks are very predisposed to such suggestions, they will want to see up-to-date accounts and realistic cash flow projections before making final decisions in this context.”