In light of the recent significant rises in Income Tax rates, many sole trader and partnership businesses are now looking at incorporating limited liability companies with the view of availing of the 12.5% corporation tax rate on profits. An excellent treatment of the pros and cons of incorporating a company was written in three articles by Peter Young in the Irish Farmers Journal on the 15th January 2011. There is no doubt the incorporation of sole traders and partnerships in all walks of life will become popular in the months and years ahead in light of increasing personal taxation. Mr Young’s series of articles provide a balanced assessment of the upside and downside.
A key element of his advice is to ensure that your accountant is on board at the earliest possible stage to guide you in the process. Legal advice will be equally important in terms of ascertaining which farm assets will be transferred outright into the new company and which assets may only be leased to the company. It is important that all such transfers and leases are correctly prepared and stamped and legally compliant to withstand scrutiny from the Revenue Commissioners. Another article from Peter Young in the same edition quotes extensively from Declan McEvoy, IFAC Senior Tax Consultant at http://www.farmersjournal.ie/site/farming.php?newsid=12367. Despite this article being entitled “Be wary of limited company fever”, it does outline the main advantages of incorporation, which are that the 12.5% corporation tax on trading profits compares favourably with a marginal rate of up to 52% for an individual farmer. This represents a saving of €395 on every €1,000 of profit.
Anyone considering incorporating a company, be they a farmer, dentist or shop-keeper, will benefit greatly from reading these articles. The next time you are talking to your accountant about the possibility of incorporating a company, he/she may well be impressed with your knowledge of the issues.
Fergal McManus