Farmers have expenses too. And they may be tax deductible

The rise in the number of farming companies over recent years has made the issue of mileage and subsistence much more relevant for farmers, writes Kieran Coughlan

Farmers who have incorporated, and farmers who are employers, should consider if tax-free payments can be made to reimburse travel expenses of employees and directors.

And sole trader farmers who buy passenger type cars are allowed claim a tax deduction for the purchase of the car, over eight years, in the form of capital allowances, as well as the costs associated with running and maintaining the car, proportional to the extent that the car is used for business purposes.

A sole trader cannot pay him or herself mileage or subsistence, instead they must claim whatever proportion of expenses relates to business travel.

When it comes to company taxation, the advice is to leave personally owned vehicles outside of the company, because the tax treatment of company cars is prohibitively tax inefficient for the majority of persons.

The exceptions to this rule are:

  • Commercial vehicles (two or three seater vans designed for the carriage of goods, with no seating area to the rear of the driver)
  • Where the driver is doing relatively high business travel, the Benefit-In-Kind rates are relatively lower, meaning the tax cost to the driver is relatively low

Contrast this with the rules applicable to sole-traders where there is no penalty (or loss of deduction) for passenger type vehicles.

Different tax rules also apply in relation to the reimbursement of expenses (mileage and subsistence).

Directors and employees can claim mileage and subsistence from their company, where journeys are undertaken necessarily in the performance of their duties.

Subsistence refers to reimbursement to cover food and accommodation.

The flip side for directors is that they cannot claim the personal costs of purchases or running the vehicle.

The mileage rates applicable to employees and company directors are relatively generous.

For example, a director incurring 10,000km of business travel per year can claim €5,365 of expenses from his or her company on a tax-free basis.

However it is important to differentiate between journeys which are allowable and those which are not.

These Civil Service mileage and subsistence rates are also used by Revenue as the maximum allowable for tax purposes by any company or self-employed person operating through a limited company.
These Civil Service mileage and subsistence rates are also used by Revenue as the maximum allowable for tax purposes by any company or self-employed person operating through a limited company.

Travel to and from an individual’s normal place of work is not a business journey, and cannot be reimbursed on a tax-free basis.

Such travel is merely to put the employee in a position that they can perform their duties, rather than travel in the performance of their duties.

Where an employee travels during the course of their job on business of their employer, the costs of such a journey can be validly reimbursed.

For farmers who have incorporated, such journeys could include travel to a seminar or to collect parts from a machinery dealer.

Similarly, if the employee is required to attend a temporary place of work rather than their usual place of work, such journeys can also usually qualify.

It gets more complicated where an employee has two regular places of work.

For instance, Monday to Wednesday, they work at head office, and Thursday and Friday, they work at a branch office.

The employee’s pattern of work dictates that no mileage can be claimed on travel to either place, at both places are considered the employee’s normal place of work.

Proper recording of the business journeys is a must, with details such as the date, time, purposes of the journey, starting point, destination, distance covered, and the applicable rate.

Where an employee is required to attend a temporary place of work, and travels directly from their home to that temporary place of work, then the distance is calculated as the lower of either the distance between your employee’s home and the temporary place of work, and the distance between your employee’s normal place of work and the temporary place of work.

The mileage system can also apply to employees of sole traders.

Professional advice should be sought relevant to specific circumstances.

- Kieran Coughlan, Chartered Tax Advisor, FCCA, AITI Coughlan Accounting & Taxation Services Ltd 

086-8678296; kieran.coughlan@coughlanaccounting.com

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