The past week was best described as painful, both from an accountant’s and a tax-payer’s perspective, the latter suffering from financial extraction. and the former from the whims of an unstable Revenue online portal, adding to the pressure to get returns filed on time.
Therefore, many of us would rather put our respective tax returns and accompanying financial contributions to the back of our minds.
But to do so would in some respects be a wasted opportunity.
It is well worthwhile looking through the farm accounts and financial statements you have received over recent weeks, now that the dust has settled.
You have paid for them, or presumably will be paying for them!
Your accounts and financial statements are unique to you, and are of most benefit to you.
They are not simply a document prepared purely for the benefit of the bank manager or for the Revenue.
In fact, one of the key reasons why the bank may want to see your accounts is that the key financial results of your business are available in one key document, prepared in a standard format,l allowing them to compare your business to others in your industry, and to compare the year-on-year trends of your business.
At a basic level, you should take an interest in understanding what your profitability of your business is.
Your profit before depreciation is generally a measure of your capacity to buy assets, repay creditors, meet your living costs, and pay your tax bill.
Of course, none of us like paying tax, and for some people, paying the tax bill can put real financial pressure on households at this time of year.
Tax is a direct function of profits and personal position.
A standard self-employed single person aged under 66 pays €6,420 on business profits of €34,550, and 48.75% thereafter.
Wishing your tax bill is lower is effectively wishing that you made less money.
Wishing you make less money is wishing your standard of living is lower than it currently is!
Rather than wishing yourself poorer, it’s better to wish yourself wealthier.
The theory goes as follows.
If your earnings are high enough, then you can better afford to pay the tax thereon.
If you have had difficulty paying your tax bill, now is the best time to explore the underlying reasons, while your accounts are to hand and the tax liability is fresh in your head.
Are your personal living costs eating up all of your business profits, meaning there is nothing left for the taxman?
Are you overburdened with debt such that your business cannot afford to service the debt, your personal living costs and the taxman?
Or are you spending all of your profits on capital improvements (assets, buildings and equipment) leaving nothing for the taxman?
Farmers should also take a keen interest in how their business is performing and trending.
Is your business growing, and if it is growing, is the growth in output reflected in increasing profits, and to what degree?
If extra ouput isn’t generating extra profit, or sufficient profit to justify the level of work involved, then expansion should be questioned.
While it might be a bit depressing one should also consider what income the farm would make, with no stock, or minimal stock, and what income the farm would make if let.
Farmers should also consider what alternative or additional income streams can be earned both inside and outside the farm gate.
Expanding further, should you give consideration to company incorporation; or leasing out your outside blocks of land (with or without leasing in alternative land closer to your main farm holding); or tree planting on relatively unproductive land, in order to reduce your exposure to tax without affecting income.
Ultimately, if you’re happy with your lot, and accepting of your tax position, then proceed as normal.
If you’re not entirely happy with your business and the tax liability thereon (remembering not to wish yourself poorer), then it’s time to start interrogating your accounts, before they become buried amongst your paperwork.
The answer, my friends, is not (in the words of Bob Dylan) ‘blowin’ in the wind’.
The answer is there in your financial statements.