Kieran Coughlan: Message to farmers: borrow your way out of trouble

Farmers and the self-employed are set to benefit in 2017 from additional tax-breaks announced in Tuesday’s budget.
Kieran Coughlan: Message to farmers: borrow your way out of trouble

But it was almost unbelievable that there was no mention of general farming income volatility within the Budget speech, or the Budget documents.

Instead, they got augmentation of income averaging, will help farmers caught in the income averaging system facing high tax bills, but will do nothing to aid farmers outside of averaging, or assist farmer going forward in managing income volatility.

Meanwhile, the opening up of cheap credit through the SCBI is effectively sending the message to farmers to borrow your way out of trouble.

There was hope that the plummeting of dairy commodity prices visible to all over the last 24 months would spur the government to introduce a Farm Deposit Scheme as is available in New Zealand, Australia, and to a lesser degree in France and Sweden, which would allow farmers park funds tax efficiently in a good year, as a rainy day fund.

Income averaging

All of the main farm organisations had requested an augmentation of the rules for income averaging, and to be fair, Minister Noonan responded, by announcing a new temporary opt-out scheme available to those in averaging.

For farmers who are availing of income averaging, a bad year for farming has the double negative outcome of reduced cash flow, but also the difficulty of meeting an average-sized tax bill, rather than a tax bill proportional to current income.

Speaking of the change, Minister Noonan stated he is “allowing a farmer facing an exceptionally poor year to “step out” of income averaging and, instead, pay only the tax due on a current year basis, with any deferred tax liability becoming payable over subsequent years.

“This facility will be available immediately, and should provide cash-flow assistance this year.”

Usually Budget measures are introduced effective from January 1 of the following year (2017).

However, the Finance Bill has not yet been published, and it is unclear whether the arrangements will assist farmers who are at the point of submitting declarations of income for 2015, or whether the scheme kicks off in respect of tax year 2016.

VAT credit

The majority of farmers in Ireland remain unregistered for VAT, and receive a top-up to their sales in the form of a VAT credit.

The credit applies to milk, grain and cattle sales.

This flat rate credit is being increased from 5.2% to 5.4%.

For an average dairy farmer supplying 350,000 litres, the increase in the flat rate VAT would mean additional income of about €180 over the course of a year.

Loan fund

The Minister for Agriculture, in conjunction with the Strategic Banking Corporation of Ireland, announced the introduction of a loan fund that will be low cost, at 2.95% per annum, and highly flexible.

It is yet to be seen what banking partners if any will team up with the SCBI in rolling out the loan facilities, but it is expected that the Department will be seeking partners within a matter of weeks.

Self-employed tax credit

The self employed tax credit introduced for year 2016 is to be extended from €550 per year to €950.

It was expected that the tax credit would have been doubled, such that a final tranche of €550 next year would bring parity between the self-employed and employees, who currently benefit from a PAYE tax credit of €1,650 per year.

And in practical terms, farmer won’t feel the benefit of this credit until 2018, as tax positions are finalised for the previous year.

Capital allowance

Interestingly, the accelerated capital allowance regime is being rolled out to sole traders.

This scheme, already available to companies, allows a tax payer to claim up to 100% of the cost of new equipment as a tax deduction in the year of expenditure.

The move stops far short of the Annual Investment Allowance available to UK farmers, who can claim up to 100% of the cost of plant and machinery, subject to an overall limit of a massive £200,000 per annum against their trading profits in the year of expenditure.

The accelerated allowance scheme, now being rolled out to sole traders, can cover approved equipment such as lighting, heating, refrigeration, motors and other equipment subject to minimum spending limits.

The Sustainable Energy Authority of Ireland has responsibility for publishing and maintaining the Accelerated Capital Allowance specified list of qualifying equipment.

Minister Noonan, who noted that farmers were going through “a tough time recently due to lower world prices and weather,” also announced the increase in the tax band for gifts and inheritances between parents and children, up €30,000 to €210,000, and the extension of farm restructuring relief for capital gains tax.

Full details of each of the measures will be become clear once the Finance Bill is published later this month.

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