Would setting up a farming company suit your business?
Now is actually a really good time to consider incorporating a farming company. Why so, you might ask. Well, there are lots of reasons; first off, at this time of year, farmers generally have a little more time to consider the implications before the busyness of the year gets underway.
One of the more relevant reasons, though, particularly this year above other years, is that farmers are generally coming off the back of a moderate year and heading into a year where profits are fingers crossed likely to be stronger. Teagasc has predicted that all main commercial farming types will experience a lift in profits for 2025 over 2024, with cattle farming likely to experience a lift in incomes of 9%, dairy 27% and tillage 40%.
The year has started well, with milk prices stable thus far and beef prices at very decent levels. Of course, the year may turn out very different depending on weather, input prices, yields, harvest conditions, conflict and tariffs, to name just some of the headwinds, but if the profits do materialise as hoped, then there is little point in moaning about your tax bill in October 2026 when now is an opportune time to consider if it is appropriate.
The fact that last year's profits were moderate is also a very important factor for farmers who are in averaging as there are particular rules which require the last year’s profits to be assessed based on the higher of the real profits for the year or the average profits.
The rules on this are complex as there are other factors at play, such as whether the farmer's usual accounting year-end is a date other than December 31 (e.g. a sizable cohort of farmers still have a March 31 year-end aligning with the old tax year), in which case yet more rules deal with a cessation, but that’s your accountant or tax consultants forte.
Another reason why now is a good time to consider a company is that there is little income earned thus far in the year and this is an important factor as farmers who set up a company late in the year are not entitled to claim allowances on machinery and equipment against their sole trader income in the year of cessation.
By setting up a company early in the year, the need to claim allowances on machinery is avoided, as the sole trader's income is generally low enough that the lack of allowances does not matter.
If the Single Farm Payment or, more correctly, BISS, CRISS and ECO payment applications are made by a farmer as a sole trader before setting up a company later in the year, that income, when received usually between October and December, is nonetheless regarded as forming part of the farmer's sole trade income driving up personal profits.
Yet more reason to consider a company at this stage is that your accountant generally has a little more time to deal with work outside of their compliance workload, and asking for your accountant or tax advisor to run through your options for incorporating a company close to any tax deadline is likely to get a poor reception.
Of course, company incorporation is not suited for all farmers, but at the same time, company incorporation can be suited to all types of farmers, not just dairy farmers but also tillage farmers, those with off-farm income, contractors and beef farmers alike.
Next time, we'll look at some do’s and don'ts when it comes to farming companies.
