Managing Finances
Including Budgets/Cash Flow
Legal Farm Structures & Tax
By Declan Mc Evoy
Head of Tax
IFAC Accountants
Irish Farm Centre
Email: [email protected]
Tel: 01 4551036
JMH 11/11
1
Cash Flow Budgeting
CASH FLOW
• Cash flow is the movement of “cash” in and out
of the business over a given time period.
• Only actual income / costs are accounted for on
a cashflow as and when they occur.
• Monthly Surplus Deficit – How does effect me
“How does Cashflow Effect My Current Account”
Cashflow Budgeting – Key Points
•
•
•
•
•
•
Know why you want to do a Cashflow
Put in EU payments first
Work through expected sales & costs
Use last years figures as a guide
Estimate if figures are different
Update regularly and compare with actual
“By Realistic with your Income and Costs”
FINANCIAL PLANNING
•
•
•
•
•
•
•
10/23/2014
Making profits but having no money – Why?
Paying tax and having no money – Why?
Large increase in stock
Paying down a loan or creditors
High drawings
Large debtors – money owed
Correlation between these
5
Farm Profit – Where is it gone?
Farm Profit is allocated to the follow:
1. Capital Loan Repayments (Interest is on P&L)
2. Tax Liabilities
3. Personal Drawings
4. Investment in new capital – Buildings,
Machinery
“Profit is NOT Cash”
2015 The Perfect Storm?
Cash Flow Issues 2015
• Cash Reserves from positive milk price 2013 &
2014 used for expansion.
– Extra Stock
– Pay off loans
– Capital investment
• Drop in Milk Price
• Superlevy on 2014/15 quota year to be paid
2015
• Balance of Tax from 2014 due in 2015
– Profits 2014 up on 2013
Careful Planning & Budgeting =
Money Retained by YOU!
Legal Farm Structures
FARMING STRUCTURE
Sole Trader
Partnership – MPP
- Non MPP
Limited Company – Since April 2008
RECENT ADDITIONS
•
•
•
•
Share Farming
Share Milking
Contract Rearing
Cow Leasing
SOLE TRADER
• Most Common/Less Legalistic
• Easiest to Operate
• Taxation – Income – level at where hit high
rate
•
- Capital Tax – Normal Rules
• Volatility measure (Budget 2015) income
averaging
• Available to all
PARTNERSHIPS
Traditional Type:
• No Formal Agreement
• Share of Profits
• Governed by Partnership Act 1890
PARTNERSHIPS
Milk Production Partnerships:
• Administered by Milk Partnership
Registration office
• Access to quota
• Very legalistic to set up but highly
beneficial
PARTNERSHIPS
New Reg Partnerships:
• Dept. of Agriculture – Register
• Benefits – Grants, BPS
• Tax Benefits – New stock relief 50%
ISSUES ON PARTNERSHIPS
•
•
•
•
•
•
•
Hugely Legalistic
Assets are partnership assets
Need for written agreement
If in registered Farm Partnership – only one
Can set up partnership not on register
Partners can be individuals or persons
Need for separate Partners Capital Accounts
TAX ISSUE –
Partnership is a Tax Reporting
Entity
• Tax Benefit – new stock relief
• Each partner taxed on their share
INCOME TAX
• Income volatility/Averaging
• Same tax position as sole trader
• Stock relief @ 50%
• What other measures?
CAPITAL TAX
• Update Will to include Partnership assets
• Individuals same rules
• How to deal with land purchased
• Joint Tenancy – (benefit on same ceased
at 31/12/13)
Partnership Asset
Be Aware of Issues
•
•
•
•
A & B in Partnership
Profits shared 50/50
40 acres land bought
Reg in “A’s” name
Not belong to A but Partnership
PARTNERSHIP SUMMARY
•
•
•
•
Need for proper agreement
Proper partnership Capital Accounts
Be aware of family wages issue (PRSI)
Tax Beneficial
- Capital Taxes
- Income Tax
• Effect of Budget 2015
• Need for Tax Measure to encourage
• Available to all
Limited Company – only
available to Dairying since 2008
• Step up again in complexity
• Familiarity helps
• Dealing with Company law and Taxes
(Income, CT and Capital)
• Benefits should outweight disadvantages
WHO DOES IT SUIT?
• Developed farmer with high tax
• Developing Farmers with high
investment/borrowing require
• Farmers with high borrowings
• Farmers looking to create wealth
• Not suited to all due to complexity
REMEMBER:
•
•
•
•
•
•
•
Company is a separate legal entity
Company own the assets
Only retained profit pay at 12.5%
Winding up is complex
No income averaging
Can now qualify as a qualifying lessee
Entitled to flat rate farmer status for VAT
Collabrative Farming – additions
to Traditional Structures
Share Farming:
• Each farmers brings own farm to
agreement
• Each farmer agree to share income
• Each agrees to share costs
• Formal agreement put in place
• No template for Dairying
SHARE FARMING TAXATION
• Each farmer treated as individual farmers
• Not a partnership
• Each makes own returns
• Regarded as two Sole Traders
• Same Income Tax and Capital Taxes
CONTRACT REARING
• Farming
• Same Tax rules as Sole Trader
• Need for Agreement
SHARE MILKING
• Operates Farm on behalf of owner
• Normally for a share of income and
expense
• Advantages for both
• Taxation – taxed on income
• Need for Agreement
COW LEASING
•
Separate Trade
•
Not farming
•
If it exceeds €37,500 - VAT
•
Impact on main farm flat rate
•
Plan to avoid problems
TAX SUMMARY
Budget 2015 – opened up land to active farmers
However problem is:
• Income Tax
• Single person up to €33,800 low rate
> €33,800 high rate
(tax payable at low rate)
• Married person:
up to €42,800 low rate (one earner
> €67,600 high rate (two earners)
TAX SUMMARY
VOLATIVITY
Income averaging being moved to 5 years:
• Effective
• Smoothes rise over a longer period
• Averaging cannot be looked at short term
• Look over a 5/7 year period
• Capital allowances unchanged
TAX PLANNING
• On farm
• Off Farm
• Legal Structure
Using Your Financial
Accounts Effectively
• Effective Tax Planning- Look forward not backwards
– Annual Year End Review – Tax is a cost!
– Tax Planning – exploring all the options
• Profit Monitor – Accuracy is critical!
• Management Reports - financial accounts can be used for management
purposes.
• Valuable information
• Compare to Projections
IFAC ACCOUNTANTS
100% OWNED AND CONTROLLED BY FARMERS
FOR THE BENEFIT OF FARMERS
35