FDC: Get planning for bigger tax liabilities in ‘23

BY Sinead Deane

IT is anticipated that tax liabilities will be significantly higher next year, especially for the dairy sector, with record high milk prices received in 2022.  But there is still time to plan.

Options to consider, include maximising family wages before the end of your financial year.

Also, review your capital allowance schedule. Capital allowances are claimed on capital items such as farm buildings, plant, and machinery. When a business incurs costs on equipment, machinery, or plant, 12.5% of the cost of the item (net of Vat if applicable) is claimed as a capital allowance over an eight-year period. With regards to farm buildings, 15% of the cost of the farm buildings (net of Vat if applicable) is normally claimed as a capital allowance each year.

It is important to know when these capital allowances are beginning to run out, as this can have a significant impact on the tax liability, especially if you have been claiming significant capital allowances over the last few years.

Consideration can be given to expenditure on energy efficient equipment that qualifies for accelerated capital allowances.

The Accelerated Capital Allowance (ACA) is a tax incentive scheme that promotes investment in energy-efficient products and equipment such as variable speed pumps, solar panels, refrigerating and cooling equipment and systems etc. These energy-efficient products and equipment can also result in a significant reduction in energy costs.

The accelerated capital allowances for slurry storage are anticipated from 2023 onwards.

The ACA scheme is available to sole traders, farmers and companies that are liable to tax in Ireland.

Under the ACA scheme this rate is accelerated, it allows participants to write off 100% of the purchase value of qualifying energy efficient equipment against their profit in the year of purchase. Claiming the relief is similar to that which applies to standard capital allowances.

Please seek advice from your accountant/adviser to ensure you meet all criteria to qualify for the ACA scheme.

Budget now for next year’s tax bill. There is an option to set up a fixed monthly payment scheme with Revenue or if you feel at any time during 2023 you have extra cashflow you can make an extra payment to Revenue.

It can help to take the pain out of the tax liability you will face next year.

Get your accounts prepared in a timely fashion so you are aware of the tax liability you are facing.

Other options that may be considered: company incorporation, setting up a registered farm partnership or a succession farm partnership, entering income averaging.

Invest in an EII scheme (employment investment incentive scheme). EII is a tax relief which aims to encourage individuals to provide equity-based finance to trading companies. Companies will issue shares to you for the amount you invest. You need to hold those shares for at least four years.

All the above options need to be discussed and analysed carefully with your accountant or advisor to see which options suit your individual circumstances best.

• Sinead Deane is an accountant with FDC in Bandon