Taxation

 

Dairy Farmers Urged to Act Now to Reduce Tax Bills Amid Strong Incomes

— ifac advice in association with ICMSA

Dairy farmers had a strong 2024, with milk prices holding firm and input costs stabilising. The signs to date in 2025 could be even better — but with that, comes a bigger tax bill.

With filing season approaching, now is the time to act. There are valuable reliefs and strategies available — but some are time-limited and will disappear after 2025.

Below, we highlight the key tools dairy farmers should consider to reduce their tax bills and plan ahead for the coming year.

1. Incorporation – And the Power of the Directors’ Loan

Where profits are consistently strong — say over €100,000 to €120,000 — moving your farm into a company structure may reduce your tax rate to 12.5% on profits retained in the business. Incorporations need to be timed correctly and that incorporation for Dairy farmers is usually best done in February/March

Example:

Tom runs a 100-cow dairy herd and has €400,000 worth of stock and machinery on the balance sheet. He transfers the business into a company. The €400,000 becomes a tax-free loan from Tom to the company.

Over the next 10 years, Tom draws €40,000 per year back out — completely tax-free — even though the company still earns profits and pays him a wage or pension contribution. That €400,000 drawdown is not income, it’s a return of capital.

This is a powerful tool for farmers with upcoming personal expenses, college costs or retirement funding plans — but you must get the structure right at the outset.

Watch out:
Always review your full succession plan before going down the company route.

2. Pension Contributions

Pension contributions are well known for their tax efficiency, the contributions made are tax-deductible and also grow tax-free within approved pension funds.

Sole traders and employees can contribute to a private pension account or PRSA. These contributions are deductible for income tax purposes, subject to limits based on their age and earnings (subject to an upper limit of €115,000, see table below).

Tax relief limit as a percentage of income
Age	Limit
Under 30	15%
30–39	20%
40–49	25%
50–54	30%
55–59	35%
60 or over	40%

 

 

Example 1

Mary is a sole trading farmer in her 60s, she makes annual profits of €135,000. She is fast approaching retirement and wishes to top up her private pension as much as possible.

Mary‘s contribution will be limited to 40% of €115,000, being €46,000. Mary pays tax at the 40% rate, so she would be saving €18,400 in income tax, thus the true cost of the €46,000 contribution to her is €27,600.

Being over 60, Mary is able to draw down her pension at any stage, and access her 25% lump sum entitlement, she can receive up to €300,000 in this manner tax-free.

Company Pension Contributions

Incorporating the farm, allows additional pension contributions, as the company can make contributions to an employee’s PRSA account. Where the contribution is less than or equal to their salary, it is not subject to a benefit in kind charge.

Example 2

George is a farmer who trades through limited company which is turning a healthy profit of €200,000. He employs his daughter, Julie who is in her 30’s for a salary of €50,000.

Julie can contribute up to 20% of her salary, which is €10,000, at the 40% tax rate, she will save €4,000. Thus the true cost to her is €6,000.

As the end of the year approaches, the company has a substantial surplus of cash which George wishes to put to good use. The company can make a contribution to Julie’s pension of €50,000. The company saves 12.5% of this contribution or €6,250 in corporation tax.

In total, Julie’s pension pot has grown by €60,000 as a result of her and the company’s combined contributions.

Watch out: Pension contributions are not a one-size fits all solution. The standard fund threshold is currently €2m, set to increase to €2.8m by 2029. Where anyone becomes entitled pension funds above this threshold, (including any prior benefits taken) a “chargeable excess” arises and a tax charge equal to 40% of the excess over the threshold, is immediately applied.

Exceeding the employer contribution limits can be equally costly, as this becomes a benefit-in-kind charge. In this case, as the employee cannot access the pension contribution, they are left in a worse net-cash position than they would face via payroll as normal.

 

3. Income Averaging

Income averaging allows farmers to spread taxable profits over five years, helping smooth out tax liabilities. In years of rising profits income averaging can save a lot of tax, it also works well when profits fluctuate between good and bad years.

But here’s the catch: once the five-year average is made up of four or five high-profit years, you’re effectively locked in to a high level of tax, even if future profits drop sharply.

 

Example:

Pat is on income averaging. His recent taxable profits are:

Year	Taxable Profit
2020	€40,000
2021	€55,000
2022	€90,000
2023	€70,000
2024	€120,000 (expected)

This brings his 5-year average to €75,000. So, in 2024, Pat will only pay tax on €75,000 — despite making €120,000.

That can result in a significant saving now, but the risk is what happens if milk prices fall again in 2026 or 2027. If Pat stays on averaging and has a poor year — say a €30,000 profit — he will still be taxed on a 5-year average of perhaps €80,000, triggering a tax bill in a year of lower income.

Speak to your accountant on this as the benefits of income averaging need to be examined on a case-by-case basis.

Could Opting Out Makes Sense

• 2024 profits are higher than the average
• 2025 is likely to be even better
• You want to avoid being locked into high tax if future years are poor.
• On the other hand, a large tax saving could be made in both 2024 and 2025 by remaining in averaging.
• You want clearer year-on-year tax forecasting
• If you are getting ready to enter a company the normal cessation rules apply and the timing of this is important.

If any of these apply to your farm, now is the time to talk to your accountant and model the impact of coming off averaging this year.

Temporary Step out

A farmer who is subject to income averaging can elect to opt out for a single tax year. Where the election to opt out is made, the taxpayer is assessed on the normal basis of assessment for that year. The temporary opt out election can only be made once every 5 years.

The election to opt out provides a cash flow benefit. The income tax that would have been paid if the income averaging profit was assessed less what is actually paid under the general basis of assessment is payable in equal instalments over the next 4 years.

4. Capital Allowances: Slurry and Safety Investments – Use Them or Lose Them

Two major capital allowances are expiring. If you don’t act, you lose out.

1. Slurry Storage – 2-Year Write-Off

Available for qualifying facilities built between 1 Jan 2023 and 31 Dec 2025, this allows you to write off 100% of the cost over just 2 years (50% each year).

Example:

Ciarán installs a €60,000 above-ground slurry store in April 2025.
He claims €30,000 in capital allowances in 2025 and the remaining €30,000 in 2026.

After 2025, this reverts to standard 12.5% over 8 years — a massive drop in cash flow

1. Farm Safety Equipment – 50% per annum over 2 years

This applies to items such as:

• Calving gates and pens
• Mobile cattle crushes
• Safety lighting
• Cameras and calving monitors
• Anti-backing gates
• Hydraulic systems

You must hold a Department of Agriculture-issued Safety Certificate at the time of purchase. Relief expires 31 Dec 2026.

Example:

Mary buys €20,000 worth of safety upgrades — including a calving gate and LED yard lighting.
She claims €10,000 capital allowances in 2025 and 2026.

Reminder: This relief is distinct from TAMS and can be claimed even if you’re not grant-aided — as long as you have a safety cert.

 

5. VAT 58 Refunds – Don’t Leave Thousands Behind

Where a farmer is not VAT-registered — typically a flat-rate farmer — and invests in farm infrastructure, VAT cannot be reclaimed through the normal VAT 3 return.

However, Revenue allows for VAT recovery using Form VAT 58, provided the works meet certain conditions and are not for resale or direct commercial output.

What Qualifies for VAT 58

To qualify, the spend must be:

• Incurred by a flat-rate or unregistered farmer
• Related to farm infrastructure permanently fixed to the land
• Not for buildings let for rent

Examples of eligible items include but not limited to:

• Land reclamation
• Drainage
• Farm fencing
• Roadways
• Farm buildings
• Fixed tanks (e.g. slurry tanks, slatted tanks, milk bulk tanks)
• Yard slabs and silage pits

Moveable equipment, plastic tanks, tractors or machinery do not qualify.

Example:

Joe builds a €35,000 silage slab and a €10,000 concrete roadway for his milking parlour. He pays €10,350 in VAT.

As a flat-rate farmer, he cannot claim it back via the VAT return.

Instead, he submits a VAT 58 claim through ROS, including invoices, layout diagrams, and proof of permanent installation.

Result? A full refund of €10,350 from Revenue.

What You Need to Know

• Claims must be submitted within 4 years of the invoice date.
• You must keep full records, including:
  • Valid VAT invoices
  • Evidence of payment
  • In some cases, photos or maps to show location and permanence
• The minimum claim is €125 VAT in a calendar year.
• Submit through ROS or your tax agent using Form VAT 58.

Be Prepared: It’s Not a Simple Tick-the-Box Exercise

Many farmers have found that even where all the correct paperwork is submitted, Revenue may delay or push back on VAT 58 claims. In recent years, there have been increased queries, requests for extra evidence, and in some cases unreasonable demands to prove that works qualify — even where the rules appear clear.

ICMSA and other representative bodies have raised concerns about this, particularly where farmers are required to justify that:

• Invoices relate specifically to farmed land
• Structures are permanently installed and not moveable
• The items are not used for rental or commercial activity

Despite these frustrations, the financial benefit of claiming is still significant, thousands of euro in tax-free refunds are being reclaimed where claims are correctly supported and followed through.

Key Takeaway

If you’ve spent on fencing, concrete work, roadways, or permanent farm tanks in the last four years check your receipts and talk to your accountant. The paperwork might take time, but the refund can be a major boost to farm cashflow.

Final Checklist for Dairy Farmers

Action	Deadline	Value
Consider Incorporation	Springtime (but plan carefully)	Tax savings + tax-free capital access
Capital Allowances: Slurry Store	Spend before 31 Dec 2025	50% write-off in 2025 + 2026
Capital Allowances: Safety Equipment	Spend before 31 Dec 2026	50% per annum over 2 years
VAT58 Refunds	Claim within 4 years	Full VAT refund on non-VATable items

 

Conclusion

These profits are hard-earned and well deserved. But if you do nothing, you could face a tax bill that wipes out your gains.

By taking time now before the October deadline you can:

• Reduce your tax bill
• Improve your farm’s safety and infrastructure
• Build up funds for yourself and your family

For tailored help, contact ifac or your local ICMSA office. The right plan now can save thousands later and help you build a more secure future for your farm.

About the Author

Marty Murphy Bcomm, FCCA, AITI/CTA CPA/ACA is Head of Tax at ifac, Ireland’s leading professional services firm for farming families, agri-businesses, and rural SMEs. With over 550 staff across more than 30 offices nationwide, ifac supports 16,000 farmers and 24,000 clients with practical advice on tax, succession, and financial planning. Marty leads ifac’s tax team, working closely with farmers to navigate budget changes, tax reliefs, and long-term planning challenges.