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It is essential to know what your partner is talking about when he/she wants to discuss the different drawings available from the farm in order to make a joint decision that will affect the whole family. The general rule of thumb as to what is included in drawings is living expenses, personal tax, pension payments and medical expenses.
Utilising tax rules
Many people do not utilise their farm accounts enough to extract cash from the business in the most tax efficient way possible.
Family labour
Children under the age of 14 cannot be employed. However, if you have children over the age of 14 and they are engaging in work on the farm, they can receive a wage for this: it is earned money and they deserve to be paid.
This money can be paid into a separate account for the children. You can also use this to save for their college funds, pay for school expenses at the moment or use it in the way you see best. This payment is also tax deductible for it will reduce your farm’s tax bill while also putting more money in the family’s pocket.
Outside of the school term, children aged 14 and 15 can work a maximum of 35 hours per week, while during school term they are allowed to engage in eight hours of light work per week. With a good structure in place this could be very beneficial in financial terms, as well as teaching the children the value of money and allowing them to be paid for their work on the farm.
The family car
Another tactic you might use to reduce drawings, is by breaking them down into different categories and utilising tax rules as above.
Is your family car/jeep used for going to the co-op ?bags of ration or rolls of plastic for bales? Can you expense the diesel to receive back money that is owed to you for the use of your vehicle by the farm? Yes you can, once the receipts are kept throughout the year for these different jobs.?
Every farmer has a phone at this stage and on many levels the phone is mainly used for farm calls such as ringing the co-op or ringing different merchants about farm business. A work phone can be purchased and paid for by the farm, which in turn will reduce your personal drawings, allowing an extra expense on the farm, thus reducing the tax bill even further. However, if your partner is putting in his/her phone as a business expense and paying the bill through the company, there will have to be addbacks made by your accountant to account for the element of personal phone calls and texts they make.
Where are your drawings actually going?
An important element of getting a handle on your drawings is asking the question, can I regulate these? What exactly goes out at the month end and how much do I need after that to live my life comfortably?
ESB, phone, mortgage, car diesel, groceries and school expenses are all guaranteed expenditures you incur every month. Having a rough guide for how much these will cost will allow you to plan where your monthly cheques are going. If you know how much you need to fund the previous stated costs and have an idea of the figure you need to live off, it may be worthwhile looking into a standing order from the farm bank account into your and your partner’s personal account. This will regulate your drawings monthly, allowing you both to budget better and make more informed plans for the future, be it on the farm or in your personal lives.
A standing order would be a guide as to what you need monthly and if on certain months you need to take out more due to holidays or other events, these can be done by one off transfers to your joint personal account. Having two separate accounts is an important element of setting up the farm’s financial plans in a strategic manner.
There are plenty of good accountants in Ireland and they will be able to advise you on this, so sit down with your partner and go through potential drawings that may financially benefit you.
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