Whether you operate your farm business as a partnership or company will depend on many factors, including how you take money out, your family succession plans, and changes to legislation.
It’s worth reviewing your current structure to ensure it’s still the most appropriate for your business.
Limited companies
A limited company provides greater liability protection for personal assets, and you have more flexibility in how you pay yourself – through a regular salary or dividends.
Salaried company directors pay National Insurance (NI) on their earnings as both an employee, at 8%, and an employer, now at the increased rate of 15% Employer NICs.
The point at which employers start paying NICs has also reduced to £5,000 annually, meaning more tax is payable on a greater proportion of earnings.
Dividend tax rates are set to increase from April 2026, meaning the advantage of extracting company profits in this way is being further eroded.
A basic rate taxpayer will pay 10.75%, a higher rate taxpayer 35.75%, while an additional rate taxpayer will pay 39.35%. The dividend tax-free allowance remains £500.
You must carefully consider the most tax-efficient remuneration strategy, balancing salary against dividends; however, care is required when making changes to the way you draw a return from a company.
Once you set a precedent for a higher salary, it can be difficult to reverse if tax rates change, and the temptation to swap salary for dividend, or vice versa, without commercial justification must be resisted.
Corporation Tax rates have remained unchanged since 2023. Profits up to £50,000 are taxed at 19%, and profits over £250,000 are taxed at the main rate of 25%.
Profits between £50,000 and £250,000, are taxed at a marginal rate.
Partnerships
Operating a partnership, you are treated as self-employed and pay class 4 NICs at 6%.
Income tax and National Insurance remain frozen until April 2031, meaning partnerships will continue to face ‘fiscal drag’ as more profits are pulled into higher tax brackets.
Considering capital allowances, a partnership can claim up to £1 million Annual Investment Allowance.
Companies on the other hand, under full expensing, can claim 100% tax relief on an unlimited amount of expenditure for plant and machinery.
This only applies to the purchase of new plant and machinery, whereas AIA can be claimed on the purchase of second-hand equipment.
From 1 January 2026, a new 40% first-year allowance was introduced for main-rate assets not eligible for full expensing.
Unlike full expensing, this can also be claimed by unincorporated businesses and is useful where the AIA is exhausted.
To incorporate or not?
For farmers reinvesting profits and not needing to withdraw large sums, paying Corporation Tax at 25% may be preferable to paying Income Tax and NI of 42%.
However, partnerships offer greater flexibility in moving funds and assets, which can be advantageous in succession planning or restructuring.
It is essential to base a decision on your circumstances, taking into account factors such as personal liability and access to capital.
The decision to incorporate or remain as a partnership is not straightforward and it may be beneficial to explore both structures.
