Tax efficiency is all about keeping as much of your hard-earned money in your hands as possible.

As outlined on the next page the single best way to be both tax efficient and build savings for the future is to contribute as much as you can (within the limits) into a pension plan.

Putting earnings away for the future when they are coming out of your pretax income is hard to beat as a savings incentive and a tax-reduction method.

Once you have that sorted, there are plenty of other fairly simple things which can be done to minimise your tax bill:

  • Understand your tax credits and make sure you are getting allowances you are entitled to.
  • While there are not many personal allowances which can be claimed, particularly for PAYE workers, remember to keep receipts for medical expenses as 20% of those will be rebated by Revenue. For nursing home expenses that rises to 40%.
  • If you are married or in a civil partnership and your spouse is working, make sure your joint allowances are maximised.
  • Keep on top of specific farm reliefs such as stock relief, accelerated capital allowances, VAT refunds and capital gains tax reliefs.
  • This is particularly important around budget time - October 1 this year - when new measures can be introduced and older ones amended.

    • For farmers certain income streams are tax free, with income from leasing land tax free for amounts of between €15,000 and €40,000, depending on the length of the lease.

    Income from forestry is exempt from income tax. It is, however, subject to the universal social charge and PRSI.

    What is tax efficiency?

    Many people think that tax-efficiency is about paying as little tax as possible, but could be more correctly defined as minimising tax payments while maintaining a desired standard of living. For example, if a farmer is a high-rate tax payer and decides tp spend €1,000 on a deductible item for the business, they will save approximately €500 from their tax bill. They will, however, also be left with €500 less cash for themselves to spend after making the purchase.

    For those on the lower tax rate, the salesman’s argument that a purchase “can be written off against tax” should carry even less weight. The less money a farm is making, the less sense any purchase makes from a purely tax-saving perspective.

    Every expense should be judged on its own merits, with the tax implications or savings coming a distant second in any decision to spend money.

    If you are self-employed then the tax calculation can be considerably more complex than it would be for a PAYE worker. It is also critical in these cases to manage cashflow. In 2023 there were stories of dairy farmers who were badly caught out when the tax bill for record earnings in 2022 came due at a time when the milk price, and dairy farm incomes were on the floor.

    Be aware of the likely tax liability on earnings and set aside money to meet that bill when the money comes in, rather than presume the good times will last and that there will be money available the following November to meet the payment.

    Overall, if you are concerned about whether you are paying too much tax or that you might have a large tax bill coming up, you should talk to a financial professional to get the best advice. If nothing else, at least their bill should be tax deductible.