What kind of tax for farmers?

The taxation of farm income in France is a complex subject, with several tax regimes applying depending on the size of the farm and the tax choices made by farmers. This article explores the main tax regimes and options available to farmers. It's a must-read before you decide to buy a farm.

Micro BA scheme

The Micro Bénéfices Agricoles (Micro BA) scheme applies to farms whose average receipts excluding tax over the last three years do not exceed a certain threshold, set at €120,000 for taxation of income from 2024 onwards.

Under this simplified scheme, taxable profits are calculated by applying a flat-rate allowance of 87% to revenues, thereby simplifying tax returns for small businesses.

This scheme is only available to individuals, and not to legal entities (companies), which are obliged to use the Bénéfice Réel method of accounting.

Actual Profit

For businesses whose revenue exceeds the threshold for the Micro BA scheme, or for those who voluntarily choose this scheme, actual profit applies. There are two options under this system: simplified actual profit and normal actual profit.

Unlike the Micro BA scheme, any deficit is deductible from other income (subject to a ceiling) or can be carried forward.

Simplified actual profit

The simplified actual profit scheme is available to businesses with annual revenues in excess of €120,000 but not exceeding €352,000. This scheme allows simplified accounting, while calculating taxable profit on the basis of receivables acquired and expenditure incurred.

Advantages of simplified actual profit

• Simplified accounting: although more complex than the Micro BA scheme, this scheme is simpler than the normal actual profit scheme.
• Actual expenses taken into account: Farmers can deduct their actual expenses, which is advantageous for those with high production costs.

Limits of simplified actual profit

• Revenue ceiling : Farms exceeding this ceiling must switch to the normal actual profit system.
• No real savings: the ‘simplified’ nature of the accounting system means that there are no real savings in terms of accounting costs compared with normal actual profits.

Normal actual profit

The normal actual profit scheme applies to businesses whose revenue exceeds the ceiling for the simplified scheme. Under this system, full and detailed accounts are required, similar to those for industrial and commercial businesses.

It is, of course, possible to opt for the Standard Real Profits scheme if revenue falls below the €352,000 threshold.

Advantages of normal actual profit

• Tax accuracy: Allows fine-tuned management of costs and income, optimising taxation.
• Adaptability: Suitable for large farms with complex structures.

Normal actual profit limits

• Administrative complexity: Requires exhaustive accounting, which can be costly and time-consuming.
• Risk of errors: Complexity increases the risk of accounting errors, which can lead to tax reassessments.

Linking ancillary income to actual farming income

The real agricultural profit system offers farmers the option of adding certain ancillary income to their main agricultural profit, subject to certain conditions. This option can considerably simplify tax management for diversified farms.

Conditions of attachment

There are two cumulative conditions that must be met if ancillary income is to be included in farm profits:

1. Revenue ceiling: Ancillary income for the calendar year must not exceed €100,000 including VAT.
2. Proportion of income: This ancillary income must not exceed 50% of the income from farming activities.

These thresholds are calculated by averaging ancillary and agricultural income over the previous three years, or over the period of activity if less than three years.

Types of activities concerned

The ancillary activities that can benefit from this connection are mainly :

• Commercial activities (farm tourism, sale of products not produced on the farm)
• Craft activities (product processing)
• Non-commercial activities (provision of services)

It is important to note that certain activities, such as the production of photovoltaic electricity, benefit from specific rules and can be attached to farm profits without any threshold conditions.

Advantages of reattachment

There are several advantages to linking ancillary income to farm profits:

• Administrative simplification: only one tax system to manage
• Tax optimisation: possibility of offsetting results between activities
• Retention of agricultural tax benefits: application of specific agricultural schemes (three-year average, deductions for investment and for unforeseen events)

Limits and precautions

Despite its advantages, there are a number of precautions to be taken when linking ancillary income:

• Separate accounting: You need to keep separate accounts for ancillary activities so that you can justify the amounts in the event of an audit.
• Keeping a close eye on thresholds: If thresholds are exceeded, attachment may be called into question and tax complications may arise.
• Impact on certain mechanisms: Certain tax mechanisms, such as the DPA (Déduction Pour Aléas), do not apply to ancillary income, even if it is connected.

In conclusion, linking ancillary income to actual farm profits can be an attractive option for many farmers, but it requires an in-depth analysis of the farm's situation and rigorous monitoring to take full advantage of it while complying with the tax rules in force.

Tax options and particularities

Farmers can take advantage of a number of specific tax schemes that can reduce their tax burden:

The three-year tax average: This scheme smoothes taxable income over three years, reducing the impact of major annual fluctuations. This is particularly useful for farms subject to climatic or market fluctuations.

The Precautionary Savings Deduction (DEP): The DEP allows farmers to build up tax-free savings to cope with unforeseen events. This mechanism encourages prudent management and the financial resilience of farms.

Tax credit for replacement: A tax credit is granted for expenses incurred in replacing the farmer during holidays.

The tax credit rate is 50% to 60% of the replacement costs incurred.

This allows farmers to take time off without incurring an additional tax burden.

Tax relief for young farmers: A tax relief is granted for five years to encourage young farmers to set up in business. The allowance is as follows:

• 75% where the profit for the financial year is ≤ €45,100,
• 50% for profit ≤ €45,100,
• 30% for profits > €45,100 and ≤ €60,100.

With a specific rule for the 1st exercise.

Exemption for business capital gains: Capital gains realised on the sale of fixed assets may be exempt under certain conditions, particularly if the business owner retires.

This is also the case for small businesses (article 151 septies of the General Tax Code), where capital gains are fully exempt if the annual income from the business is less than €350,000 and partially exempt between €350,000 and €450,000.

Tax deduction for increases in the value of cow inventories: A deduction of €150 per cow is granted to compensate for an increase in the value of cattle inventories of more than 10%. The deduction is added back to income when the animal is sold or after 6 years, unless the animal is replaced by another in the stock.

This measure makes it possible to defer taxation on the growth of a cattle herd until the animals are sold.

There are many other measures, including the tax credit for HVE-certified farms, the tax credit for accounting costs, etc.

Corporation tax

Farms can opt to pay corporation tax (IS) if they are incorporated. This option can be advantageous for some farms, particularly because of the possibility of deducting salaries paid to managers and partners, thereby reducing the tax base.

Advantages of corporation tax

• Salary deduction: Allows the tax base to be reduced by deducting directors' salaries.
• Potentially lower tax rate: Depending on the level of profit, the corporation tax rate may be more advantageous than income tax.

Limits on corporation tax

• Tax complexity: Requires more complex tax management, often with the help of a chartered accountant.
• Distribution of profits: Dividends paid to shareholders are subject to income tax, which may result in double taxation.

CFE exemption

Under article 1450 of the General Tax Code, farmers are exempt from the Cotisation Foncière des Entreprises (CFE). This exemption applies to individual farmers and non-trading agricultural companies, except for certain specific activities such as seed production.

In conclusion

Taxation of farm income in France offers a variety of regimes and options that can be tailored to the specific needs of individual farms. Farmers need to carefully evaluate their tax options to optimise their taxation, while taking into account the particularities of their farm and market fluctuations. Good tax management can not only reduce the tax burden, but also strengthen the financial resilience of the farm.

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