Farming business structure: Company or sole trader?

They say the quickest way to become a millionaire is to start as a billionaire and invest in an airline. They also say if you want to lose money – become a farmer. Now, the latter is not necessarily true, but the former could be debated at length over a beer or three.In this series of discussions, I will attempt to explain accounting and taxes as simply as possible. Not implying that farmers are simpletons, but just enough to keep such practical folks awake.

In the 2014 budget, the government made an explicit statement in support of farmers by reducing farming income tax from 15% to 10%. A one-third cut in farming income taxes. That is massive!

How has this impacted farm businesses and how have farmers reacted to this over the year? Well, a client of ours from north of Lusaka came and asked me why he should carry on business as a limited company farm when he could become a sole trader and benefit from this saving directly. Being the mathematician that he is – it makes perfect sense, but let’s consider the options.

The scenario is as follows:

Farmer Moonga owns 99.99% of Moonga Farms Ltd[1]. His wife, Chibo, owns the other 00.01%. They are successful and have indeed gone forth and multiplied their crop.

On the other hand, Farmer Musonda wholly owns Musonda Farm, a sole trader registered business and his success matches that of Moonga.

Their respective trading positions before they see their accountant are as follows: