Farm Ireland
Independent.ie

Tuesday 25 July 2017

Make sure your vat status works to your advantage

If you qualify as a 'flat-rate' farmer, you should consider the implications of claiming tax back

One benefit of the Irish VAT system is that those who qualify as farmers in the eyes of the Revenue are not required under law to register and account for VAT on their sales
One benefit of the Irish VAT system is that those who qualify as farmers in the eyes of the Revenue are not required under law to register and account for VAT on their sales

Sasha Kerins

The rate of VAT that applies to most agricultural produce is either 0pc or 4.8pc, compared to the standard rate of 21pc for the majority of other goods. This should, in theory, make farm sales as competitive as possible from a VAT point of view.

Another benefit of the Irish VAT system for farmers is that those who qualify as farmers in the eyes of the Revenue are not required under Irish VAT legislation to register and account for VAT on their sales. Such farmers are known as 'flat-rate' farmers.

It is important to note that if other 'vatable' activities are being carried out by the same person, they may not qualify as a farmer for VAT purposes and they may be required to register and account for VAT on all of their activities.

Farmers that are not required to register for VAT are also restricted with regard to reclaiming VAT incurred on farm purchases.

To compensate these farmers for this, a flat-rate addition, currently 5.2pc is added to the price of produce sold to a VAT-registered person.

For example, Jack is a flat-rate farmer and sells his cattle at auction for €1,000. He is entitled to receive an additional €52 from his customer, in respect of the flat-rate addition.

A flat-rate farmer may be required to register for VAT in regard to intra-EU acquisitions or the receipt of certain services from outside the State.

Should farmers register for VAT?


A farmer who qualifies as a flat-rate farmer has the option to elect to register for VAT. This farmer can then reclaim VAT on their related farming purchases. They are also required to charge VAT on all sales. The farmer will not be entitled to the flat-rate addition on sales in this case.

It is, therefore, important to consider the implications of both options and the following points are relevant:

  • Administration perspective -- If registered, the farmer will be obliged to submit VAT returns to the Revenue Commissioners on a bi-monthly or quarterly basis. Invoices will need to be issued for all sales in the required format and other record-keeping obligations may arise.
  • Compliance costs -- There are likely to be additional costs in preparing and submitting the VAT returns to the Revenue Commissioners by the due dates.
  • Products bought -- Farmers also need to consider the amount of VAT being paid on purchases.

If the VAT they are required to charge on their sales exceeds the VAT that can be reclaimed on purchases, it will not make a lot of sense to be VAT registered.

This would be particularly important where the farmer's sales are being made to non-VAT registered persons who cannot absorb the increase in costs due to VAT being charged by the farmer.

The farmer should also be aware if an election to register for VAT is subsequently cancelled by the farmer there may be a clawback of VAT to the extent that the VAT reclaimed exceeds the VAT paid in a specified period.

Sasha Kerins is a tax director at Grant Thornton

Indo Farming