Should I register for VAT? Crunch numbers and see
Do the maths to find out if you are better off paying VAT than not
Published 26/10/2010 | 05:00
This is the time of year when farmers are digging out bills and invoices for their accounts and the end of year returns. It's also at this time that the sheer amount of VAT that farmers pay on everything from phone bills to machinery parts becomes really apparent.
It leaves a lot of farmers wondering why they still haven't registered for VAT. But, in actual fact, in many cases there are plenty of good reasons for not becoming registered.
Unlike the vast majority of businesses, farmers have the right to choose whether they become VAT registered or not. The only requirement for you to remain unregistered is that you are solely engaged in farming. In this case, you are entitled to a flat-rate addition to your sales of produce and livestock. The flat-rate addition is 5.2pc of the sale price.
This is intended to compensate you for VAT paid on input costs. This is the 21pc charged on machinery, sprays, diesel, electricity etc. Services such as labour on machinery repairs, professional fees and contractor services should be charged at 13.5pc.
In addition, a flat-rate farmer is entitled to repayment from Revenue of the VAT element on certain capital expenditures. This relates to money spent on construction, extension, alteration or re-construction of buildings or structures that will be mainly used for farming purposes. Also included is the capital expenditure on fencing and drainage and land reclamation for farming use.
There are, however, circumstances where farmers are obliged to register for VAT. Examples include where you have an off-farm service business that has an annual turnover greater than €37,500. If it is a trading-based business, the threshold is raised to €75,000.
You will also be obliged to register for VAT when you buy more than €41,000 of goods from other EU countries. There is also a requirement to register where reverse-charge services are provided by non-Irish providers.
So what type of farmer should be electing to register for VAT? There's a simple way to find out the answer to this question. Just crunch the numbers. If the 5.2pc flat rate is not covering the total VAT you are shelling out on your purchases, then it will make sense.