There are special VAT schemes that can benefit farmers, including stud farms, who are not registered, or required to register, for Value-Added Tax (VAT). These farmers are commonly referred to as “flat-rate farmers”. This is a complex area of VAT law.
 

The flat-rate addition

This arrangement results in an additional payment of 5.4%, known as a “flat rate addition”, being added to the price paid to a “flat rate farmer” by a VAT registered customer for the sale of certain agricultural produce or service. For example, if Pat is a “flat rate farmer” and sells a horse to a VAT registered customer for €10,000, he is entitled to receive an additional €540 (€10,000 @5.4%) from the customer. A once-off declaration is required to be completed and signed by the flat-rate farmer with each customer, confirming their “flat-rate” status, prior to the “flat-rate addition” being paid. Pat is not required to pass the €540 to Revenue; he is entitled to retain it.

The VAT registered customer can claim back the “flat rate addition” paid to the farmer in their VAT return. This means that the “flat rate addition" is not an additional cost for the VAT registered customer.

Where a “flat-rate farmer” supplies agricultural produce or services to a customer, they must issue an invoice showing details of the transaction, in the following circumstances:

• the issue of the invoice is requested by the customer,
• the customer provides a form for the completion of the invoice, which includes the appropriate details of the transaction, and
• the customer gives a copy of the invoice to the flat-rate farmer.

The “flat-rate farmer” may however issue the invoice, if not requested to do so by the customer.

“Flat rate farmers” should ensure that where they are selling qualifying goods or services to a VAT registered business that they receive the flat rate addition and that they issue a VAT invoice where required to do so.

VAT recovery on construction of Farm Buildings, land drainage and equipment

Despite “flat-rate farmers” not being entitled to recover VAT on their purchases, there is an exception on VAT on costs incurred in the construction of farm buildings, land drainage and equipment for the purpose of micro-generation of electricity for use solely or mainly for the purposes of a farming business. The procedure for making the claim is detailed and specific in nature. However, the scheme does not require the farmer to register for VAT.

We have successfully submitted a number of these claims on behalf of our clients and we would be happy to assist in this regard.

VAT registration exception for “Flat Rate Farmers”

A “flat-rate” farmer may be required to register for VAT where their intra-EU acquisitions (certain cross border purchases of goods within the EU) exceed a limit, currently €41,000. They would also be required to register if they are in receipt of certain professional services from suppliers’ cross border, regardless of the limit. If VAT registered due to receiving such services, they are required to account for VAT on their intra-EU acquisitions even if the limit of €41,000 is not breached.

In the above cases, the VAT registration is ring-fenced to intra-EU acquisitions and certain cross border professional services. It does not bring other non-vatable activities into the VAT net, nor does it impact on the payment of the “flat-rate addition”.

Restrictions of Flat Rate Scheme

The payment of the “flat-rate” addition to farmers is provided for under EU legislation, however the use of the scheme should not lead to a situation where farmers are overcompensated for VAT incurred by them on their business costs. In this regard, specific agricultural sectors can be excluded, by Ministerial Order, from using the flat-rate scheme, where the business model used in that sector would lead to overcompensation of farmers in that sector for VAT costs incurred. We understand that to date the Minister has not issued any such orders.

For more information, please contact Patrick Doran - pdoran@deloitte.ie or John Stewart - johstewart@deloitte.ie.