The VAT treatment of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In accordance with the EU VAT Directive, farmers can elect whether or not to register for VAT in respect of their farming business, and each farmer’s decision on this matter affects how VAT incurred on their inputs (such as the purchase of farm equipment) is treated.
Farmers who elect to register for VAT are – like any VAT-registered business – obliged to account for VAT on their supplies and, equally, are entitled to claim a deduction for VAT incurred on inputs used by the business. Therefore, VAT-registered farmers are entitled to reclaim the VAT incurred on farm equipment, including the calf feeders and milking parlour equipment which the Deputy has raised. The claim is made through the farmer’s normal VAT return.
Alternatively, farmers can decide not to register for VAT, and to avail instead of the Flat-rate Farmers Scheme which applies to VAT-unregistered farmers. As is normal for VAT-unregistered businesses, unregistered farmers are not entitled to reclaim VAT incurred on the various individual inputs used in their farming business. However, uniquely for the farming sector, the Directive permits a special arrangement – known as the Flat-Rate Farmer’s Scheme – which compensates unregistered farmers for the overall VAT incurred by their sector. The Scheme is designed as an administrative simplification measure to enable unregistered farmers to be compensated on an overall basis for VAT on inputs, while remaining outside the VAT system, thereby avoiding the burdens associated with VAT registration and filing. The Scheme allows unregistered farmers to add and retain a percentage charge (known as the “flat-rate addition”) onto the amount they invoice VAT-registered businesses whom they supply with agricultural goods and services in the course of their farming business. Each year, the level of the flat-rate percentage is reviewed and, if needed, re-set under law, in order to ensure that the Scheme continues to allow appropriately for the unregistered farming sector to be fully compensated, on an overall basis, for the VAT it incurs. The Flat Rate Scheme is provided for in legislation by Section 86 of the VAT Consolidation Act 2010.
Generally, businesses that are not registered for VAT are not permitted to reclaim any VAT they incur. However, in addition to the compensation for VAT-unregistered farmers provided by the Flat-rate Scheme, Irish VAT law also permits flat-rate farmers to reclaim VAT they incur on some particular business expenditure, as set out in the Value-Added Tax (Refund of Tax) (Flat-rate Farmers) Order 2012 (S.I. No. 201/2012). The Refund Order is permitted under EU law, subject to certain conditions, including that its scope is not extended.
The Order allows unregistered farmers to claim refunds for VAT incurred on the following farming business expenditure:
a. the construction, extension, alteration or reconstruction of farm buildings or structures;
b. the fencing, draining or reclamation of farmland; and
c. the construction, erection or installation of qualifying equipment for the micro-generation of electricity for use in the farm business.
Expenditure incurred by flat-rate farmers on any other farming business inputs, such as farm equipment, does not come within the scope of the Refund Order. Farm equipment which is outside the scope of the Order would include the calf feeders and milking parlour equipment to which this question relates. However, where the installation of farming equipment requires the alteration or reconstruction of a farm building or structure, the corresponding expenditure may be allowed in certain circumstances.
I understand from Revenue that claims by unregistered farmers for refunds under the Order are made on a self-assessment basis. Claimants should satisfy themselves that any claim complies with the Refund Order. As is normal for self-assessed taxes and schemes, claims received are risk-assessed for review by Revenue. Each reviewed claim is assessed on its own merits.
Revenue has confirmed that they have not changed their interpretation of the law on the Refund Order. In recent times, though, their risk-assessment of claims has identified ineligible claims for the refund of VAT on various types of farm equipment, which is outside the scope of the Refund Order.
Claims that do not comply with the Order cannot qualify for a refund of the VAT. Where a VAT refund is refused by Revenue, a farmer can appeal the decision to the Tax Appeals Commission, which is an independent statutory body that hears and determines appeals against assessments and decisions of the Revenue Commissioners, including decisions to refuse claims under this Refund Order.
