The VAT treatment of goods and services is subject to EU VAT law, with which Irish VAT law must comply. My reply to the Deputy’s previous question (PQ 3019/24 of 23 January 2024), explained that, in accordance with the Directive, Section 86 of the Value-Added Tax Consolidation Act 2010 provides for the Flat-rate Farmers Scheme, and that this arrangement, which is unique to the farming sector, enables farmers to choose to remain unregistered for VAT and yet be compensated on an overall basis for the VAT they incur in the course of their business, while still remaining outside the VAT system and avoiding the burden of registration and filing. I understand that the Deputy’s current query relates to refunds of VAT which are available under the Value-Added Tax (Refund of Tax) (Flat-rate Farmers) Order 2012 (S.I. No. 201/2012) to farmers who qualify for the flat-rate arrangement set out in section 86 of the Act.
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 2012 Refund Order. 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:
the construction, extension, alteration or reconstruction of farm buildings or structures;
the fencing, draining or reclamation of farmland; and
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 or machinery, does not come within the scope of the Refund Order. Farm equipment which is outside the scope of the Order would include calf feeders and milking parlour equipment about which the Deputy has previously asked. However, where the installation of farming equipment requires the alteration or reconstruction of a farm building or structure, the corresponding expenditure on the alteration or reconstruction of the building or structure including equipment or elements of equipment permanently installed in the farm building or structure may be allowed in certain circumstances. The equipment must be permanently installed in the farm building or structure and once installed, cannot be removed without causing significant damage, or destruction to the farm building or structure or to the equipment itself. Revenue have outlined already to the sector that they have demonstrated a significant amount of flexibility in relation to the administration of the Refund Order, considering the context and nature of the claims that are made, and allow, for example, VAT repayments claims for milk parlours, if part of a new-build construction.
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. 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.
Revenue have 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. Revenue’s refusal of such ineligible claims has led to queries from the farming and the farm equipment sectors.
My Department and Revenue are engaging with the farming sector to explain the situation in relation to the law and the claims process. Together they met with the ICMSA in December 2023 and the Irish Farmers’ Association (IFA) on Tuesday 23rd January 2024. At the January meeting, Revenue confirmed that refunds are available on drafting gates, hydraulic scrapers (sometimes referred to as automatic scrapers) and new-build milking parlours. It was also confirmed during this meeting that VAT refunds are not available on robotic scrapers, heat and health monitoring systems or slurry bags.
Revenue is happy to further engage with the sector in clarifying the matter and has invited the ICSMA and IFA to make submissions in this regard. Revenue will then publish updated guidance shortly, once it has received and considered those submissions.
Finally, the Deputy may wish to note that, under VAT law, it is always open to a farmer to elect to register for VAT in respect of the farming business. All VAT-registered businesses are entitled to claim a full deduction for any VAT they incur on inputs used for their business, subject to rules on deducibility. This means that farmers who elect to register for VAT are entitled to full deductibility for the VAT incurred on any farming equipment or machinery they use for the business.
