I am advised by Revenue that in accordance with the EU VAT Directive farmers may register for VAT or be treated as flat-rate farmers for VAT purposes. Farmers who elect to register for VAT have an entitlement to reclaim VAT on costs incurred in relation to the farm business; if they remain unregistered they are entitled to apply a flat-rate addition to their supplies to VAT registered businesses to compensate them for the VAT borne on input costs by such farmers.
Currently, the flat-rate addition applied by unregistered farmers to their supplies to VAT registered businesses is 5.4%, which is the rate calculated to compensate farmers at the aggregate level for the VAT borne by them in the course of their farming activities. This rate applies to all qualifying farmers across all agricultural sectors, including farmers involved in intensive farming such as farming activities described as feedlots. The VAT registered business treats the flat-rate amount as a normal business input in its periodic VAT return, claiming input credit for the flat-rate amount paid to the flat-rate farmer.
The flat-rate addition is reviewed each year and adjusted where necessary to ensure that farmers who are not registered for VAT are compensated at the aggregate level for the unrecoverable VAT borne on their input costs.
The operation of the flat-rate addition scheme in respect of feedlots has been the subject of previous questions but unless there are structures and contractual arrangements in place to enable the industry to engineer a systematic excess of flat rate addition payments over VAT costs no VAT policy issue arises. I have the power to exclude an agricultural sector from the flat-rate scheme where I am satisfied that, because of the business structures, contractual arrangements or models in place, the application of the flat-rate addition within that sector has resulted in, and would otherwise continue to result in, a systematic excess of flat-rate addition payments over input costs incurred by flat-rate farmers in that sector. I am currently considering such a report from Revenue in respect of the poultry sector. If the Deputy has information about similar structures in any other sector he should refer it to Revenue.