VAT can be a tricky area for farmers. In some circumstances, small errors go unnoticed at first. However, if these errors are repeated over time, they can turn into a larger problem and ultimately lead to Revenue interest and penalties.
In other cases, farmers forget to claim VAT refunds within the allowed timeframe and consequently lose out on the benefit. In this short article, we share some tips to help you avoid common pitfalls. While this will point you in the right direction, it’s a good idea to ask your accountant to carry out a VAT review and check that you are getting the maximum VAT value from your inputs.
Flat-rate Farmers
Ensure that the flat rate addition on sales from 1 January 2017 is 5.4%.
Review your VAT reclaims and VATable expenditure to ensure you have reclaimed all you are entitled to. Where you reclaim VAT on capital expenditure on buildings, yards, fencing, drainage or fixed plant (VAT 58 refund form) the claim must be submitted within four years of the end of the tax period to which it relates.
If you are ceasing to farm, it is important to carefully consider the timing. VAT incurred and reclaimed using the VAT 58 mechanism in 12 months prior to ceasing is repayable to Revenue.
Where you completed buildings within 5 years of the sale of your farm or a portion of the farm, you will be liable to VAT on the sale.
Make sure you understand your VAT registration obligations. Farmers who provide agricultural services, for example agricultural contracting, where the turnover exceeds €37,500 in any period of twelve months must register for VAT. This can bring the entire farm business into the VAT net resulting in loss of the flat rate addition and incurring an obligation to charge VAT on all vatable supplies.
A flat-rate farmer may be obliged to register for VAT where he/she acquires goods or services from other EU countries, however, the registration is ring-fenced to the relevant activity.
If you provide racehorse training and turnover from this activity exceeds €375k in any period of twelve months, you must register for VAT. However, the registration is ring-fenced so that other farming activities are not brought into the VAT net.
When the proceeds of the sale of BPS entitlements in any 12 month period exceed €37,500, the sale is liable to VAT. You must register for VAT and account for VAT on the sale.
VAT Registered Farmers
Ensure you pay and file your returns on time as substantial penalties and interest can be imposed for late filings.
Ensure you do not collect the flat rate VAT on your sales.
Inform the buyer in which you sell to that you are registered for VAT.
Ensure VAT invoices are issued correctly and that records are retained for a period of six years.
Ensure purchases from and supplies to foreign countries are treated correctly for VAT purposes.
Ensure you reclaim VAT on purchases of stock from unregistered farmers, i.e. the flat rate charged to you.
VAT must be accounted for on livestock sales at 4.8%.
Ensure VAT on purchases is correctly claimed. It’s important to understand the rules of recovery. For example, you cannot reclaim VAT on petrol, food & drink or entertainment.
Be aware of the rules regarding VAT on property. If you sell within 20 years of a building being constructed, this could result in a VAT liability.
If you choose to register for VAT (election), you can de-register at any time by notifying Revenue. However, a repayment of VAT recovered may be due. You must carry out a review of the last 36 months and if the VAT reclaimed exceeds VAT paid on sales in that period a payment to Revenue will be due.
Recently, we are seeing an increase in Revenue compliance interventions including aspect queries and audits so it makes sense to ensure all is in order. With the correct procedures in place, most VAT errors can be avoided. However, mistakes that go unnoticed can prove costly over time. Consequently, it is advisable to conduct regular VAT reviews of farming operations, particularly if new activity commences.