Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

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 this affects how VAT incurred on their inputs (such as the purchase of farm equipment) is treated.

Farmers who elect to register for VAT are obliged to account for VAT on their supplies and are entitled to claim a deduction for VAT incurred on inputs used for the purposes of their taxable supplies. Therefore, VAT-registered farmers would be entitled to reclaim the VAT incurred on farm equipment, including bulk milk tanks, and this should be done through their normal VAT returns.

Alternatively, farmers can remain unregistered for VAT and opt for the Flat-Rate Farmer’s Scheme. This scheme is a simplification arrangement permitted under the Directive. It is designed to reduce the administrative burden for farmers by allowing 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 registration and filing. It allows such farmers to add 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. Unlike VAT-registered businesses, unregistered farmers are not entitled to a deduction for VAT incurred on individual inputs used in their farming business; instead, the Flat-rate Scheme permits them to charge and retain the flat-rate addition in order to compensate them, on an overall basis, for the VAT across all their inputs.

There are certain limited situations in which flat-rate farmers are specifically permitted to claim a refund of the VAT incurred by them on particular inputs. The Value-Added Tax (Refund of Tax) (Flat-rate Farmers) Order 2012 (S.I. No. 201/2012) allows for refunds to be claimed on outlay incurred on:

- the construction, extension, alteration or reconstruction of a farm buildings or structures.

- the fencing, draining and reclamation of farmland; and

- the construction and/or installation of qualifying equipment for the purpose of micro-generation of electricity for use in a farm business.

Outlay incurred by flat-rate farmers on the acquisition of farm equipment does not come within the scope of the refund order. However, where the installation of the 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.

The claim in question (details supplied) refers solely to outlay on the purchase of a replacement milk tank, with no evidence of works undertaken to alter or reconstruct the building. Consequently, the claim was refused on the basis that the outlay being claimed does not come within the scope of the Refund Order. Claims that do not comply with the Order cannot qualify for a refund. Claimants are encouraged to provide supporting documentation, photos and detailed descriptions of the works carried out to the building or structure to allow for the instalment of equipment.

Where the claimant has evidence of works to alter or reconstruct the building, Revenue can review the claim, following resubmission with the necessary documentary evidence of the works undertaken to the building or structure to establish the extent to which the equipment is integral to the building, and the level of damage that would be caused to the building or the equipment should it be removed.

Revenue published a Tax and Duty Manual (TDM) on 4 June 2024 to provide guidance on the Refund Order. The TDM outlines how VAT can be reclaimed under the Order by flat-rate farmers, the conditions under which VAT may be reclaimed, the types of expenditure on which VAT can be reclaimed, and the information required to make a claim.