Malcolm Noonan (Carlow-Kilkenny, Green Party) | Oireachtas source

I thank Deputy O'Sullivan for raising this important issue, which relates to the VAT refund order available to unregistered farmers who use the farmer’s VAT flat rate scheme.

The first point I wish to make is that 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 to register for VAT in respect of their farming business. The Deputy mentioned farmers in other European countries as well. It should be noted that a farmer may elect to register for VAT, charge VAT on his or her outputs, many of which are liable to the zero VAT rate and claim VAT on costs that are used for the purposes of their taxable supplies.

A VAT-registered farmer would be entitled to reclaim VAT incurred on a range of items, including new farm buildings and structures, as well as farm equipment such as feed bins, milk tanks, automatic calf feeders, milking equipment, automatic scrapers, as well as on farm machinery such as tractors, balers, etc., and VAT on running costs, such as agricultural diesel and energy. In general, registered farmers are in a net repayment position for VAT.

Alternatively, farmers can remain unregistered for VAT purposes and opt for the flat rate farmer’s scheme. This scheme is a long-standing arrangement under EU and national VAT laws that allow farmers who remain unregistered for VAT purposes to be compensated on an overall basis for the VAT incurred on their purchases of goods and services. It allows such farmers to charge and retain a flat-rate addition to the amount that they charge for the agricultural goods and services they supply in the course of their farming business.

The flat-rate addition is 5% as part of Finance Bill 2023. This was reduced to 4.8%, with effect from 1 January 2024, on the amount payable to the farmer. The scheme is designed to reduce the administrative burden on farmers and allows them to remain outside the normal VAT system, thereby avoiding the obligations of registration and returns.

Unregistered farmers may also be able to avail of a VAT refund on certain expenses allowed under the VAT refund order. This VAT refund order allows for refunds of VAT incurred on the construction, extension, alteration or reconstruction of a farm building or structure; on fencing, draining and reclamation of farmland; and on the construction, erection or installation of qualifying equipment for the microgeneration of electricity for use in a farm business.

VAT incurred for other purposes, such as on the acquisition of equipment or machinery, does not come within the scope of the refund order. I am advised by the Revenue Commissioners that, where the installation of equipment requires the alteration or reconstruction of a farm building or structure, the corresponding outlay has been allowed in certain circumstances. The Revenue Commissioners have not changed their approach to the refund order. Rather, each claim is assessed on its own merits. Claims that do not meet the conditions of the refund order cannot qualify for a refund of the VAT. I hope this clarifies the position of the Revenue Commissioners.

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