Dáil debates
Tuesday, 12 December 2023
Saincheisteanna Tráthúla - Topical Issue Debate
Farm Costs
10:20 pm
Christopher O'Sullivan (Cork South West, Fianna Fail)
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Tonight, I raise an incredibly serious issue that has emerged over recent times. There are several essential farm items for which farmers can no longer reclaim or get a refund on VAT. This is a disaster for farmers across the length and breadth of Ireland. Farmers are trying to invest in their farms and their farms' efficiency and sustainability. They are putting multiples of thousands of euro into their farms to make them more efficient and sustainable. Now, however, they essentially are being penalised for that because they can no longer claim back VAT on items when they were once able to do so, in many cases, at a VAT rate of 23%. This is costing farmers thousands of euro. In particular, many young farmers are so far down the line in this regard. They are getting bulk tanks installed or have their planning permission or have the contractors ready to go and of greater concern, they may have sorted out bridging loans in the full expectation that they would get this VAT refund. In some instances, this is coming to €40,000 or €50,000 or even more. Now, however, it is emerging that they will not get that refund. This has to be rectified immediately because these are for essential farm items, such as milk bulk tanks, automatic calf feeders, automatic scrapers and meal bins. These are essential items. What I mentioned relates to the dairy sector but farmers are being penalised right across the farming sector. This has to be rectified immediately. It is a serious issue that is causing concern and anxiety across the farming sector.
To be fair, in the last couple of months, the farming sector has been dealt blow after blow. If you are in derogation, you are leading to a situation where by January, you will have to get rid of cattle. That is already causing concern. The price of milk is nowhere near what it was more than 12 months ago. That is causing concern. There is a situation where, because of some issues with factories, fallen animals are being left on farms and are not being taken away. That is causing a serious issue. There is now also the issue where farmers are not able to claim VAT.
In Ireland, farmers in general do not register for VAT. That is the way it has always been. In other countries in Europe they do, but they do not do it here. I do not see why the Revenue Commissioners are hell-bent on penalising these farmers. I am pleading with the Minister for Finance to rectify this, to look at it, to talk to the Revenue Commissioners and to ensure these farmers can get a tax refund like they used to.
This is making a joke of the new TAMS ceiling. We celebrated that the new TAMS ceiling goes to €80,000. This completely erodes any benefit of that for most of these farmers. I am asking that this is looked at, reviewed and rectified immediately.
Malcolm Noonan (Carlow-Kilkenny, Green Party)
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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.
Christopher O'Sullivan (Cork South West, Fianna Fail)
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I thank the Minister of State. I guess it does, but the concerns still remain. What I am most concerned with in the statement is the line that states "VAT incurred for other purposes, such as on the acquisition of equipment or machinery, does not come within the scope of the refund order." There were certain items of equipment, like what I mentioned earlier, such as meal bins and bulk tanks, that are not necessarily moveable as such. Bulk tanks will, for example, remain a permanent fixture on the farm. The concern is that they do not come within the scope of the refund order. Again, this will cause concern right throughout the farming sector. Registering for VAT is not as straightforward as you might think. All farmers will have their books balanced. They all do their accounts, do their profit and loss and have their books balanced and everything is above board. Registering for VAT, as well as the procedure they have to go through to do that, takes on significant extra costs when considering the accountancy and what is required there. We cannot, all of a sudden, require farmers to go through that process.
There is another factor here as well. Ireland has a healthy ag-tech sector. There are many people who are employed in the ag-tech sector. They make the equipment I just outlined, such as bulk tanks, meal bins, automatic calf feeders and automatic scrapers. These jobs are now in jeopardy as well because it throws the whole thing up in the air. There is so much uncertainty. Again, I reiterate my call. This has to be reviewed and looked at. There are so many farmers who are so far down the line and this has come at them. Even if those farmers who are already in the system and have gone about making these changes were to be looked at, it would be some bit of relief.
10:30 pm
Malcolm Noonan (Carlow-Kilkenny, Green Party)
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The Deputy has raised this on a number of occasions through parliamentary questions and has also raised the point in recent weeks. I also note the point he made about the challenges around registering for VAT and the extra cost to farmers.
It is important also to note that Ireland maintains this refund order under an historical derogation permitted under the EU VAT directive. As the refund order is based on an historical derogation, it is not possible to expand the scope of the refund order and it would not be compatible with the EU VAT directive. At no stage has the refund order provided a basis for Ireland to issue VAT refunds to unregistered farmers in respect of farm equipment. This is clear in both the text of the VAT refund order in question as well as in VAT form 58 that farmers must use to reclaim their VAT. In the event that farmers have a query on the VAT refund order, they can contact Revenue through any of its secure online services, namely ROS or myAccount, which are excellent.
Finally, where a VAT refund is refused by Revenue, a farmer can appeal the decision to the Tax Appeals Commission, TAC. TAC is an independent statutory body hearing and determining appeals against assessments and decisions of the Revenue Commissioners including refusals under this refund order.
I note the points the Deputy has made about the agricultural tech sector also. I am not sure if my reply is of any reassurance to him----
Christopher O'Sullivan (Cork South West, Fianna Fail)
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Not really.
Malcolm Noonan (Carlow-Kilkenny, Green Party)
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-----but that is the response.
Christopher O'Sullivan (Cork South West, Fianna Fail)
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I will not shoot the messenger.
Malcolm Noonan (Carlow-Kilkenny, Green Party)
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I thank the Deputy and I appreciate that.