Question: I’ve been farming for several years and we are expanding. I recently carried out some construction work on my farm. I was under the impression that I could claim VAT back on these works through the VAT 58 refund system, but Revenue has denied a number of my claims. My neighbour, who is registered for VAT, received a refund for similar expenses. Can I register for VAT, and what are the implications if I do?
Answer: It sounds like you’re facing a bit of a puzzle with VAT and how it applies to your farming business. Let’s unpack the ins and outs of VAT registration and its potential impact on your farm.
Understanding VAT 58: VAT 58 is a scheme designed for non-VAT registered farmers, allowing you to claim back VAT on large capital expenditures. This could include costs associated with constructing new farm buildings, milking parlours, or durable fencing. It’s especially handy for those occasional but significant expenses that can impact your cash flow. It doesn’t apply to day-to-day expenses such as feed, diesel etc. The rules go back to when it was initially introduced back when we joined the EEC in the 1970s. Revenue released a tax guide covering VAT 58 last year, which answered a good few questions, but also raised many more.
Can you register for VAT? Yes, any farmer can choose to register for VAT at any time. This choice provides great flexibility, allowing you to make decisions based on your specific operational needs and financial strategies rather than being compelled by turnover thresholds. However, the flat-rate addition is lost once you register for VAT.
Benefits of registering for VAT: Registering for VAT can open up several financial doors. Firstly, it allows you to reclaim VAT on a wide range of inputs – everything from machinery and building materials to animal feed and seeds. This can lead to substantial savings, particularly if you are in a phase of modernisation or expansion. Additionally, when you buy goods from other farmers who use the flat rate scheme, you can reclaim the 5.1% VAT addition they charge, making these purchases effectively VAT-neutral.
Marty Murphy, head of tax with ifac.
Downsides of VAT registration: However, the transition isn’t without its challenges. VAT registration requires meticulous bookkeeping and regular VAT returns. This administrative burden might necessitate more robust accounting systems or more professional help, which could increase your operating costs. Furthermore, you’ll lose the 5.1% flat-rate addition on your sales, which has been a simple way to manage some of the VAT on your inputs.
Specific considerations: For tillage operations, VAT registration can be particularly beneficial. The cost of high-value machinery and equipment often involves significant VAT, which is fully recoverable once you’re registered. This can make a big difference in managing cash flow and investment returns.
If you’re running a dairy or poultry farm, the equation might look different. The flat-rate scheme might actually serve you better since it simplifies the VAT process and generally balances the VAT on routine expenses without the hassle of detailed bookkeeping.
Impact of switching to VAT registration: Making the switch will undoubtedly change how you manage your farm’s financial strategy. It affects everything from pricing your products to budgeting for expansions. This isn’t just about dealing with paperwork – it’s about integrating VAT into your overall farming plan and ensuring it aligns with your long-term goals.
Your specific situation: Given the recent issues with VAT 58 claims and considering your future investment plans, now might be a good time to think about VAT registration. By registering, you could reclaim a significant amount of VAT on your future investments, which might otherwise be lost. If the development has already occurred, it is too late to register.
Next steps: Deciding whether to register for VAT is about more than just handling tax – it’s about strategic financial management for your farm. It’s crucial to weigh the financial benefits of reclaiming VAT on inputs against the administrative responsibilities and potential changes in how your products are priced. Consider how VAT registration fits with your operational needs and plans, ensuring it aligns with sustainable growth and financial stability for your farming business.
Marty Murphy is head of tax at ifac,
which is the professional services firm for farming, food and agribusinesses.
VAT 58 limits: Only covers big capital expense, not everyday costs.
Registration option: Farmers can voluntarily register anytime.
Claim more VAT: Registration lets you reclaim VAT on most inputs.
Mind the admin: VAT returns require strict bookkeeping.
Lose the flat rate: Registered farmers forgo the 5.1% flat rate addition.
Right for you? Tillage farms often benefit, while dairy/poultry might prefer flat rate.
Plan ahead: Consider registration before major investments.
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Question: I’ve been farming for several years and we are expanding. I recently carried out some construction work on my farm. I was under the impression that I could claim VAT back on these works through the VAT 58 refund system, but Revenue has denied a number of my claims. My neighbour, who is registered for VAT, received a refund for similar expenses. Can I register for VAT, and what are the implications if I do?
Answer: It sounds like you’re facing a bit of a puzzle with VAT and how it applies to your farming business. Let’s unpack the ins and outs of VAT registration and its potential impact on your farm.
Understanding VAT 58: VAT 58 is a scheme designed for non-VAT registered farmers, allowing you to claim back VAT on large capital expenditures. This could include costs associated with constructing new farm buildings, milking parlours, or durable fencing. It’s especially handy for those occasional but significant expenses that can impact your cash flow. It doesn’t apply to day-to-day expenses such as feed, diesel etc. The rules go back to when it was initially introduced back when we joined the EEC in the 1970s. Revenue released a tax guide covering VAT 58 last year, which answered a good few questions, but also raised many more.
Can you register for VAT? Yes, any farmer can choose to register for VAT at any time. This choice provides great flexibility, allowing you to make decisions based on your specific operational needs and financial strategies rather than being compelled by turnover thresholds. However, the flat-rate addition is lost once you register for VAT.
Benefits of registering for VAT: Registering for VAT can open up several financial doors. Firstly, it allows you to reclaim VAT on a wide range of inputs – everything from machinery and building materials to animal feed and seeds. This can lead to substantial savings, particularly if you are in a phase of modernisation or expansion. Additionally, when you buy goods from other farmers who use the flat rate scheme, you can reclaim the 5.1% VAT addition they charge, making these purchases effectively VAT-neutral.
Marty Murphy, head of tax with ifac.
Downsides of VAT registration: However, the transition isn’t without its challenges. VAT registration requires meticulous bookkeeping and regular VAT returns. This administrative burden might necessitate more robust accounting systems or more professional help, which could increase your operating costs. Furthermore, you’ll lose the 5.1% flat-rate addition on your sales, which has been a simple way to manage some of the VAT on your inputs.
Specific considerations: For tillage operations, VAT registration can be particularly beneficial. The cost of high-value machinery and equipment often involves significant VAT, which is fully recoverable once you’re registered. This can make a big difference in managing cash flow and investment returns.
If you’re running a dairy or poultry farm, the equation might look different. The flat-rate scheme might actually serve you better since it simplifies the VAT process and generally balances the VAT on routine expenses without the hassle of detailed bookkeeping.
Impact of switching to VAT registration: Making the switch will undoubtedly change how you manage your farm’s financial strategy. It affects everything from pricing your products to budgeting for expansions. This isn’t just about dealing with paperwork – it’s about integrating VAT into your overall farming plan and ensuring it aligns with your long-term goals.
Your specific situation: Given the recent issues with VAT 58 claims and considering your future investment plans, now might be a good time to think about VAT registration. By registering, you could reclaim a significant amount of VAT on your future investments, which might otherwise be lost. If the development has already occurred, it is too late to register.
Next steps: Deciding whether to register for VAT is about more than just handling tax – it’s about strategic financial management for your farm. It’s crucial to weigh the financial benefits of reclaiming VAT on inputs against the administrative responsibilities and potential changes in how your products are priced. Consider how VAT registration fits with your operational needs and plans, ensuring it aligns with sustainable growth and financial stability for your farming business.
Marty Murphy is head of tax at ifac,
which is the professional services firm for farming, food and agribusinesses.
VAT 58 limits: Only covers big capital expense, not everyday costs.
Registration option: Farmers can voluntarily register anytime.
Claim more VAT: Registration lets you reclaim VAT on most inputs.
Mind the admin: VAT returns require strict bookkeeping.
Lose the flat rate: Registered farmers forgo the 5.1% flat rate addition.
Right for you? Tillage farms often benefit, while dairy/poultry might prefer flat rate.
Plan ahead: Consider registration before major investments.
Read more
Money Mentor: 'why can't I claim the full tax deductions on my new tractor?'
Money Mentor: TB depopulation – what are the tax implications?
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