Across the EU, farmers have an almost unique position when it comes to either registering or remaining unregistered, for Vat.
The “normal” rule applicable to most other businesses is that when the annual turnover in any 12-month period exceeds €37,500, in the case of services, or €75,000 in the case of goods, then the business is obliged to register, charge and remit Vat, as appropriate, to Revenue.
Our UK neighbours have the highest Vat registration threshold of all EU members, at £83,000 (about €97,000).
As a side note, there is a strong argument for rising our own Vat registration thresholds, which would give small businesses and start-up businesses a leg-up, in terms of having the ability to retain a higher portion of their margin on sales, while simultaneously having the benefit of reduced administration costs.
By comparison to other European countries, Irish Vat registration thresholds are generous, with just seven countries having higher thresholds than us, and some countries having thresholds much lower, and closer to zero.
Before deciding whether registration for Vat is good for your business, it is much more important to assess whether in the first instance you are actually obliged to register for Vat.
For farmers, the registration thresholds need not be adhered to in respect of the supply of goods, but must be adhered to in respect of the supply of agricultural services.
Therefore, for example, a farmer supplying agricultural contracting services is obliged to register for Vat once his turnover exceeds or is expected to exceed the threshold of €37,500.
Once a farmer is obliged to register for Vat as a result of exceeding the services threshold, then he or she is obliged to account for Vat on all supplies.
In practical terms, this means that a farmer supplying contracting services totalling more than €37,500 in any 12-month period is
obliged to register for and
account for Vat at the appropriate rate on all of their sales.
Similarly a person who is registered for Vat in respect of a non-farming business, must also register for Vat in respect of their farming business.
Apart from exceeding the thresholds for the supply of services or goods, as
described above, other rules can also make it obligatory to register for Vat.
These can include
instances where a farmer
acquires goods in excess of €41,000 from another EU state, or where the farmer
acquires a new means of transport from another EU state.
For farmers who are not obliged to register, they can choose to register on an
Registering for Vat is of benefit to a farmer to the
extent that he or she can
reclaim Vat on inputs.
A Vat-registered farmer is entitled to reclaim Vat on day-to-day business costs such as cattle purchases,
diesel, repairs, parts,
contracting charges, sprays, fencing, veterinary, professional fees, but also on major purchases such as new
machinery (or certain second hand machinery acquired from a Vat-registered farmer), and even purchases of goods and services from unregistered farmers.
A farmer who is registered for Vat will not receive the flat rate addition on their sales.
Take, for example, an
unregistered farmer selling two cattle for €1,000 at his local mart, included in the sales price is a flat rate addition of 5.4%.
From a tax perspective, the flat rate farmer is deemed to have achieved a selling price of €948.77, plus Vat at 5.4%, totalling €1,000.
The flat rate farmer keeps the full €1,000, and does not pay over the flat rate addition element to Revenue.
In contrast, a Vat-registered farmer selling two animals for €1,000 is deemed to have achieved a price of €954.20 plus Vat at 4.8% totalling €45.80.
The registered farmer must remit and pay over this €45.80 to Revenue in his next Vat return.
Similarly for grain, the Vat registered farmer will actually receive a reduced price for his grain, because grain sales by a registered farmer are at 0% Vat.
For those with the option to register, it is worthwhile checking whether you would be better off opting to become registered.
To assess how much better off or not you would be, by registering, work out the flat rate addition you are likely to receive in the next 12 months (A).
Work out the Vat that you would otherwise be in a position to reclaim on all purchases, as described above (B).
Finally, take account of the portion of Vat which you as a unregistered farmer can
reclaim, say, on farm building improvements, etc, under the Vat 58 regime (C).
Take B less C, less A, if the resulting figure is positive, then registering is worthwhile .
Of course, you should take cognisance of the future of your business and the likely change in your Vat mix in the medium term, before jumping into registering for Vat.
Similarly, you should work out the administration costs of registering.
It is useful to look through your most recent financial statements with your
accountant, which can give an indication of the overall Vat position.
As always, each individual should obtain professional advice appropriate to their own particular circumstances.