Kieran Coughlan: Factor in VAT if importing farm machinery
It’s that time of year again when machinery purchases are on the cards.
Irish farmers have relied on our UK neighbours for a steady supply of second hand machinery, almost since the beginning of the industrial revolution.
Back in the 1980s and 1990s, the UK was a great source for second-hand, higher horse power four-wheel drive tractors from large scale tillage farms.
Indeed, many of the UK’s second-hand Ford 7610s, 7810s, 8210s and TW series tractors retired to West Cork farms.
This provided both an outlet for trade-ins from UK farmers and a competitive alternative to buying new for Irish farmers.
For 2015, both the number of new tractors sold in Ireland and the number of second hand imports dropped significantly, to 1,901 units and 1,606 units respectively.
Data from the Central Statistics Office reflects a 30% drop below the ten-year average for new sales, and the lowest level of imports in 20 years, at near 50% of normal levels.
In almost all years, the sale of new tractors and importation of second hand tractors correlated to a large degree.
Looking at the statistics, it seems years of optimism in farming encourage buying of both new and second hand imports. But both trades suffer when negative sentiment wins out.
However, the drop in sales of second hand tractors last year was more pronounced than the drop in sales of new stock.
The slide in the value of the euro versus sterling saw the purchasing power of the euro drop from an average of near 85p in 2013, to 80p in 2014, and down to 73p in 2015.
In percentage terms, the euro dropped near 15% from 2013 levels, making UK imports more expensive.
Of course the weaker euro had the inverse effect of making exports of Irish beef and dairy more competitive in the UK market, helping shore up farm-gate prices in Ireland.
The euro has recovered strongly since the back end of 2015, from about 70p to 78p, making importation of machinery more attractive.
If you consider importing machinery from the UK, you should take special care to ensure you comply with the appropriate VAT rules.
For “unregistered” or flat-rate farmers, it can come as a shock to discover that as a result of importing, they can become obliged to register for Irish VAT, and pay Irish VAT on their import.
This can arise where the value of the import (and other imports within the year) is greater than €41,000.
Separately, where a farmer is importing a “new” motor vehicle, VAT is payable in Ireland regardless of the value of the transaction.
From a VAT perspective, a vehicle is regarded as “new” if it is less than six months old or it has travelled 6,000 km or less.
Irish VAT must be paid on such vehicles at the time of their registration in Ireland.
A farmer should notify the foreign dealer of their intention to pay VAT in Ireland, duly register in advance of the import, and forward their VAT registration number to the dealer, such that the dealer would apply 0% foreign VAT on the sale.
The Revenue Commissioners have confirmed that agricultural plant and machinery, including tractors, are not generally regarded as new means of transport (applicable to motor vehicles). But, for VAT purposes, normal rules for intra-Community transactions apply (€41,000 threshold).
Where an unregistered farmer has incorrectly paid foreign VAT, and becomes liable to VAT in Ireland on the importation, it is a matter between the farmer and the dealer to arrange for a refund of the foreign VAT.
Where imports are greater than €41,000, then matters can get much more complicated. For example, take a foreign dealer selling second hand farm machinery which had been bought from an unregistered farmer.
The dealer may be operating under a margin scheme, whereby the dealer is only paying VAT on their profits from the deal.
As a result of importation, the machine falls back into the Irish VAT net, meaning the Irish farmer gets caught for Irish VAT on the purchase, with no real fall in the purchase price payable to the foreign dealer.
As always, each individual’s circumstances should be looked at for the best advice.
