Key factors in getting the VAT rate right

Revenue have this week announced a delay in the planned increase in VAT rate from 0% to 23% in respect of certain food supplements such as vitamins, minerals, fish oils, writes Kieran Coughlin

Key factors in getting the VAT rate right

Revenue have this week announced a delay in the planned increase in VAT rate from 0% to 23% in respect of certain food supplements such as vitamins, minerals, fish oils, writes Kieran Coughlin

The application of a 0% rate was a concession operated by Revenue and was scheduled to be withdrawn from this Friday 1st of March but this has now been pushed back to November 1.

The revised withdrawal date has been set in order to allow the Department of Finance to consider a report from the Tax Strategy Group. In answering questions in the Dail, Minister for Finance Paschal Donoghue said:

The concession in relation to vitamins and the like is proving unworkable as the industry seeks to use the concession to achieve a zero rating for much of the product range in the sector

However, the Department of Health has expressed its concern that an increase in VAT rates for certain supplements may lead to reduced usage which may have a negative health impacts. From a farming perspective it is important that farmers and agricultural contractors who are registered for VAT operate the correct VAT rates.

Common pitfalls occur where farmers supply animals to factories or the mart, and have not notified the purchaser that they are registered for VAT and in the process receive the flat-rate farmer credit of 5.4% rather than the 4.8% rate payable to registered persons.

Similarly farmers who are registered for VAT should receive 0% for the sale of the grain, whereas farmers who are unregistered for VAT receive a top-up of 5.4% in order to compensate them for VAT costs.

Farmers who are registered and remit the flat rate additions to Revenue as part of their VAT returns could take the view that they are squaring the matter up in that Revenue but claiming the incorrect VAT amount in the first instance is not acceptable.

A further common pitfall arises where a registered farmer hires out farm machinery without a driver, where the supply of such a service is taxable at 23% rather than the usual 13.5% where the registered farmer or contractor supplies the agricultural contracting service themselves.

Yet another pitfall arises where registered farmers import goods from other EU States and fail to record the transaction properly on their VAT return under the reverse charge procedure. Over recent years Revenue have been paying more attention to the VAT Return of Trading Details (RTD) form which historically was seen as non-mandatory.

The Return of Trading Details form captures all the purchases and sales for the period including exempt and 0% purchases. Using the information captured on the RTD Revenue can compare all sales and purchases for the period with what has been declared in the accounts for the business.

Similarly, information on the RTD can be compared with data on file from other jurisdictions in relation to imports from other EU States. Revenue will refuse to issue a rebate of VAT where a taxpayer does not file a VAT RTD, and similarly, Revenue have now stopped issuing tax clearance certificates where an RTD is overdue.

VAT registered farmers and contractors should give their businesses a health check in order to ensure that VAT is being correctly operated, at the correct rate, at the correct time, the VAT is remitted at the right time and the tax returns correctly capture the transactions of the company – the function here is to ensure that VAT is correctly being accounted for on sales.

On the flip side, the good news is that by homework in preparing the RTD farmers and contractors might be able to identify purchases on which VAT has not been claimed. Persons should obtain profession advice relevant to their own individual circumstances.

- Kieran Coughlin is a chartered tax adviser based in Belgooly, Co Cork.

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