Returning to the pre-January 2020 rate of 4.5% VAT on milk recording services has been ruled out by the Revenue Commissioners.
Because of changes in the commercial arrangements for provision of milk recording services, the current 13.5% rate stays, said Finance Minister Paschal Donohoe in the Dáil last week.
He explained that the 4.5% VAT dates back to an agreement in 1993 between the Irish Dairy Records Co-op (IDRC) and the Revenue Commissioners.
In reply to a Dáil question by Tipperary Fianna Fail TD Jackie Cahill (formerly a president of the Irish Creamery Milk Suppliers Association), Minister Donohoe said the Revenue Commissioners accepted in 1993 that the IDRC was under the control of the Minister for Agriculture, and acting on his behalf.
At the time, the State was not normally considered to be a taxable person, for the purposes of VAT.
The services provided by the IDRC did not therefore come within the scope of VAT. Payments receivable by the IDRC, on behalf of the Minister, were not chargeable to VAT.
However, it was agreed between Revenue and the IDRC that, of the amount payable by farmers to their local co-op in relation to milk recording, two-thirds related to payments collected on behalf of the IDRC (and therefore on behalf of the State) and were not chargeable to VAT.
But the balance of the payments, being payments for separate services, were identified as being provided by the co-ops to its members in connection with milk recording, and were chargeable to VAT at the reduced rate, in line with EU VAT law, with which Irish VAT law must comply.
The reduced rate of VAT is 13.5%, and taxing one-third of the full payment at 13.5% resulted in the effective 4.5% tax on milk recording.
However, commercial arrangements for provision of milk recording services changed subsequently.
These services are no longer supplied by the State through the IDRC.
Minister Donohoe said the Revenue Commissioners were not made aware of those changes at that time.
As a consequence of the changes, the full payment for these services became chargeable to VAT at the reduced rate of 13.5%, being services provided in full by private taxable persons.
Revenue engaged with the suppliers of these services and accepted that the correct VAT treatment could be implemented from January 1, 2020.
Minister Donohoe said even if these services had continued to be supplied by the State, the VAT would need to be reviewed anyway, in light of changes in legislation in 2010 regarding the treatment of the State as a taxable person for VAT purposes.
ICMSA’s Farm Business Committee Chair, Shane O’Loughlin, said recently the VAT increase came at a time when dairy farmers should be incentivised to do milk recording, from animal health, AMR, and environment perspectives.
For example, milk recording is a key requirement for the move towards selective dry cow strategy, a positive step to address antibiotic resistance concerns.
However, Minister Donohoe has indicated that registering for VAT, so they can reclaim VAT on costs, including the cost of milk recording services, may be the only recourse for farmers unhappy with the extra VAT on milk recording.
For unregistered farmers, the flat-rate addition compensates at the aggregate level for the VAT borne on input costs, including milk recording costs.
