Farm VAT in­ves­ti­ga­tion con­tin­ues

Irish Examiner - Farming - - FARM FINANCE - Stephen Cado­gan

The Rev­enue Com­mis­sion­ers will shortly un­der­take au­dit type ex­am­i­na­tions of grow­ers, such as poul­try farm­ers, to es­tab­lish if there is still a sys­tem­atic ex­cess of flat-rate ad­di­tion pay­ments over VAT on in­put costs, when ac­count is taken of the re­cent changes im­ple­mented by co-ops in the sec­tor.

This fol­lows the in­dus­try aban­don­ing some ac­tiv­i­ties likely to give rise to over­com­pen­sa­tion of grow­ers for their VAT costs. “How­ever, there is still scope for over-com­pen­sa­tion through the use of con­trac­tual pric­ing ar­range­ments and con­tra sup­plies be­tween pro­ces­sors and grow­ers,” said Fi­nance Min­is­ter Paschal Dono­hoe in the Dail.

He said, “It would serve the in­dus­try well to ex­am­ine if the pric­ing struc­tures they op­er­ate cur­rently could re­sult in over­com­pen­sa­tion of grow­ers for their in­put VAT costs, and to ad­just them if this is the case.

“If the in­dus­try could pro­vide em­pir­i­cal ev­i­dence that over­com­pen­sa­tion is not aris­ing at cur­rent price lev­els, or will not arise at new price lev­els to be im­ple­mented in the in­dus­try, it would re­move the need for Rev­enue to pro­ceed with its pro­gramme of in­ter­ven­tions.” Min­is­ter Dono­hoe warned he is com­mit­ted to ex­clud­ing the sec­tor from the flat rate scheme if it proves nec­es­sary to do so. Re­ply­ing in the Dail to a ques­tion from Fianna Fail on Fi­nance spokesman Michael McGrath, Mr Dono­hoe said a busi­ness model emerged in the poul­try sec­tor that ex­ploited the in­ter­ac­tion of the nor­mal VAT sys­tem and the flat-rate scheme, to en­gi­neer higher lev­els of flat-rate ad­di­tion pay­ments com­pared with the VAT borne on their in­put costs.

The model in­cluded the use of VAT-reg­is­tered en­ti­ties to re­cover VAT on costs borne on be­half of flat-rate farm­ers, while those farm­ers con­tin­ued to ben­e­fit from ap­ply­ing the flat-rate ad­di­tion to their sup­plies.

In ad­di­tion, the con­tra sup­ply ar­range­ments in re­la­tion to grow­ing ser­vices and feed­stuff that are wide­spread in the in­dus­try could be ma­nip­u­lated to in­crease the price of the grow­ing ser­vice and hence the flat rate ad­di­tion pay­ment. Par­tic­i­pants in the sec­tor recog­nised and adopted struc­tures and ar­range­ments that had an ob­vi­ous busi­ness ra­tio­nale, and which were also likely to in­crease the level of flat rate ad­di­tion pay­ments to un­reg­is­tered grow­ers in the sec­tor.

As a re­sult, pro­vi­sion was made in the Fi­nance Act 2016 to en­able the Min­is­ter for Fi­nance to ex­clude sec­tors from the flat rate scheme, where busi­ness struc­tures or mod­els em­ployed re­sult in a sys­tem­atic ex­cess of flat-rate ad­di­tion pay­ments over in­put costs borne by flat-rate farm­ers within that sec­tor. Rev­enue will deal with such sec­tors through the use of this pro­vi­sion.

Rev­enue also un­der­took a de­tailed ex­am­i­na­tion of the busi­ness struc­tures, mod­els and con­trac­tual ar­range­ments in place be­tween par­ties within the sec­tor. Fol­low­ing this, co-ops un­der­took to recharge grow­ers with all costs borne on their be­half plus VAT, thus ad­dress­ing one of the mech­a­nisms likely to re­sult in over­com­pen­sa­tion for flat-rate farm­ers.

Farm­ers are treated dif­fer­ently from other busi­nesses for VAT pur­poses, in that they are not obliged to reg­is­ter for VAT when they ex­ceed the turnover limit for regis­tra­tion.

The vast ma­jor­ity opt to re­main un­reg­is­tered, and are com­pen­sated by the flat-rate scheme which al­lows them add 5.4% to their prices when sell­ing to VAT-reg­is­tered busi­nesses (for ex­am­ple, co-ops, meat fac­to­ries, etc).

The VAT-reg­is­tered busi­ness treats the flat-rate amount as a nor­mal busi­ness in­put in its pe­ri­odic VAT re­turn, claim­ing in­put credit for the flat-rate amount paid to the flat-rate farmer.

In this way, farm­ers are com­pen­sated for the VAT borne by them on their in­put costs, and this sim­pli­fi­ca­tion re­duces the ad­min­is­tra­tive bur­den for them as there is no need to reg­is­ter for VAT in or­der to re­cover VAT.

The Rev­enue Com­mis­sion­ers will shortly au­dit grow­ers, such as poul­try farm­ers, to es­tab­lish if sys­tem­atic ex­cess VAT flat-rate ad­di­tion pay­ments on in­put costs con­tinue.

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