The agricultural flat-rate VAT scheme was first devised by the EU in the 1960s as a means of simplifying the VAT system for farmers.

In the UK, those certified under the scheme are unable to claim VAT on inputs, but to compensate for that, can charge 4% VAT on outputs sold to VAT-registered businesses, who then claim repayment off HMRC.

Over the years, little has been written about the scheme, and it hasn’t exactly been promoted by Government. If anything, the impression given is that the HMRC would prefer that the scheme didn’t exist. It would be no great surprise if changes are made once the UK leaves the EU.

But in the meantime, it is something more farmers, and in particular, beef finishers, should be seeking advice on from an accountant. With feed zero-rated, the effect of not being able to claim VAT on inputs is lessened. Being able to charge 4% VAT on outputs works into an additional £60 on a steer worth £1,500 at slaughter. It ultimately makes those on the scheme very competitive when buying cattle in the marts.

However, of note, is that HMRC guidance currently states that, in the first year certified for flat-rate VAT, a farmer should achieve a net gain of no more than £3,000 over a normal VAT registration.

Using that arbitrary figure as a base, in 2012 a number of beef finishers in NI had their flat-rate registration cancelled by HMRC after it deemed that the net gain over a normal VAT registration was too great. In some of these cases, this gain was in the region of £100,000 per year.

However, one particular farming business, Shields and Sons partnership based in Co Down, challenged this ruling, taking a case that went to the European courts. As reported by the Irish Farmers Journal earlier this month, Shields won their case, and have had their registration reinstated back to 2012, allowing the business to issue retrospective invoices.

However, others who were removed from the scheme at the same time, have been told by HMRC that they cannot issue retrospective invoices. Instead, they must reapply, and abide by the £3,000 limit in the first year.

That seems unfair, and this group should seek legal advice.

The £3,000 limit must also be open to legal challenge as it does not seem to be in line with European law. The judgment in the Shields’ case was clear that the UK cannot remove farmers from flat-rate VAT where they are simply recovering more using the scheme than under normal VAT arrangements.

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NI farmers win flat-rate VAT case