Question: Energy costs have gone through the roof over the past couple of years, and I was talking to a neighbour at the mart last week who said he claims his electricity and heating bills through the farm. Can I do the same? We run a dairy farm with about 180 cows, and the bills have got serious now. I’m wondering what I might be missing out on, and how I should work out what can be claimed?
Answer: you are not missing out on anything, but neither is your neighbour claiming as much as you might think, or at least he shouldn’t be. The fact that you operate a farm does not automatically make your household electricity and heating bills a farm expense. Revenue’s rule is straightforward: you can only claim costs that are wholly and exclusively for the farm.
The core problem on most farms is mixed use. Your house and your farmyard are running off the same supply, and may be on the same meter. The house element – your living costs, your family’s heating is never deductible.
Where claims fall down is when farmers treat the entire electricity bill as a farm expense because the bill arrives in the farm name or because they feel the house and the farm are ‘all one thing’. They are not, in Revenue’s eyes.
The farmyard side of the claim is different. The parlour, the vacuum pumps, the refrigeration unit, the water heating, and the yard lighting are genuine farm costs and they are allowable. The question is how you establish what that portion is, because a figure that cannot be supported is not a figure you should be claiming.
Separate meter
The best position to be in is to have a separate meter for the farmyard. Some farmers put this in when they are doing work on the yard. It removes the argument entirely – what goes through that meter is the farm’s cost and Revenue cannot challenge it. If you do not have a separate meter, you are working from an apportionment, and that needs to be based on something real. Equipment load, operating hours, consumption data from similar setups – any of these will give you a defensible number. What will not stand up is a round figure. A 50/50 split or 60/40 ratio that you arrived at by instinct will be the first thing a Revenue inspector will look at and, without any basis behind it, it could leave you with a problem
Farmers on the flat-rate addition scheme cannot reclaim VAT in the normal way, so check which category applies to you before assuming any VAT recovery. Inconsistencies between your income tax position and your VAT returns are one of the more reliable ways of attracting a Revenue query
Heating is harder than electricity. Electricity on a dairy farm has clear, identifiable farm uses. Heating is more ambiguous. If you are heating the milking parlour or a specific farm building for animal welfare reasons, that element may well be allowable. Heating the house, including the room where you do your farm paperwork, is not. Be more cautious on heating claims. The link between the cost and the farm activity needs to be direct and obvious.
On VAT, the same logic applies. You can only recover VAT on the business portion of the supply. Make sure your VAT treatment is consistent with your income tax.
Farmers on the flat-rate addition scheme cannot reclaim VAT in the normal way, so check which category applies to you before assuming any VAT recovery. Inconsistencies between your income tax position and your VAT returns are one of the more reliable ways of attracting a Revenue query.
Solar panels
If you have installed solar panels, or are thinking about it, there is a capital allowances angle to consider as well. Where the panels are connected to the farm and genuinely reduce the farm’s energy costs, there is a case for claiming capital allowances on the farm-related portion. Any grant you received reduces the amount you can claim. Again, the split between farm use and domestic benefit matters. You cannot claim capital allowances on the full cost of a system that is partly powering the house.
Good documentation here is not optional. If you are audited three years from now, you need to be able to show how you arrived at your figures. An apportionment with no basis is not a claim, it is a guess on a tax return, and that is a much more uncomfortable conversation.
If you are on a single meter, work out a genuine split, document how you got there, and apply it consistently year-on-year. Put in a separate meter and remove the question entirely. Your neighbour at the mart may be claiming correctly, or he may not be.
What to keep on file:
1. Electricity and heating bills.
2. Details of whether the house and farm use one meter or separate meters.
3. The basis for any farm/domestic split, such as equipment load, operating hours or consumption data.
4. A consistent record of the percentage applied each year.
5. For solar panels, details of grants received and the farm-related portion claimed.
Marty Murphy is head of tax at ifac, the professional services firm for farming, food and agribusiness.