As was mentioned in last week’s paper, farmers were noted to be having difficulty in reclaiming VAT on certain expenditure on farms. The difficulties have only recently come to light, with farmers being refused reclaims on VAT on a range of items, such as milk bulk tanks and automatic slurry scrapers.

Following a Dáil question regarding the VAT reclaim for unregistered farmers, Minister for Finance Michael McGrath stated that he had been advised by Revenue that the “acquisition of feed bins, milk bulk tanks, automatic calf feeders, milking parlour equipment and automatic scrapers does not come within the scope of the refund order’’.

The minister stated that he has been advised by Revenue on these changes. He added that regarding the above, now non-reclaimable, items “the corresponding outlay [for installation] has been allowed in certain circumstances. Each claim is assessed on its own merits”.

While it has been stated that there have been no changes to the flat rate VAT scheme, and that it has simply been a change in the interpretation of the rules surrounding VAT reclaims on certain expenditure, it does fundamentally change the rules surrounding VAT reclaims on items that farmers had previously reclaimed VAT on without difficulty.

What’s mobile and what’s fixed?

The change in interpretation of the rules has raised the question as to what is now classed as ‘fixed’ and ‘mobile’, as VAT reclaims have traditionally been sanctioned on fixed expenditure associated with farm building works, fencing and drainage.

The previously listed items (milk bulk tanks, automatic slurry scrapers, automatic calf feeders, meal bins and milking equipment) have a range of classifications when we look at them under TAMS.

Meal bins are classified as fixed, and in most cases do not require planning permission, with a letter of exemption sufficient.

They are still covered by the planning permission regulations, and may be subject to full planning permission.

Internal milk bulk tanks are classed as fixed as well, and while they do not require planning, external milk silos do require full planning permission.

Slurry scrapers and milking equipment are also classed as fixed, though are exempt from planning.

The only one of the five items classed as mobile are automatic calf feeders.

With the TAMS classification ruling the majority of items as fixed, it is difficult to see how these are no longer reclaimable under the Flat Rate Vat scheme.

The effect on farmers’ pockets

The above issue on VAT reclaims has caused significant financial difficulty on farmers. Many have used bridging loans or cashflow to help finance the purchase of some of the above items in the expectation that a reclaim could be made, only to now unexpectedly find that they will not be eligible.

Last week we looked at the costings for a typical four-station calf feeder, at €18,500 plus VAT. The net cost to the farmer is now €22,755, with the now lost VAT reclaim being €4,255. This is a significant amount of money to be banking on that is now no longer attainable, especially in what has been a lean year for farming, with increased costs and reduced output prices.

The real kick in the teeth to farmers has been that these changes have happened without warning.

One farmer I spoke to last week had installed a slurry scraper back in 2021 and allowed several other VAT receipts to collect before submitting a number of weeks ago, only to find he was ineligible.

This farmer was facing a high tax bill this year and had been banking on his VAT reclaim to help pay it. If he knew that he would be ineligible, he never would have made the purchase – he told me.

Where to now?

Farm lobbying groups have been extremely critical of the change in interpretation of the rules and are looking for immediate reversal and the retrospective payment to farmers who have recently been unsuccessful in their VAT reclaim. The change also pushes TAMS reference way beyond that of actual costs, with these being 90% higher than the reference costs in some cases now that VAT can not be reclaimed.

Lobbying groups have also highlighted this matter, with a change sought in reference costs. Should the rules remain, capital expenditure on farms is likely to suffer.