An upcoming reduction in flat-rate VAT for farmers from 5.1% to 4.5% will cost farmers millions in the coming years, the Irish Co-operative Organisation Society (ICOS) has said.

This scheme allows non-VAT registered farmers to claim back VAT they incur on selling produce and buying inputs.

The decision was made by the Department of Finance and will be effective from 1 January 2026 as currently included in the incoming Finance Bill.

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Where livestock sales are subject to the statutory 4.8% VAT rate, the lower 4.5% flat-rate addition will create a shortfall that did not previously exist, resulting in unequal treatment for farmers as they sell their animals, ICOS has said.

Essentially, it maintains that this is a penalty as it creates an additional 0.03% charge for non VAT-registered farmers selling animals.

Ray Doyle of ICOS said the organisation has sought clarification from the Department of Finance and is calling on the minister to remove the anomaly.

“The flat-rate scheme is meant to be simple, neutral and fair for farmers who are not VAT registered,” said Doyle.

“This change creates an anomaly where full VAT compensation is no longer achieved in all cases.

“On a typical sale of an animal for say, €1,000, the farmer will lose €2.86 per head, irrespective of the sales channel, factory, farm to farm or livestock mart.

Millions

“It may not sound like much for a single sale but it will all add up to several million euro of a loss for the sector when you take into account the overall sales volumes of livestock in Ireland.

“That was never the intention of the scheme, and it needs to be addressed before the new rate comes into force,” he said.

Doyle said that ICOS acknowledges that the flat-rate addition is calculated in line with EU VAT law.

“However, the co-op representative body is concerned that the interaction between the revised rate and existing VAT rules has produced an unintended and inequitable outcome for non-VAT registered farmers,” he said.