Poultry and mushroom producers and processors may have to amend trading arrangements because of a tightening of VAT rules in the finance Bill 2017, which will take effect from 1 January next.

The Department of Finance is introducing an anti-avoidance measure to prevent excessive payment of the flat-rate VAT refund, over and above what is intended in the scheme.

It follows a review by the Department of practices in the poultry sector in particular, triggered by complaints made by a poultry producer. Under the arrangements reviewed, some poultry producers purchase all chicks and feed from one supplier and in turn charge that same supplier for the reared birds.

Prices ‘inflated’

The complainant claimed that the prices paid for rearing the birds were inflated above market prices elsewhere. This boosted the flat-rate refund to the producers, a cost borne by the Exchequer. However, the price the farmers paid for the feed was also higher than market prices and this had the effect of returning the benefit to the supplier. In some cases the supplier was a processor and in others an intermediary co-op.

These arrangements were not in breach of VAT laws.

New legislation

But the new legislation will allow the Minister for Finance to restrict the application of the flat-rate VAT scheme for unregistered farmers in certain circumstances.

The minister could do this where satisfied, following a review by Revenue, that business models or structures within a particular agricultural sector give rise to systematic excess payment of the flat-rate addition. The minister could, by order, prohibit the payment of the flat-rate addition in relation to specified agricultural produce or services.

Declan McEvoy, head of tax at IFAC accountants, has sent out a circular to IFAC’s local offices advising them of the changes. IFA, meanwhile, has asked the Department of Finance to allow a period of months for producers to amend existing arrangements.