VAT flat rate refund increase - what does it mean for me?

The flat rate refund changed on 1 January.

This was announced as part of Budget 2021, but didn’t come into effect until 1 January 2021.

The flat rate refund for farmers who are not registered for VAT purposes increases to 5.6% from 5.4%.

The last time this changed was part of Budget 2016 when the rate changed from 5.2% to 5.4% on 1 January 2017.

The flat rate refund compensates unregistered farmers for VAT incurred on inputs.

The vast majority of Irish farmers are unregistered for VAT.

All farmers pay VAT at either 13.5% or 21%.

The 21% rate was reduced from 23% as part of the Government's July 2020 stimulus package.

This took effect on 1 September 2020 and is due to finish on 28 February 2021, when it will go back to 23% unless the Government decides to extend the period where it stays at 21%.

The refund applies to sales of livestock, milk and grain by unregistered farmers.

What does it mean for me?

The increase in the rate of 2% will mean an increase in the amount of money you get back in a mart cheque or a factory cheque.

This isn’t being paid by the factory or the buyer of your animals in the mart, but is essentially Government money being paid back out of the VAT fund that they lift on inputs, etc.

The flat rate refund will be clearly outlined on mart cheques. However, it is included in the beef quote you see on your factory remittance.

Existing VAT refund value @ 5.4%: €70.30.

New VAT refund value @ 5.6%: €72.91.

€2.61 of an increase in value of animal

The equivalent of almost a 1c/kg increase on this heifer.

The same rate applies on mart and factory sales of sheep. This new rate will also apply to grain sales.

Do I have to do anything?

No, the rate will automatically change and you don’t need to do anything.

Factories should pass this flat rate refund back to farmers by increasing the price paid to farmers.

Farmers should make sure that this increase is reflected in quotes from 1 January 2021 onwards.

VAT on milk price

The same way on the dairy side of the house, VAT is now 5.6% from 1 January on top of the price of milk, up from 5.4%.

Effectively, this value added tax (VAT) is paid from the Government, not from the milk processor on farm sales.

Hence, this is why in the Irish Farmers Journal we always quote milk prices ex-VAT in the first instance, but often, to help understanding, we include the VAT inclusive figure in brackets afterwards.

For example, if a dairy farmer hears 30c/litre at base solids quoted for the price of milk, but his neighbour next door says 'no, it's 28.5c/litre'.

The first question he/she should ask is whether VAT is included in that 30c/litre figure.

More often than not it is, so the first thing to do if comparing to other prices is to remove the VAT, so instead of 30c/l it becomes 28.4c/litre plus the VAT of 1.6c/litre.

Prior to the increase in VAT, it would have been 28.46c/litre plus the VAT of 1.54c/litre.

So, as far as the farmer is concerned, the co-op is returning 28.4c/litre to the farmer and then the VAT comes on top.

Ex-VAT at base solids is the proper way to compare milk prices.

Using anything else simply distorts the comparison and you might not be comparing apples with apples.

Be clear - the milk supplier gets both the milk price and the VAT on milk sales, but, when comparing like with like, the easy job is to take VAT from both to get a clear picture of where the money is coming from.