Commodity watch - Agriculture flat rate VAT update

Wednesday, 23 December, 2020

By UFU policy officer, Daryl McLaughlin

What is the flat rate scheme for?

The flat rate scheme is an alternative to VAT registration for farmers. If you register as a flat rate farmer, you do not account for VAT or submit returns and therefore cannot reclaim input tax. However, you can charge and keep a flat rate addition (FRA) when you sell goods or goods and services to VAT registered customers. You cannot join the scheme if the value of your non-farming activities is above the VAT registration threshold.

The flat rate addition is not VAT but acts as compensation for losing input tax on purchases. It is not intended as reimbursement for all the VAT incurred on purchases. The flat rate addition is four precent. It has been used by beef finishers traditionally in Northern Ireland (NI).

Who introduced the AFRV scheme?

The Agriculture Flat Rate Vat (AFRV) scheme was introduced by the European Union (EU) and the European Commission has overall responsibility. The individual running of the scheme, setting the flat rate percentage is the responsibility of the member states governments.

On 1 January 2021 there will be new changes to the current AFRV scheme. The British Chancellor Rishi Sunak announced in the 2020 budget that Her Majesty's Revenue and Customs (HMRC) would be implementing changes with new entry and exit rules for the AFRV scheme.

What are the changes to the AFRV scheme?

From 1 January 2021:

  • Businesses can join the AFRS when their annual turnover from farming related activities is below £150,000
  • Businesses must notify HMRC once their annual turnover from farming related activities exceeds £230,000, to be deregistered from the scheme and register for VAT instead
  • Businesses with turnover that exceeds £85,000 from non-farming related activities will still be required to register for VAT and will be ineligible for the scheme

If you are currently in the AFRV scheme it is the responsibility of the business to self-declare when you no longer meet the eligibility criteria for the scheme.  

The AFRV scheme applies in respect of qualifying farming activities. If non-farming activities exceed the VAT registration threshold, the farmer can effectively split their business and register the non-farming part separately and it is important this this element is run separately.

Purposes of the changes

  • To offer clear and precise rules to offer members clarity on the scheme
  • To offer specific and focused support for small farming businesses
  • Offer consistency with other HMRC simplification schemes

The Ulster Farmers’ Union (UFU) are aware of the issues and the impact these new changes will have on NI farm businesses and particularly the beef sector. We also see issues with the level playing field with the scheme that is available to farmers in the Republic of Ireland, it has a more favourable percentage and additional perks that go along with it. Going forward with Brexit and with NI remaining within the EU customs zone, surly there is a need for something special for NI? These issues warrant further consideration something that the UFU will be investigating in the new year.