The flat-rate payment that most farmers avail of is being cut in the budget. The current rate of 5.5% will be changed to 5.0% from 1 January 2023, which will cost farmers about €46m in a full year.
The flat-rate payment is designed to compensate farmers who are not VAT-registered for the VAT they pay on purchases that they cannot claim back.
It is a top-up payment to them on their sales of meat, milk, and crops. VAT-registered farmers, mainly tillage farmers, don’t benefit from this payment.
As the system is designed to be budget-neutral, there is an agreed formula looking at the relationship between the prices farmers pay for inputs and the price they receive for their produce.
Some inputs such as fertiliser and feed are VAT-free, and so don’t impact on this equation, which is overseen by a working group and calculated at EU level.
High commodity prices, especially for milk and grain, have driven the reduction in the flat-rate payment.
If input costs stay high, farmers will expect the 5.0% to move sharply upwards again for 2024.