Value added tax (VAT) is a significant additional tax on many farm purchases and capital investments, so it is important to be aware of when you can and cannot reclaim VAT.

When it comes to VAT, there are two types of farmer – the VAT-registered farmer and the flat-rate farmer. This article addresses the key issues flat-rate farmers need to be aware of regarding VAT on farm land and buildings.

Am I a flat-rate farmer?

If you are not registered for VAT in respect of your farming activities, you are a flat-rate farmer.

Does VAT apply directly to land sale or purchase transactions?

For flat-rate farmers, VAT cannot be reclaimed on the cost of purchasing land or buildings.

However, subject to satisfying certain conditions, you may be entitled to reclaim VAT incurred in the construction, reconstruction or alteration of farm buildings and structures, and land drainage or reclamation.

What are the conditions when reclaiming VAT on farmland and buildings?

Among other conditions, the land, building or structure must be used in a farming business and you must continue farming in your own name for at least 12 months from the date of the VAT invoice.

How and when do I reclaim the VAT?

You must submit your application for repayment of VAT (form VAT 58) within four years of the end of the taxable period to which the claim relates. Claims must relate to a calendar year (1 January to 31 December) or a period within a calendar year and the amount claimed must be greater than €125. Example: You have a claim for September 2017, December 2017, January 2018 and March 2018. You cannot submit all the claims under one VAT 58. You must submit September and December on one return and January and March on another.

What happens if I sell or lease the property?

The ability to reclaim VAT only applies to active farming businesses, so if you are no longer an active farming business, you will lose your entitlement to reclaim VAT.

Furthermore, if you sell, lease or transfer your property within 12 months of the date of the relevant VAT invoice, you will have to repay any refund of VAT that you received. This is because you are no longer farming the property in your own name.

Another important consideration is that additional VAT charges can arise on the sale of a farm building that was completed or significantly developed in the five years immediately prior to sale. So, in the case of a farm sale (or transfer), you may have to repay any VAT refund received if you reclaimed VAT when completing the development.

What’s the bottom line?

You should always take into account the VAT implications when contemplating leasing, selling or transferring your farm to the next generation.

Obtaining sound tax planning advice is the best way to avoid unwelcome VAT costs.