Farmers removed from the agricultural flat-rate scheme may be entitled to a repayment of VAT, or compensation, from HMRC
Farmers incorrectly removed from a VAT simplification scheme could be entitled to a refund or compensation, according David Wilson, VAT director at audit, tax and consulting service provider RSM.
Mr Wilson said HMRC ’routinely withdraws’ agricultural flat-rate scheme (AFRS) certificates if compensation received means the farmer gains a much greater net benefit than under normal VAT registration to ‘protect the revenue’.
But an advocate general European Court of Justice Maciej Szpunar has said this could be against the ‘fundamental principles’ of the European VAT Directive.
AFRS is a VAT simplification method intended to remove the administrative burden of normal VAT rules.
Qualifying farmers who join the scheme receive a flat-rate compensation of 4 per cent to the value of their sales instead of recovering the VAT on underlying costs meaning there is no VAT accounting.
“A farmer fulfilling the criteria for participation in AFRS can legitimately expect that he will have the right to access the scheme, and remain in that scheme, irrespective of the actual financial results of that membership in individual tax years,” Mr Wilson said.
He added that while the European Court did not always agree with the opinions of its Advocate Generals, if it were to do so, UK farmers wrongly removed from AFRS would be entitled to a VAT refund or other form of compensation.
Mr Wilson added it also highlighted the question of what would happen to AFRS after Brexit.
“Of course, on leaving the EU, the UK would no longer be bound by EU VAT legislation; the UK could therefore decide to ignore the Court’s findings and await Brexit. This could however result in infraction proceedings and penalties against the UK,” he said.
Another option would to determine that, as the current 4 per cent compensation is far too generous, it should be reduced, or removed.”