Farmers removed from flat-rate VAT scheme could get a refund

Farmers who have been ejected from a VAT simplification scheme known as the Agricultural Flat-Rate Scheme (AFRS) may be entitled to a repayment of VAT, or compensation from HMRC.

David Wilson, VAT associate director with accountants RSM, said an opinion from the advocate general to the European Court of Justice could pave the way for affected farmers to make compensation claims or request to rejoin the scheme.

Under the AFRS, farmers with qualifying agricultural, forestry or fishing activities do not have to submit VAT returns.

Instead of recovering the VAT on their underlying costs they receive a flat-rate compensation of 4% on the value of their sales.

See also: Tax considerations for farm cottages

Benefit and loss

In some years, depending of the value of their sales and purchases, some farmers will gain a net benefit and in other years they may suffer a net loss.

However, HMRC routinely withdraws farmers’ AFRS certificates if the compensation received results in a farmer obtaining a much greater net benefit than it would under normal VAT registration.

Mr Wilson said the opinion from the advocate general suggested that withdrawing certificates for this reason could be seen as an indication that HMRC was failing to properly implement and regulate the scheme.


The opinion said individual farmers cannot be excluded from the AFRS for reasons other than those specified under the European VAT directive.

“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,” he said.

Mr Wilson said the opinion would become immediately applicable if the full European Court of Justice agreed with the advocate general’s position. No date has been set for a full judgment to be handed down, but it usually takes two to three months.

“The European Court doesn’t always agree with the opinions of its advocate generals but, if it were to do so in this instance, UK farmers wrongly removed from the AFRS would be entitled to a VAT refund or other form of compensation.”

The AFRS is thought to be used by several hundred farmers in the UK.

Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

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