Flat-rate tax or VAT tax? Virtually every farmer faces this dilemma. Which is more advantageous? We asked both advisors from Agricultural Advisory Centers and farmers themselves about this.
- Lump sum or VAT – this is a question many farmers ask themselves
- What are the advantages and disadvantages of both forms?
- In which farms will VAT work and in which will the lump sum be applied?
- Which form will be more beneficial for farmers using the Young Farmer Premium?
A farm, according to the Goods and Services Tax Act, is a form of running a business. In the case of farmers whose only source of income is the farm, it is possible to benefit from a lump sum settlement, i.e. from VAT exemption. Of course, this is not a mandatory exemption. The farmer may opt out of it and voluntarily switch to the general VAT settlement rules. If you decide to take such a step, you must register on the VAT-R form. Which form of settlement should I choose?
Lump sum – what does it really mean?
A flat-rate farmer is a farmer who supplies agricultural products from his own activity or provides agricultural services using tax exemption. The exception in this respect are farmers who are obliged by separate regulations to keep accounting books.
If the farmer decides to remain on the flat-rate basis, he or she is not obliged to register as a flat-rate farmer – lack of registration means that he or she is automatically a flat-rate farmer.
A flat-rate farmer supplying agricultural products is entitled to a lump-sum tax refund for the purchase of certain means of production for agriculture subject to this tax. The introduced flat-rate system involves adding a 7% flat rate to the sales price of agricultural products.
This enables flat-rate farmers to recover VAT included in the prices of goods and services purchased for agricultural production. A flat-rate farmer is exempt from a number of obligations:
- there is no obligation to issue sales invoices. The buyer of agricultural products issues invoices on his behalf – this is the so-called RR VAT invoice with the following declaration: “I declare that I am a flat-rate farmer exempt from tax on goods and services pursuant to Art. 43 section 1 point 3 of the Goods and Services Tax Act. The buyer of goods and services from a flat-rate farmer adds the so-called net price to the agreed net price. a lump-sum tax refund and pays it to the farmer.
- he is not obliged to keep records for VAT purposes,
- there is no obligation to submit tax returns to the tax office.
Unfortunately, it is not possible to deduct VAT from purchase invoices related to agricultural activities.
In the case of flat-rate farmers, there is an obligation to store RR VAT invoices for a period of 5 years, counting from the end of the year in which the invoice was issued. In practice, this means that in the case of an invoice issued, for example, on August 12, 2021, the five-year storage period is counted from January 1, 2022.
VAT farmer – what should you remember?
If a farmer decides to become an active VAT payer, he or she must resign from the lump-sum VAT settlement. To do this, he must submit a registration application on the VAT-R form to the appropriate tax office. This notification must be made before the beginning of the month in which the resignation from the status of a flat-rate farmer is to take place. From the moment of registration, the farmer becomes an active VAT payer and loses the right to request RR VAT invoices from the buyer.
Switching to VAT is voluntary, but it is associated with a number of obligations and knowledge of tax regulations – says Anna Czarkowska from the Agricultural Advisory Center in Szepietowo. – After the transition to general rules, the basic obligation of a VAT payer is to keep proper records of purchases of goods and services purchased for agricultural production and sales of unprocessed agricultural products. The basic documents necessary to keep such records are VAT invoices, he adds.
What obligations do farmers who are active VAT payers have?
- collecting cost invoices and issuing sales invoices,
- sending tax returns to the Tax Office in the form of JPK_VAT files for monthly periods, by the 25th day of the month following the month in which the tax obligation arose.
Return from VAT to a lump sum. The matter is not simple
It is important that a farmer who settles VAT on general terms can only use the tax exemption again after 3 years from the date of resigning from the exemption. Therefore, you should carefully consider the issue of giving up the lump sum.
Returning to the role of a flat-rate farmer is not easy and may involve many tax consequences. First of all, adjustments should be made to the tax previously deducted in respect of the purchase of assets classified as fixed assets and intangible assets subject to depreciation with an initial value exceeding PLN 15,000 as well as real estate and perpetual usufruct rights to land, equipment and goods not used for taxable activities. In practice, this means that in the declaration for the last settlement period, the farmer will have to return part of the VAT, depending on the proportion of the period of use of the indicated assets in the taxable activity and the remaining correction period (5 years or 10 years in the case of real estate and perpetual usufruct rights). land).
VAT for whom and lump sum for whom? What do farmers say?
So what should you consider when choosing the form of taxation?
Each farm should be approached individually. In each case, an analysis of the farm should be carried out, preparing an annual summary of the sale of agricultural products and the purchase of goods and services for the farm, says Anna Czarkowska. – Please remember that the sale of agricultural products is taxed at a reduced rate of 5% or 8%. And this is how much the farmer will be obliged to pay as tax due to the Tax Office. On the other hand, he will be able to deduct VAT from purchase invoices. The difference between the purchase tax and the sales tax will give him a refund or payment of the tax. The more cost invoices with a rate of 23%, the higher the returns from the Tax Office will be, he adds.
Looking at the structure of the farm, it is worth paying attention to the fact that the lump sum is most beneficial for farmers with smaller farms with fewer investments.
We stayed on the flat-rate settlement system because it was profitable. As a farmer who at one point had a lot of arson attacks or other events that limited breeding and did not bring money, I had no opportunity to develop through investments, there was such stagnation at that moment and it was justified to decide on a lump sum – says Emil Miezaj, a farmer from West Pomeranian Voivodeship. – At one point I was considering switching to VAT, but now, being eco-friendly, I don’t know if it is a good thing. If I were to buy some machines, build buildings, and invest every year, it would be better. Today, with what is happening on the markets and with this crisis, I will probably stay on the lump sum payment for the next few years, because it is simpler and practical in many places – he adds.
Farmers who run their farms based on the VAT settlement system speak in a similar tone.
I am a VAT payer because of the constant investment I make on the farm. Purchase of new agricultural machinery, construction of grain warehouses, renovation of existing buildings. A farm that is constantly developing in this way must undoubtedly be subject to VAT – says Damian Murawiec, a farmer from the Warmian-Masurian Voivodeship. – However, it is profitable to pay a flat-rate fee if the farm does not invest in new agricultural machinery or perform construction works. Such a farm relies on used equipment, purchased on the basis of purchase and sale contracts. Then such a farm has an additional income related to VAT RR on the invoice, which stays on the farm – he adds.
We also talked to a farmer who started his business on a flat-rate basis. Why did he decide to change the form of settlement?
When I started my business, I was on a flat-rate basis. When I started, it was definitely a better solution for me, because I received the additional 7% VAT – argues Grzegorz Majewski, a farmer from the Pasłęk area. – However, when my farm started to develop and, above all, when I started investing in machinery, the VAT system turned out to be much better for me, because 23% VAT actually reduces the purchase costs, and these are really large amounts. The same applies to spare parts and fuel. If the farm is developing rapidly, the VAT system is much more favorable – he sums up.
Bonus for a Young Farmer – more favorable VAT or lump sum?
The key moment in choosing the form of settlement is the moment when the farmer decides to take advantage of the Young Farmer Premium.
A very good moment to switch to VAT is to transfer the farm to a successor. Farmers who benefit from the Young Farmer Premium often decide to settle VAT – says Anna Czarkowska. – And this is probably the best moment, because these farmers are starting to invest in their farms by purchasing machinery or construction investments, and both the purchase of agricultural machinery and construction materials is taxed at a rate of 23% – he adds.
Additionally, it should be noted that the young farmer signing the contract is obliged to use a tool for the economic evaluation of the farm, which records revenues and costs. This is a necessary condition, failure to meet which may result in penalties, and when conducting business in the VAT system, such records are automatically kept.
An additional element in favor of opting for the VAT system in the case of young farmers benefiting from the premium is the fact that funding under the Young Farmer Premium is settled in net amounts.
