661. Deputy Cathy Bennett asked the Tánaiste and Minister for Finance his response to reports that non-VAT registered farmers selling to other non-VAT registered farmers in marts incurring additional tax due to a reduction in the flat-rate VAT top-reducing; if he is concerned that this disincentivises the sale of cattle through marts and may negatively impact security of payment and transparency around ownerships; if he will outline his related engagements; and if he will make a statement on the matter. [58944/26]

The VAT treatment of goods and services is subject to EU VAT law, with which Irish VAT law is obliged to comply. In accordance with the EU VAT Directive, farmers can elect to register for VAT or can remain unregistered.

Under VAT law, unregistered farmers can avail of the Flat-rate Farmers Scheme, an administrative simplification arrangement unique to the farming sector, which allows farmers to remain unregistered for VAT – thereby remaining outside the VAT system and avoiding the burden of registration and filing – and yet be compensated on an overall basis for the VAT incurred by such farmers in the course of their business.

As is normal for VAT-unregistered businesses, unregistered farmers are not entitled to reclaim VAT incurred on the various individual inputs used in their farming business. However, the Scheme allows VAT-unregistered farmers to add and retain a percentage charge (known as the “flat-rate addition”) onto the amount they invoice VAT-registered businesses to whom they supply agricultural goods and services, including livestock, in the course of their farming business. In this regard, livestock means live cattle, sheep, goats, pigs and deer, and horses normally intended for use in the preparation of foods stuff or in agricultural production.

The Deputy is asking about the sale of cattle through marts. Under VAT rules, where a farmer sells cattle at an auction – such as at a mart – the sale is treated for VAT purposes as being two transactions: firstly, a sale by the selling farmer to the auctioneer, followed by a subsequent sale by the auctioneer, to the purchaser.

Where a flat-rate farmer (i.e. VAT-unregistered farmer) sells cattle at a mart, assuming the mart/auctioneer is VAT-registered, the flat-rate farmer will be entitled to charge and keep the flat-rate addition, which since 1 January 2026 is 4.5%.

Where a flat-rate farmer buys goods, such as livestock, from a VAT-registered business – including from a registered mart or auctioneer – the appropriate VAT rate applies to the sale. The VAT rate applicable to the supply by a VAT-registered business of livestock (whether sold at a mart or otherwise) is the livestock rate of 4.8%; this is a special reduced rate permitted under EU VAT Law. The VAT-registered business is obliged to account for the VAT on the sale in the normal way as part of its regular VAT return.

Detailed guidance on the sale or supply of live animals by auction/mart is available on the Revenue website at www.revenue.ie/en/tax-professionals/tdm/value-added-tax/part10-special-schemes/sale-of-live-animals-by-auction-mart/sale-of-live-animals-by-auction-mart.pdf.

I understand that the Deputy is concerned about a perceived mismatch between the level of the flat-rate addition, which since 1 January 2026 is 4.5%, and the livestock rate. These are two separate concepts that serve different purposes and they are not intended to be matched. The fact that the flat-rate is currently set at a level which is below the livestock rate does not create any unfairness in tax treatment or mean that farmers are disadvantaged; in the same way as farmers were not advantaged for the many years when the flat-rate was set at levels that were above the livestock rate.

Under EU requirements, the level of the flat-rate percentage is re-set annually with reference to a formula that ensures that VAT-unregistered farmers continue to be compensated on an overall basis for the VAT incurred across the complete range of rates of their inputs. The formula takes account not only of the inputs taxed at the livestock rate of 4.8%, but also those taxed at the VAT standard rate of 23%, the reduced rate of 13.5%, the second reduced rate of 9%, and those subject to the VAT zero rate. Where any of those VAT rates are changed, the formula ensures that there is a direct follow-through into the calculation of the flat-rate percentage. Therefore, there is no need to have a direct alignment between the flat-rate compensation and any particular VAT rate, as the formula used ensures that the flat-rate calculation fully reflects, on a continuing basis, the actual VAT exposure of the flat-rate farming sector across the entire range of its inputs, including those taxed at the livestock rate as well as all the other differently taxed inputs.

The Deputy refers to a possible change in how farmers decide to engage in livestock sales. Under VAT law, unregistered farmers are not permitted to apply the flat rate addition in respect of supplies made directly to other unregistered farmers. This in no way restricts the potential for sales between VAT unregistered farmers, but it does mean that the seller does not benefit from the flat-rate addition. While sales between VAT unregistered farmers do not have any VAT implications, they would in all other respects, be a normal business transaction with normal obligations arising regarding record-keeping and any other relevant tax compliance matters.