Farmer and VAT deduction under tax regulations

The person running a farm has the option to decide whether to tax with VAT. Contrary to other entities, farmers are not subject to the turnover limit of PLN 200,000, beyond which they become obligatorily active taxpayers of value added tax. For a farmer, the decision to tax with VAT may turn out to be beneficial if he plans to invest in the development of the farm. Let's check how to properly approach the issue: farmer and VAT deduction.

Resignation from the exemption from VAT

The decision to resign from the exemption should be well thought out by the farmer. It should not be taken lightly, because it is easy to resign from the exemption, and unfortunately, to return to it, a period of 3 years must pass from the moment of registration.

A person running a farm should analyze sales and purchases on the farm for several months before applying for VAT.

If the purchase of new agricultural machinery or other costly investments is planned, VAT taxation will be the most advantageous solution for the farmer due to the large amounts of input tax at the rate of 23%. Calculating the profitability of switching to VAT is based on the difference between the sum of input tax on purchases and the sum of tax due on sales.

Example 1.

The farmer sells milk, and in the same month purchases fuel, fertilizers, parts for a farm tractor, and other goods needed on the farm.

The calculation is as follows:

Sale:

• milk for the amount of PLN 25,000 net + 5% of output VAT: PLN 1,250 → tax amount to be paid

Purchase:

• fuel for the amount of PLN 1,000 + 23% VAT 230 PLN
• fertilizer for the amount of PLN 2,000 + 8% VAT 160 PLN
• tractor parts PLN 500 + 23% VAT 115 PLN
• purchase of corn sowing PLN 20,000 + 5% VAT PLN 1,000
• transport service PLN 1,000 + 23% VAT 230 PLN
• maize sowing service PLN 3,000 + 8% VAT 240 PLN
• other expenses PLN 1,800 + 23% VAT PLN 414

Total input VAT: PLN 2,389

Calculating the difference:

PLN 1,250 (VAT due) - PLN 2,389 (input VAT) = PLN 1,139 of VAT to be reimbursed to the farmer

In the above example, being an active VAT payer is profitable for the farmer, because there is an input tax surplus, and therefore the amount to be reimbursed. It will be similar in the period of large investments (purchase of agricultural equipment, farm expansion), due to the high value of purchases taxed with a VAT rate higher than the VAT rate in sales indicated by the farmer.

The need to pay VAT will occur when the farmer achieves high revenues, for example, during the period of selling the crops, where the tax due may exceed the amount of input tax on purchases of goods used for the farm's needs.

When resigning from the VAT exemption, it is necessary to provide the farm with a REGON number. In order to register a farm for VAT, a VAT-R form must be submitted to the competent tax office. It is best to submit this document the day before the planned registration, and start taxation from the first day of the month to simplify the settlement of the month.

Farmer and VAT deduction

A farmer whose farm is connected with his household may have doubts about the purchase of goods and services from which VAT may be deducted.

Pursuant to Art. 86 sec. 1 of the VAT Act, purchases must be made for taxable sales, otherwise the input tax cannot be deducted. Each purchase must have its purpose related to running the farm. A good solution is to separate a room in the house that will serve as an office. There, the farmer will undertake his contractors, as well as conduct other formal activities related to running the farm (issuing invoices, placing orders). All items related to the maintenance of order in this room as well as office supplies will be deductible.

Start a free 30-day trial period with no strings attached!

A problem may also be the settlement of invoices for utilities (electricity, water, sewage), because the document includes both farm and home consumption. In order to settle correctly, the best solution is to set up sub-meters in the premises and buildings of a farm, and then settle VAT proportionally to consumption.

In the case of various types of renovations carried out on the farm, VAT can be deducted from the construction materials used, as well as the services of the renovation company, provided that they were used for the construction or renovation of buildings or premises for the needs of the farm. In the case of renovations concerning both a farm and a household, the input tax is calculated according to the percentage in which the land is used for the purpose of running the farm.

Taxation with VAT in the case of running a farm may be profitable depending on the incurred cash outlays for maintaining the farm and the amount of sales. However, this issue should be considered individually. If the farm plans to purchase new equipment or other investment works, VAT taxation may turn out to be very beneficial for the farmer. Before registering as an active VAT payer, it may be a good solution to collect documents for the purchase of all goods and services needed on the farm for several months. Thanks to this, it will be possible to compare the sum of input tax on purchases with the sum of tax due on sales and calculate the probable amount of VAT to be paid or refunded.