VATAFRS0110 - Introduction to the scheme: Purpose and outline of the scheme
With the arrival of the Single Market, it was agreed that UK farmers, like the majority of their European Union (EU) counterparts, should have the choice of joining an agricultural flat rate scheme. The scheme was also introduced to free small farming businesses from the administrative burden of VAT registration.
The scheme began in the UK on 1 January 1993 and is open to any person - whether or not they are currently registered for VAT - who is involved in “designated production activities”. The activities falling within the scheme are listed in VATAFRS2400.
The scheme is an alternative to VAT registration for farmers and other people involved in agricultural production activities. Although the term “farmer” is used throughout this book, there are a number of activities (for example horticulture) which are not usually called “farming” but which are still eligible.
It is a condition of joining the scheme that farmers who are registered for VAT must have their registration cancelled. As a result, they will not be able to reclaim input tax on their business purchases, but instead will be allowed to charge a flat rate addition (FRA). The FRA is a percentage amount of the sale price of qualifying goods and services, and is currently set at 4%: any variation to the percentage rate will be made by Treasury order.
The FRA is not VAT and the farmer is allowed to keep it. The addition acts as compensation for the loss of input tax the farmer would have been able to reclaim if registered for VAT.
The FRA can be charged on sales of designated goods or services, which qualify for the scheme. But the addition can only be charged when the sales are made to VAT registered customers.
Any VAT-registered customer who is correctly charged the FRA will be able to reclaim the amount charged as though it were input tax, provided they have a satisfactory invoice.