Flat-rate farmer and VAT settlement

Service-Tax

Agricultural activity as an activity of an individual farm is exempt from the obligation to keep accounting books. This is due to the fact that the farmer is not bound by the provisions of the act on personal income tax, as mentioned in the act itself in Art. 2 clause 1 point 1. However, agricultural activity is subject to the provisions of the VAT Act. So how should a flat-rate farmer account for VAT? We explain.

Who is a flat-rate farmer?

As defined in the VAT Act, a flat-rate farmer is understood as "a farmer supplying agricultural products from his own agricultural activity or providing agricultural services, benefiting from tax exemption pursuant to Article 43 (1) (3), with the exception of a farmer obliged under separate provisions to keep accounting books".

Due to the exemption from VAT of the supply of goods and the provision of services by a flat-rate farmer, he is not obliged to register as an active VAT payer at the tax office. The status of a flat-rate farmer is also associated with no obligation to issue invoices for the activities performed, and thus with no obligation to keep records.

A flat-rate farmer supplying agricultural products for an active VAT payer receives a VAT-RR invoice from the buyer, documenting the transaction. The situation is quite unusual, because the invoice is issued by the buyer, not the seller, as in most cases. On this basis, the farmer may apply for a tax refund on the acquisition of certain means of production for agriculture, which are subject to VAT.

When can a flat-rate farmer switch to general VAT?

Currently, the farmer himself decides to abandon the flat-rate VAT settlement, and thus switch to the general rules. He can do it during the tax year by registering with the tax office as an active VAT payer. For this purpose, he / she submits the VAT-R registration application before the beginning of the month in which the resignation is to take place. From the moment of registration, the farmer becomes an active VAT payer.

Consequences of VAT settlement by a farmer according to general rules

From the moment of registration as an active VAT payer, the farmer loses the right to demand VAT-RR invoices from the buyer. He also cannot apply for a VAT refund on the supply of agricultural products to buyers who are active VAT payers.

In return, the farmer - an active VAT payer - will be obliged to:

  • issuing invoices for the sale of goods and services with input tax;
  • keeping records of sales and VAT purchases;
  • monthly shipment of JPK V7;
  • pay the tax due, if such is shown by the settlement for a given month.

On the other hand, the rights that a farmer will acquire after obtaining the status of an active VAT taxpayer is the possibility of reducing the output tax by the input tax taken into account when purchasing goods or services. This means that the farmer will be able to deduct input VAT based on VAT invoices documenting purchases made by him. The basis for settlements will be the VAT invoices held and the VAT purchase records kept in accordance with them.

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Farmer JPK V7

From the period for October 2020 inclusive, active VAT payers prepare JPK V7M (in the case of VAT settlements on a monthly basis) or JPK V7K (in the case of VAT settlements for quarterly periods). The new SAF structure replaces the existing VAT and SAF-T VAT declaration.

Both the sale and purchase of goods or services are shown in JPK V7. The amounts in a given file are assigned to the appropriate VAT rates. For farmers, the rates often used are 5% and 8%, and less often the standard rate of 23%.

The amount of tax due shown in the declaration part JPK V7, resulting from the sale of goods and services, reduced by the amount of input tax on purchases made by the farmer, results in the result of VAT settlement for a given period. If:

  • Output VAT (sale)> Input VAT (purchase) → Tax to be paid in the Tax Office
  • Output VAT (sale) <Input VAT (purchase) → tax to be returned, overpayment in the Tax Office

The excess tax is transferred to the next period or is paid at the farmer's request.

In the JPK V7 declaration part for a given accounting period, the farmer shows all sales taking place in a given period and received advances from the settled month or quarter. However, showing the input tax on purchases can be shown in the JPK V7 declaration part for the invoice receipt period or in one of the two subsequent accounting periods.

In addition, the taxpayer issuing VAT RR invoices on behalf of the flat-rate farmer is obliged to generate, at the request of the office, a uniform control file concerning sales invoices, the so-called JPK FA RR.

Is it possible to be a flat-rate farmer at the same time and run a business on general terms of VAT?

There are two answers:

No, if the economic activity will fall under the concept of agricultural activity, through which, pursuant to Art. 2 section 15 of the VAT Act is understood as:
'plant and animal production, including the production of seed, nursery, breeding and reproductive material, vegetable, ground, greenhouse and foil production, production of ornamental plants, cultivated and orchard fungi, breeding, breeding and production of seed material for animals, birds and utility insects , livestock production of industrial or farm type and rearing and breeding of fish and other aquatic organisms, as well as cultivation in greenhouses and heated foil tunnels, cultivation of mushrooms and their mycelium, cultivation of plants "in vitro", farm rearing and rearing of slaughter and laying poultry , poultry hatcheries, breeding and rearing fur and laboratory animals, rearing and breeding earthworms, entomophages and silkworms, keeping apiaries and rearing other animals outside the farm, and selling forestry and hunting products, except round timber from tropical trees (CN 4403 41 00 and 4403 49) and bamboo (CN 1401 10 00), as well as a witness agricultural services'.

Therefore, if a flat-rate farmer would also like to carry out activities taxed on general principles in the scope of e.g. plowing a field, it would be inconsistent with tax regulations. Then, when performing activities as a flat-rate farmer, he would have to renounce the flat-rate privileges in favor of the general principles of VAT settlement.

Yes, in the case of running by a flat-rate farmer benefiting from the exemption referred to in Art. 43 sec. 1 point 3, also activities other than agricultural activities up to the value of sales (the limit of net taxable sales PLN 200,000 in the previous tax year or PLN 200,000 calculated in proportion to the period of activity), made by this taxpayer does not include the sale of agricultural products from the conducted by him agricultural activities.

So when a flat-rate farmer also runs a business, but is not an agricultural one, e.g. a car repair shop, he may remain a flat-rate farmer running an additional economic activity subject to VAT under general rules.