Agricultural VAT Compensation and Objective Assessment in 2025: An Insufficient Reform

The new exclusion of the agricultural VAT compensation from the 2025 objective assessment scheme

Order HAC/1347/2024 of 28 November, published in the Official State Gazette (BOE) on 30 November, introduced a relevant, though insufficient, change for rural businesses: the compensation under the special VAT scheme for agriculture, livestock and fisheries (REAGP) is no longer counted as income when calculating the €250,000 threshold for inclusion in the 2025 objective assessment method (modules) for Personal Income Tax.

On paper, this measure may seem like relief for many farmers and livestock breeders. In context, however, it is more of a technical adjustment that fails to address the underlying structural problem: the rigidity of the modules system, the lack of fairness in its application and the growing vulnerability of family farms in rural areas.

A partial change with limited effect

Article 3(1)(b) of the Order provides that REAGP compensation, current or capital grants, VAT and the equivalence surcharge are not counted as income. This corrects the treatment applied in previous tax years. But the change comes late and does not go far enough.

Excluding REAGP compensation is logical and even necessary, because it operates as an implicit refund of input VAT, not as income actually generated by the business. Counting it as income artificially distorted the thresholds and forced many small farms out of the modules system.

A burden that remains disproportionate

In practice, the system’s control rules continue to penalise small farmers and livestock breeders with modest operations, especially where there are family entities, ancillary activities or share-farming arrangements.

Including the income of spouses, parents, descendants and even related entities subject to the income attribution regime creates an artificial aggregation that distorts the agricultural operator’s actual “volume of activity”. Far from supporting the continuity of family farms, this punitive approach pushes many businesses into the direct assessment regime, with unsustainable tax and administrative costs.

Growing legal uncertainty and complexity

The level of detail and the exceptions in Order HAC/1347/2024 reflect growing regulatory complexity, contrary to the simplifying purpose of the modules system. How can the method be called objective assessment if a farmer must analyse accounting books, family members’ aggregated income, special regimes, REAGP exclusions and links between IAE business activity codes to determine eligibility?

This regulatory trend increases legal uncertainty for those with the least technical capacity and access to advice. A rural business cannot reasonably be expected to navigate an increasingly complex framework unaided.

A missed opportunity for reform

Instead of moving towards a fairer, more progressive and realistic system, the Government has introduced minor patches that merely disguise the gap between tax rules and the economic reality of Spanish agriculture. A thorough reform was needed, including:

• A more flexible modules system adapted to the sector’s seasonality and volatility.

• Exclusion thresholds based on actual profits rather than aggregated figures.

• Simpler rules for ancillary and family activities.

• Above all, greater tax protection for family farms, which keep rural communities alive.

Conclusion

The change introduced by Order HAC/1347/2024 is welcome but insufficient. If the aim was to protect small rural producers, the Administration has once again fallen short in its diagnosis and its solutions.

It is time to stop patching the system and rethink it from the perspective of tax fairness, agricultural sustainability and territorial cohesion. Whenever a farmer is forced to leave the modules scheme or close a business because of tax barriers, we all lose—as a country, a society and an economy.