Practical case

Mr. LHI He is the owner of a rural property where he is dedicated to the activities of agriculture and exploitation of meat sheep, whose heads are mainly fed with the pastures that are produced on the farm itself, activities all of which are included in the special regime of the agriculture, livestock and fishing ( VAT ) of the Value Added Tax ( VAT ). The owner does not carry out any other economic activity.

The products he grows, all of which are intended for sale, consist of corn and various horticultural products (lettuces, beans and chard).
In 2022, the cost of salaried personnel corresponding to a person who has worked full-time in the activity since 2008 has amounted to 18,000 euros. The remuneration paid to this employee in the 2022 financial year, included in the cost of salaried personnel, amounts to 14,000 euros.
In this year, the amount of agricultural diesel required for agricultural activity amounts to 6,000 euros, as documented in the fuel invoices kept by the owner.

Mr. LHI chooses to allocate the income from its activity according to the collection and payment criterion, according to which, the income corresponding to 2022 that appears in the income record book has been the following:

Subject	Cost	Compensation VAT	Total
Total computable income (euros)			108.515
Notes to the table: ⁽¹⁾ In the previous year (2021), income from performing work for other farmers accounted for only 6 percent of the total income volume for that year. Consequently, in 2022, these jobs are considered included in the special regime for agriculture, livestock and fishing for the purposes of VAT and do not constitute an independent activity for the purposes of the objective estimation method of IRPF , and must be computed as a differentiated product or service within the sole agricultural and livestock activity carried out by its owner. ^(Back) ⁽²⁾Since the recipients of said work are other farmers also covered by the special regime for agriculture, livestock and fishing of VAT , the reimbursement of compensation in relation to these operations is not applicable. ^(Back)
Income from the sale of corn	49,000	5.880	54,880
Income from the sale of lambs	27,000	2.835	29.835
Income from sales of horticultural products	17,000	2,040	19.040
Income from work performed for other farmers covered by the special regime for agriculture, livestock and fishing of VAT ⁽¹⁾	4.760	-- ⁽²⁾	4.760

In addition to the above income, Mr. LHI has recorded in the aforementioned register another income amounting to 6,250 euros, corresponding to the amount received in 2022 in the form of direct aid decoupled from the Common Agricultural Policy (CAP).

For its part, the following entries appear in its investment assets register as of December 31, 2021, relating to the fixed assets assigned to the activity for which the owner maintains complete documentary justification:

Element	Commencement of operation	Cost price	Accumulated amortization as of 31-12-2021
⁽¹⁾The recorded acquisition value (depreciable value) does not include the value of the land.^(Back)
Warehouse and stable	10-02-2010	36,000 ⁽¹⁾	22,000
Trailer	10-02-2010	3.155	3.155
Fertilizer machine	10-02-2015	7,500	7.200
Irrigation installation	10-02-2017	2,500	1.015
Tractor, accessories and implements	10-02-2017	28,800	9.800

Finally, during the 2022 financial year, various new farming tools were acquired for 1,260 euros, without the unit value of any of them exceeding the amount of 601.01 euros.

Solution:

Previous issue: performed activities.

Activities carried out by Mr. LHI They are all included in the special regime for agriculture, livestock and fishing of the Value Added Tax, so, for the purposes of applying the objective estimation method of Personal Income Tax , It is a single activity, whose identification code is 1 (agricultural or livestock that may be included in the special regime for agriculture, livestock and fishing of VAT ).

Phase 1: Determination of prior net performance.

As a preliminary operation, it is necessary to determine the eligible income corresponding to each of the products obtained and services provided in the exercise of the activity, taking into account that the amount of direct aid decoupled from the Common Agricultural Policy ( CAP ) must be added to the income from the different crops and farms, in proportion to their respective amounts, without including for this purpose the income from other accessory work and services.

Therefore, the following income will be eligible:

Total income from crops and farms: 54,880 (Corn) + 29,835 (Lambs) + 19,040 (p. horticultural) = 103,755 euros.

Computable income from the sale of corn

Recorded income: 54,880

Proportional share of direct aid decoupled from the CAP (54,880 ÷ 103,755 x 6,250) = 3,305.86

Computable income (54,880 + 3,305.86) = 58,185.86

Computable income from the sale of beef sheep

Recorded income: 29.835

Proportional part of direct aid decoupled from the CAP (29,835 ÷ 103,755 x 6,250) = 1,797.20

Computable income (29,835 + 1,797.20) = 31,632.20

Computable income from the sale of horticultural products

Recorded income: 19.040

Proportional part of direct aid decoupled from the CAP (19,040 ÷ 103,755 x 6,250): 1,146.93

Computable income (19,040 + 1,146.93) = 20,186.93

Computable income from other work and accessory services

Recorded and computable income: 4.760

By applying the corresponding net performance indexes to the income from each of the products and services, the prior net performance is determined as follows:

Product code	Type of product/service	Computable income	Performance Index	Product base performance
Previous net performance (sum)				21,234.55
3	Beef sheep	31,632.20	0.09	2,846.90
6	Corn	58,185.86	0.18	10,473.45
6	Horticultural products	20,186.93	0.26	5.248,60
15	Other accessory works and services	4,760.00	0.56	2,665.60

Phase 2: Determination of reduced net income.

35% reduction in the purchase price of agricultural diesel (DA7 Order HFP /1172/2022, of November 29 - BOE of December 1-)

Since these are purchases of agricultural diesel fuel necessary for the development of the activity documented by the corresponding invoices, this reduction must be applied for the following amount:

35% on 6,000 euros (agricultural diesel amount 2022) = 2,100 euros

Amount of depreciation of fixed assets assigned to the activity .

Using the amortization table contained in Order HFP /1335/2021, dated December 1 ( BOE of December 2), and in accordance with the rules for its application established therein, the amount of amortization that can be deducted from the previous net income is determined as follows:

Heritage element	Acquisition value	Maximum coefficient	Amortizable period	Amortization
Total amortizations	11.185
Notes to the table: ⁽¹⁾On 31-12-2022, the trailer was already fully depreciated, so no amount should be computed for this concept in 2022. ^(Back) ⁽²⁾Since the amount resulting from the application of the maximum linear coefficient is higher than the amount pending amortization as of 31-12-2021, which amounts to 300 euros (7,500 - 7,200), the amortization of the fertiliser machine has been carried out for this last amount. ^(Back) ⁽³⁾They can be freely amortized because their unit value is less than 601.01 euros and because, in addition, the total amount of the new assets acquired in 2022 does not exceed the amount of 3,005.06 euros. ^(Back)
Warehouse and stable	36,000	5%	All year	1,800
Trailer	3.155&	Irrelevant ⁽¹⁾		0
Fertilizer machine	7,500	25%	All year	300 ⁽²⁾
Irrigation installation	2,500	25%	All year	625
Tractor and accessories	28,800	25%	All year	7.200
Farming tools	1.260	100% ⁽³⁾	Irrelevant	1.260

Reduced net income (summary):

Previous net performance: 21,234.55

less: Reduction for the acquisition of agricultural diesel: 2,100

less: Amortization of tangible and intangible fixed assets: 11.185

equal to: Reduced net return: 7,949.55

Phase 3: Correction indices and determination of net module performance.

Only the correction index for the use of salaried personnel is applicable in this case, the cost of which represents 16% of the total volume of income (18,000 ÷ 114,765 x 100 = 15.68%).

Since the percentage in question is between 10 and 20 percent, the correction index 0.90 should be applied. Therefore:

Net module yield: (7,949.55 x 0.90) = 7,154.59 euros

Phase 4: Determination of the net return of the activity.

General reduction: 25% s/7,154.59 = 1,788.65 euros

Comment: the Eighth Additional Provision of Order HFP /1172/2022, of November 29 ( BOE of December 1), raised from 5 to 15 percent the general reduction provided for in the first Additional Provision of Order HFP /1335/2021, of December 1, by which the objective estimation method of the Personal Income Tax and the simplified special regime of the Value Added Tax are developed for the year 2022. However, in order to take into account the sharp increase in costs incurred by the agricultural sector as a result of the war in Ukraine, Article 2 of Order HFP /405/2023 of 18 April, which reduces for the 2022 tax period the net return indices and the general reduction applicable in the objective estimation method of the Personal Income Tax for agricultural and livestock activities affected by various exceptional circumstances ( BOE of 25 April) has again raised said general reduction to 25% for agricultural, livestock and forestry activities that determine the net return by the objective estimation method.
Since there are no extraordinary expenses due to exceptional circumstances or right to reduction for young farmers, the net income from the activity is as follows: 7,154.59 – 1,788.65 = 5,365.94 euros

Phase 5: Determination of the reduced net return of the activity.

Reduction for irregularity

Since no type of income is computed with a generation period of more than two years, nor any obtained in a noticeably irregular manner over time, no reduction is applicable for this concept. Therefore:

Reduced net income from the activity = Net income from the activity (5,365.94 euros)

Determination of the total reduced net income of the activity

Reduction for the exercise of certain economic activities:

Since the income from economic activities is less than 12,000 euros, the reduction provided for in article 32.2.3 of the Personal Income Tax Law applies.

Since it is less than 8,000 euros (5,365.94 euros), the amount of the reduction to be applied is 1,620 euros.

Therefore:

Net income from the activity = 5,365.94

less: Reduction of article 32.2.3 of the Personal Income Tax Law = 1,620

equal to: Total reduced net income from the activity = (5,365.94 – 1,620) = 3,745.94