What is VAT?
Value-Added Tax (VAT) is a consumption tax applied to the purchase price of goods and services paid by a customer. The system is designed so that the VAT is typically paid by the ultimate end customer, but if you are an unregistered business you will also be liable for the tax. Whether or not an entity (individual or business) must register for VAT depends on its activities and sales volume.
Do you or your business need to register for VAT?
To begin, you must determine whether the product or service you offer is VATable. Most are, but there are notable exceptions, such as medical, training, financial, and non-profit services. Second, consider whether you will exceed the €37.5k threshold for selling services and €75k for selling goods. You do not need to register if you do not anticipate exceeding these in the next 12 months. Finally, if you are below the thresholds and want to claim significant VAT on purchases or trade with other EU member states, you may always choose to register.
What are the VAT Rates and Categories?
The headline rate in Ireland is 23%, and it applies to the majority of goods and services, such as consumer electronics and professional services. The following rate, 13.5%, is applied to the majority of ‘personal’ services, such as car repairs, cleaning, construction work, and your domestic electricity supply. The main rate applicable to the hospitality sector, such as meals and lodging, but not alcoholic beverages, is 9%. Finally, the zero rate applies to most unprepared foods, books, and non-luxury items (attempting to apply VAT on children’s shoes brought the government down in 1982). The distinction between VAT exempt and zero-rated VAT is often confusing the layman. The net effect is the same for sales, but zero-rated businesses can, for example, claim VAT back on purchases. –
Do you account for VAT on an invoice or cash received basis?
VAT registered businesses have the option of accounting for VAT on the cash-receipts or invoice/accruals basis if their turnover is below €2m or 90% of sales are to non-registered customers. In all but extraordinary circumstances the business should select cash-receipts basis as it allows them to only pay VAT over as the customer pays rather than on invoice. The Irish system has a slight quirk in that the cash receipts basis still allows VAT on purchases to be claimed on invoice.
Do you need to be up-to-date with Compliance for your VAT Registered Businesses?
YES, VAT registered businesses must keep adequate records to determine the amount they owe or are owed in respect of each different VAT rate. The bar is high in terms of maintaining correct records but most simple spreadsheet or accounting systems can cover this off. Records must be kept for 6 years regardless of whether registered for VAT or not. Returns must be filed on a bimonthly of four-monthly basis or as agreed with Revenue. We recommend clients paying a monthly amount by DD and availing of a single annual return.
Is there any Industry Specific Rules and Special Schemes for VAT?
Unfortunately in Ireland we do not have a flat rate scheme like in the UK. This simple scheme gives businesses a lower flat rate to apply to sales but disallows any VAT on purchases. The net effect for most businesses is that they pay less and administration time and costs are lower. Here we do have various schemes for different types of business like retailers and the ‘margin’ scheme for car sales and travel operators for instance. VAT on property is an unbelievably complex area although it doesn’t often impact on regular businesses. New EU rules for VAT have brought in complex mechanisms like the ‘reverse charge’ basis for intra-EU services and which is also used in construction services subject to RCT.
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Other VAT notes
- VAT is an EU tax. Sales outside the EU are not relevant for VAT
- Sales outside of Ireland but within the EU between VAT registered businesses are generally at 0% although different compliance rules apply
- Businesses with VAT and VAT exempt activities can pro-rate or separate the two activities for VAT purposes.
- VAT can only be claimed on purchase invoices if for business purposes
- VAT on purchases for hospitality (meals and accommodation), entertainment and petrol for motor cars are never claimable
- Some large multinationals in Ireland can avail of S.56 zero rating of goods. This is why it is possible to find that invoices to some large companies do not attract VAT.
- Where goods and services are provided together for instance in construction there is a 2/3 rule that the supplier applies to identify the correct VAT rate. (if materials are more than 2/3 of the price then the higher VAT should apply to the whole sale)