Value Added Tax (VAT) can be challenging to understand when starting a new business. Set out below are some commonly asked questions which we receive at Lalor & Company.
What VAT means? and can I reclaim it?
VAT stands for Value Added Tax and is an “indirect” tax. It’s self-assessed, meaning businesses must charge and collect the tax on behalf of Revenue.
To be able to reclaim VAT charged, you must register for VAT. As most individuals (and some businesses) are not registered, it is the final consumer of the product or service who suffers the VAT. If an entity (be it a sole trader or company) registers for VAT they can claim a VAT credit for VAT suffered on certain purchases.
If your VAT on purchases is greater than your VAT on sales in an appropriate VAT period, then a refund may be due. If VAT on sales exceeds VAT on purchases, VAT is payable. Both are done through a VAT3 Form which can be filed on Revenue Online Service (ROS).
Is it worth being VAT registered?
There are various reasons why you may elect to voluntarily register. The first simple answer is that you can claim a credit for the VAT suffered on your purchases. Bear in mind however that the purchases must be “wholly and exclusively incurred in the furtherance of trade” – meaning the item purchased must be a valid business expense.
It also shows a level of professionalism as certain suppliers often request a VAT number as part of their system controls. Revenue imposes penalties for VAT fraud and can impose a fine of €4,000 for failing, when obligated, to register for VAT.
Note: You can only register when the company is making sales to Irish customers and/ or is based in Ireland.
What are the VAT thresholds?
You are obligated to register for VAT if you provide services in excess of €37,500 in any continuous period of twelve months. This increases to €75,000 for the sale of products.
In addition, registration is compulsory in the following cases:
Distance sales from outside Ireland into Ireland to the value of €35,000;
Acquisitions from other EU countries to the value of €41,000; and
Foreign trader even where turnover is nil.
What are the different types of VAT?
Cash Receipts Basis
Under the cash receipts basis, a person is liable to account for VAT when payment is actually received. This means you are only required to pay over sales VAT when the money has been paid by the client or customer.
Invoice Basis
This means you are required to pay over the sales VAT when the invoice is issued, giving no regard to when the client actually pays you. This is often an issue for cash flow purposes.
How to qualify for Cash Receipts Basis
You must meet one of the following conditions to qualify for the cash receipts basis
Turnover is unlikely to exceed €2,000,000 in any continuous period of 12 months; or
At least 90% of your turnover is from providing goods or services to customers who are not registered for VAT, or not entitled to claim a full deduction of VAT.
What is the VAT rate 2020?
Exempt
Examples include certain financial, medical and educational providers. There is no VAT on sales and are not entitled to claim back VAT on purchases.
Zero
The main example is providers of children’s clothing and footwear and food and drink. They charge 0% sales VAT but can still claim the full amount of VAT back on their purchases.
9%
This lower rate applies to newspapers, cinemas, amusement parks, sporting facilities. This also includes e-books and electronically supplied newspapers.
13.5%
Examples include hotels, restaurants, take-away food and hairdressing services (since January 2019).
23%
This is applied generally to all goods and services that don’t fit into any of the above categories.
When should VAT returns be submitted?
You must pay and file VAT by the 19th day of the month following the end of each taxable period.
Revenue wishes for returns to now be filed via ROS, which allows for the filing date to be extended to the 23rd of the month. The taxable period is a two-month period commencing on the first day of January. This means the first taxable period in the year would be January/February and the return must be paid and filed by the 23rd of March.
You can apply to the collector-general to have the taxable period for VAT adjusted in the following circumstances
If in a constant VAT refund position, you may apply for the taxable period to be monthly;
One annual return providing you are making equal instalments by direct debit;
If your annual VAT payable is between €3,001 - €14,400 you may apply for a four-monthly taxable period; or
If your annual VAT payable is less than €3,000 you may apply for six-monthly returns.
How do I register for VAT?
The following forms are required for VAT registration:
Form TR1 is used to register an individual, partnership, trust or unincorporated body.
Form TR2 is used for registration if trading as a company.
We would recommend you seek expert advice when it comes to all aspects of VAT. A tax advisor can offer support, guidance and informed recommendations based on your specific business and needs.
HOW CAN LALOR & COMPANY PROVIDE HELP YOU?
With over 30 years’ experience advising on liquidity, cash flow and debt issues, we are well placed to advise you on the best options available. We have extensive experience dealing with banks and other credit institutions and can help navigate your business through these challenging times.