VAT in Ireland
VAT is added on to the value of a product or service at each stage in the production cycle.
“In this world nothing can be said to be certain, except death and taxes” – Benjamin Franklin. And, perhaps, the most insidious of taxes of all is Value added Tax (VAT). As final consumers it is certain that we all pay VAT in Ireland on the products and services we buy; shoes, clothes, entertainment, etc. As the product value is increased by the manufacturer, wholesaler and retailer, tax is charged on each of these increases in value. Hence, the name… Value Added Tax.
When a “taxable” person registers for VAT they become known as an “accountable” person. As an “accountable” business owner you will charge output VAT on your Sales. You will pay input VAT on your business purchases.
Why you need to register for VAT
Generally, if you sell goods (turnover) to a value greater than €75,000 or services to a value greater than €37,500 then you will need to register. This means you will have to charge VAT on all your sales at the appropriate rate.
There may be other reasons why you would want or need to register for VAT even if your sales are not above the threshold.
How to register for VAT
You can register for VAT in Ireland through ROS, the Revenue Online Service. You will need to do this as soon as you have a reasonable expectation that your sales for the year will be above the thresholds; €75,000 if you are a business selling a product and €37,500 for businesses selling services.
You can elect at registration to use the invoice basis or cash basis of accounting for VAT. Under the invoice basis the VAT is due when the invoice is issued (regardless of when you get paid). Under the cash basis you account for the VAT when you actually received cash payment. To be eligible for cash basis you must either:
- Have annual sales of less than €2,000,000, or
- 90% or more of your customers are not registered for VAT
Once you are registered A VAT 3 form will be displayed in your ROS inbox towards the end of each taxable period.
Sales not above the threshold?
You may still need to register for VAT if:
- You may be a sub-contractor and the VAT is withheld (reverse charge VAT) by your principal contractor and paid over to the Revenue on your behalf. If you wish to claim back VAT on your inputs you will need to register.
- Your input VAT is significant and you wish to claim it back. Input tax can be offset against output tax on your return, VAT 3. You will pay the net or be entitled to a refund depending on which is greater.
- You are a professional services business and at some point in a future year you may go above the VAT threshold. Rather than suddenly add on VAT of 23% and charge to your clients you decide to charge for VAT from the outset.
Your obligations if you are registered for VAT
- Determine the correct VAT rate to apply to your product or service. The standard rate is 23% and, also, there are reduced rates; 0%, 4.8%, and 13.5%. Alternatively, certain products or services may be exempt.
- Issue a VAT invoice to your customer on or before the 15th day of the month after the month in which you made the sale. The details on the invoice must include your VAT number, the invoice number and date, your address, the customers address, the sale amount, the VAT rate and amount.
- Make bi-monthly returns to the Revenue on form VAT 3. The return is due by the 19th day of the month following the end of the 2 month tax period for which you are making the return, e.g. January/February due by March 19th. The due date is currently extended to the 23rd day for ROS customers. If you have an annual VAT liability of less than €3,000 then you may be able to make a return for a 6 month period, i.e. 2 returns, rather than the 6 returns, per annum. Where the liability is between €3,001 and €14,400 you may submit a four-monthly return.
- Pay the VAT with the return.
- Complete a Return of Trading Details (VAT RTD) form annually. The VAT RTD form is displayed in your ROS inbox when you enter online the figures for the last VAT 3 of the VAT year.
Getting help with VAT
Your VAT return may or may not be straightforward. If you have just one product or service and the rate applied is standard you could be able to manage the VAT yourself. You do need to keep on top of the accounting and keep very good records.
However, if your situation is more complicated, e.g. you are importing/exporting, using a variety of rates or perhaps applying reverse charge tax… it may well give you peace of mind and save you time and money to seek professional help.
Artisan Accountant can help with with any or all questions you may have regarding VAT in Ireland. The rules can be standard or very complicated depending on your individual situation.