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Galway Independent

Business

Value Added Tax (VAT)

Wednesday, 17th May, 2017 4:09pm

Value Added Tax (VAT) can often be one of the most complex areas for new businesses to understand and comply with. Ensure that you are correctly accounting for Value Added Tax (VAT) in your business.

Who must register for and pay for VAT?

Although there are some exemptions, all new businesses operating in Ireland may be obliged to register for and account for VAT where they exceed or are likely to exceed the following annual sales thresholds:

• €37,500 in relation to the provision of Services

• €75,000 in relation to the provision of Goods

What rate of VAT is applicable?

This can sometimes be a complex area and is important to get right particularly if you are providing goods and services that come under different VAT rules. The standard rate of VAT in Ireland at the moment is 23%, however there are reduced rates of 13.5%, 9% and 0% which apply to a number of goods and services and so it is imperative to ensure you are applying the correct VAT rate when supplying goods and services.

When is the VAT payable to Revenue?

There are two main methods to account for VAT in your business, namely the invoice basis and the cash receipt basis. Where a business operates on an invoice basis, VAT must be accounted for on the date of issue of the invoice to the customer and not at the date the customer pays for the supply. This can lead to difficulty in cash flow particularly if your customers have long credit terms as you must pay the VAT over to Revenue even though the invoice may not have been settled.

Accordingly, accounting for VAT on the cash receipt basis enables you to account for the VAT only when the payment is received from your customer.

What are the criteria for accounting for VAT on a cash receipt basis?

A trader must fulfil one of two criteria to be on the cash receipts basis. Either:

• Annual turnover does not exceed €2,000,000 or

• Supplies are almost exclusively (at least 90%) made to customers who are not registered for VAT, or are not entitled to claim a full deduction of VAT.

In practice, the cash receipts basis of accounting is mainly used by shops, restaurants, public houses and similar businesses, and by any other person making supplies of goods or services directly to the public.

Agreement must been made with Revenue in order to account for VAT on the cash receipts basis.

Am I entitled to reclaim VAT on my business expenses?

The issue of reclaiming VAT on business expenses is a complex area. As a general rule, VAT cannot be reclaimed on expenses incurred in relation to business entertainment, petrol, food and accommodation.

Therefore, careful consideration must be given to the expenses on which VAT is reclaimed as an incorrect reclaim of VAT may result in additional penalties

In order to claim the VAT back on purchases the invoices must include the suppliers VAT number, full name and address, date of issue, full invoice amount and VAT applied to the transaction. 

How long do I need to keep my VAT records for?

Revenue requires that all taxpayers keep their tax records for a period of 6 years from the date of the latest transaction to which the record relates.

If you would like assistance with your tax affairs, please contact Coll & Co Chartered Accountants, Barna Galway. They can be contacted by phone: 091 592080 or by email: info@coll.ie.

Coll & Co, specialise in Personal tax & Pensions advice. Coll&Co, Chartered Accountants is regulated by their Institute ‘Chartered Accountants Ireland’ to provide Investment Advice.

If you want to subscribe to Coll& Co’s free monthly newsletter, log on to www.coll.ie and fill in the details.

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