VAT has become more of a focus area for Irish Revenue in recent times. This can range from VAT return aspect queries to full Revenue audits. It is therefore vital for businesses to be up to date with the latest VAT rules.
VAT is a tax on transactions rather than on profits or income and because the tax is applied to turnover rather than profit, failure to operate VAT correctly can have very significant implications for businesses. Businesses can often find VAT a difficult tax to manage as it contains more exceptions than standard rules.
Set out below are the VAT questions that most businesses need to be asking –
- Is the business obliged or entitled to register for Irish VAT?
VAT is a self-assessment tax and the responsibility rests with the trader to register for VAT once he is obliged to do so. VAT legislation also provides that certain traders may elect to VAT register.
- Are the correct VAT rates being applied to all supplies of goods/services?
The standard rate of VAT, currently 23%, applies to most goods and services. There are also reduced rates, 13.5%, 9%, which apply to certain goods and services. The 0% rate applies to certain goods and services such as oral medicine, certain books, certain food/drinks. Certain goods and services are exempt from VAT.
- Is the business (and those responsible for VAT compliance) fully aware of VAT recovery rules?
Only VAT on costs incurred for business purposes can be reclaimed. VAT legislation also sets out a list of expenses on which VAT cannot be reclaimed even where the expense relates to the business (food/drink, cars, petrol, accommodation other than “qualifying accommodation”, entertainment, personal services for directors/employees).
Also, in relation to VAT recovery where a business has reclaimed VAT on an invoice but the invoice remains unpaid six months after the date of the reclaim, a VAT adjustment is required.
- Does the business have an obligation to file VAT statistical returns, INTRASTAT and VIES?
Although no VAT liability arises in respect of these returns, Revenue can impose penalties for failure to file them. Revenue can also delay the payment of VAT refunds where there are other tax returns outstanding or unpaid liabilities under other tax heads.
- Has the business filed the VAT Return of Trading Details?
All VAT registered persons are required to file the VAT Return of Trading Details following the end of their accounting period (in most cases is the financial year). The VAT RTD details the purchases and sales for the year, broken down by the VAT rate. Failure to file the VAT RTD can have significant implications, such as resulting in delays in issuing VAT refunds or tax clearance certificates or even triggering Revenue audits.
- How does the business deal with the purchase of goods or services from outside Ireland?
Businesses acquiring goods or services in Ireland from abroad must self-account for Irish VAT as appropriate on the reverse-charge basis through the Irish VAT return. Typically, however this can be done in a VAT cashflow-neutral manner where the business is engaged in fully vatable activities.
Where foreign VAT is incurred on purchases, has this foreign VAT been recovered?
- Does the business have VAT obligations outside Ireland?
Specific VAT rules exist to determine where supplies of goods and services are regarded as taking place for VAT purposes. In certain circumstances an Irish business may be required to be VAT registered in a jurisdiction outside of Ireland, in particular in relation to transactions involving goods.
- Does the business supply goods where at least 75% of its total turnover is derived from the exports of goods (intra EU or outside EU)?
If so, has the business applied to Revenue to obtain a VAT Section 56A Authorisation to obtain goods and services from Irish suppliers and import goods without incurring a VAT charge?
If the business already holds a VAT Section 56A Authorisation, does the business monitor their entitlement to the relief?
Set out above are a number of the common difficulties that businesses encounter in dealing with VAT. By determining the answers to the above questions and seeking specialist advice where issues are identified, the risk of errors can be significantly reduced. We also recommend keeping up to date with any changes in VAT legislation, training staff on a regular basis, and putting in place a comprehensive VAT compliance manual.
Should you have any queries regarding the above or would like our assistance with any indirect tax matter, please contact Ruth Linehan, Indirect Tax Director.