How to account for VAT in your business

We’ve written this blog post for new business owners in Ireland who aren’t sure about their VAT obligations (or if there are any) after they set up shop.

You might be selling services to another EU country, you might be buying goods from the USA, or a combinations of several factors.

In this post, we’ll explain all you need to know about VAT if you’re running a business in Ireland.

[TL;DR] – Watch the video below ↓ and subscribe to our channel for more great business tips.

What is VAT, and why does it matter?

VAT is short for Value Added Tax. It’s basically a tax on sales. The purpose of the tax is to levy the end-users of products and services. As a business you should not be paying this tax. You should only be remitting this tax to the Revenue Commissioners. This works by charging VAT on your sales (T1) and getting a refund of VAT on your expenses (T2).

There are loads of rules around this simple concept though. A lot depends on who you are, where you are, what you are selling (good/service), and who/where your customer is. There are also different types of VAT rates. You also have to consider filing and payment obligations. Depending on how much you sell, you may not even need to register or charge VAT.
With all this in mind, let’s dive into the detail!

So, when should you register for VAT?

The good news is, not straight away.

There are certain threshold limits. These amounts are over a 12-month rolling period (not calendar year):

  • If you are selling services, the threshold is €37,500
  • If you are selling goods, the threshold is €75,000
  • Receiving services from outside Ireland
  • Receiving goods from other EU states worth more than €41,000

You can voluntarily register for VAT before reaching these limits too.

Why would you do that though? Well, here’s a couple good reasons:

(1) You can claim back a refund of VAT paid on expenses

(2) When you do need to register, your customers won’t get a sudden price hike.

And here’s a couple of bad reasons:

(1) Your customers may not be VAT registered and can’t claim it back

(2) There’s a lot of paperwork involved

It’s best to discuss this with your accountant, they’ll know the best course of action!

Which VAT rate applies to my business?

Here’s a complete list: https://www.revenue.ie/en/vat/vat-rates/search-vat-rates/VAT-rates-database.aspx

And here’s a condensed version:

23% is the standard rate. This is your default position (if it doesn’t fit into any category below).

13.5% is the reduced rate. It’s for tourism-related activities like cafes, restaurants, hotels, cinemas, and hairdressing. For some odd reason building services and photography are also included.

9% is the special rate. It’s for (e)newspapers, e-books and sporting facilities.

4.8% is the livestock rate – just for agriculture. Chickens aren’t allowed though! (greyhounds and hired horses are fine though!)

0% is the nil rate. It includes tea, coffee, milk, bread, books, children’s clothes and shoes, oral medicines for humans and animals. What’s the point in that though? Well it means that businesses under this rate can claim VAT on expenses too.

Exempt: There is no VAT on some financial, medical and educational providers. Those guys can’t claim VAT on expenses neither.

Sounds great, where do I sign up?

To get a VAT number you will need to register for VAT on ROS.ie. The Revenue Commissioners will ask for evidence of the following:

  • business is trading in Ireland
  • you have invoices from suppliers/customers in Ireland
  • owner/director lives in Ireland
  • you have a physical office in Ireland

Why would they not register you for VAT? Well could be you have no employees in Ireland, no customers, no suppliers and no owners/directors living in Ireland.

If your application gets accepted, it might take 28 days to get your VAT number. It may take longer if Revenue starts asking questions about your business (and you take ages to reply).

https://firstaccounts.ie/product/vat-setup-course/

OK, I’m registered, now what do I do?

Here’s where it starts to get complicated and you wish an accountant would just do it for you!

So a lot depends on what you are selling and where you are selling it. The “where” bit isn’t simple either – for example if you sell B2B services to a company in Germany – you are selling services in Germany!

But let’s start with Ireland

Selling goods/services to consumers/businesses in Ireland? No problem, charge VAT on the sale amount. Put that on your T1.
Any goods/services you bought form Irish business go on your T2.

Phew, that was easy!

Ok let’s move on to the EU

This is where it gets tricky:

  • Selling goods to EU consumers: you may need to actually register for VAT in that country – as each country has special ‘distance-selling’ rules. For example, if an Irish company sells more than €35,000 worth of butter to French consumers, they would need to register for VAT in France. Check all the different rates here.
  • Selling services to EU consumers: you will need to charge VAT at the rate that applies in that country -except for telecoms, broadcasting and electronic services – for that you need to register for MOSS (“Mini One Stop Shop”).
  • Selling goods to EU businesses: no need to charge VAT (if they supply you with a valid VAT number and you put it on your invoice). Your customer will self-account for it under the ‘reverse charge’ mechanism. You will need to do a VIES return also*
  • Selling services to EU businesses: no need to charge VAT (if they supply you with a valid VAT number and you put it on your invoice). Your customer will self-account for it under the ‘reverse charge’ mechanism. You will need to do a VIES return also*
  • Buying goods from EU businesses: you need to “self-account” for it. This involves charging VAT on the invoice yourself and including the amount in your T1 and T2 (don’t worry, it results in a nil liability – they cancel each other out).
  • Buying services from EU businesses: you need to “self-account” for it. This involves charging VAT on the invoice yourself and including the amount in your T1 and T2 (don’t worry, it results in a nil liability – they cancel each other out).

*VIES returns and statements you make to Revenue every quarter saying how much you sold to other EU countries.

Ok let’s move on to the REST OF THE WORLD!

  • Selling goods to consumers: don’t charge VAT (if they supply you with a valid VAT or tax number)
  • Selling services to consumers: don’t charge VAT (if they supply you with a valid VAT or tax number)
  • Selling goods to businesses: don’t charge VAT (if they supply you with a valid VAT or tax number)
  • Selling services to businesses: don’t charge VAT (if they supply you with a valid VAT or tax number)
  • Buying goods from EU businesses: you need to pay VAT at the point of import (and claim it back later in your T2)
  • Buying services from EU businesses: you need to “self-account” for it. This involves charging VAT on the invoice yourself and including the amount in your T1 and T2 (don’t worry, it results in a nil liability – they cancel each other out).

That’s great, how do I file my return?

You need to file VAT returns every 2 months, 23 days after the 2 month period ends (e.g. if January/February, file by 23 March). You only get 19 days if you are still using post and paper though (you weirdo!)

If you don’t file on time or make an error, the following fines may apply:

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Uh-oh. I may have filed late or made an error, help!

Talk to your accountant – or even better, talk to us!

So there you have it – hopefully the whole VAT thing is a little more clear and a little less scary to you. Of course, if you are still boggled by it or just want to make sure it is done right, book a free Discovery Call with us today.

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Mark Sweetman, ACA

Mark Sweetman, ACA

As a Chartered Accountant I've built my experience working within the SaaS and digital technology industries, growing early-stage businesses from the inside. I help digital entrepreneurs understand their companies and ensure they have all the tools they require to succeed and thrive. I love adopting new tech solutions and making use of these to increase efficiency within our clients' businesses.