Dealing with VAT can be a struggle for businesses, and particularly startups. Your first focus as a business owner should the rate of VAT for what you’re selling.

It is crucial that you comply with the Revenue Commissioners with regard to VAT. To avoid costly mistakes and VAT liabilities, you should understand your obligations.

Revenue queries

So how can you ensure your VAT obligations are being met? These examples should help you:

  • VAT registration: Understand the VAT registration thresholds, and register for VAT if they have been exceeded. If you are setting up a business, register for VAT as soon as possible to claim VAT on set-up costs, if appropriate.
  • Preparing and filing VAT returns: Even though there is no requirement to submit supporting invoices with VAT returns, queries can be expected regarding those invoices. Respond to queries as soon as you can, and check every supplier’s invoice to ensure it’s valid. Retain your VAT records for the required time period of 6 years, and charge the right rate of VAT on your products.
  • Statistical VAT compliance and other tax returns: File annual returns of trading details. Also, be sure to file Intrastat and VIES returns for cross-border EU transactions.
  • Authorisations issued by Revenue: Monitor the expiry date of the relevant authorisation, and apply for renewal in sufficient time. Inform Revenue if your business no longer qualifies for an authorisation, as penalties may be imposed.
  • VAT de-registration: Provide Revenue with all necessary details and confirmations.
  • Professional advice: For more complicated activities or transactions, ensure professional tax advice is taken.

“Interest and penalties may be imposed unless VAT returns submitted to Revenue are correct and filed on time.”

VAT in focus

Here are the main issues to consider with regard to VAT.

Registration

Registering a company or individual for VAT requires the completion of a registration application form for an individual, partnership or unincorporated body (Form TR1) or for a company (Form TR2). All required fields must be filled out to avoid a Revenue query.

A trader who has not exceeded the VAT registration thresholds may still register for VAT, even though there is no obligation to do so. Before doing this, a trader should compare the benefits of recovering VAT on costs compared to the obligation to charge VAT to customers and compliance costs.

“Businesses acquiring goods or services in Ireland from abroad must ensure VAT is being accounted for on a ‘reverse-charge’ basis.”

Returns

Interest and penalties may be imposed unless VAT returns submitted to Revenue are correct and filed on time, together with the payment of VAT due.

Non-deductible items

When Revenue requests copies of purchase invoices, be sure you comply with its rules. The following are some examples of expenses that are not allowed to be reclaimed, even if the expense relates to the business:

  • Expenditure incurred on food and drink, or personal or entertainment services
  • Expenditure incurred on accommodation other than qualifying accommodation in connection with attendance at a qualifying conference
  • Purchase, hire, intra-community acquisition or importation of passenger cars or other vehicles
  • Purchase, intra-community acquisition or importation of petrol (other than as stock-in-trade)

Accounting for ‘reverse-charge’ VAT

Businesses acquiring goods or services in Ireland from abroad must ensure VAT is being accounted for on a ‘reverse-charge’ basis. Similarly, Irish businesses supplying goods from Ireland to VAT-registered customers in other EU member states must ensure requirements are met in order to ‘zero-rate’ these supplies.

Retention and storage of records

Taxpayers are required by law to keep full and true records of all transactions that may affect their liability to tax or entitlement to deductibility. This includes all documents issued or received by the taxpayer in the course of business, including:

  • Books
  • Invoices
  • Credit notes
  • Receipts
  • Bank statements
  • Other documentation that relates to the purchase or supply of goods or services.

This documentation should be kept on file for six years from the date of the latest transaction to which the records relate, and should be updated regularly. You should consult with your accountant or tax adviser as soon as possible to agree on an appropriate system.

Interest and penalties

Revenue has broad ranging powers, and will enforce them if you are not compliant. Penalties are normally a percentage of underpaid VAT, and can range depending on the case. There are also fixed penalties for infractions, including but not limited to:

  • Failure to register for VAT on time
  • Failure to submit VAT returns on time
  • Failure to keep proper books and records
  • Failure to comply with invoicing requirements
  • Failure to charge VAT correctly

 

4 Action Points

1

Understand Revenue rules to ensure you are compliant. This will avoid any unnecessary complications to your business.

2

Understand VAT and your obligations. VAT can be a tricky area for many business owners, so make sure you comply.

3

Get professional help. You may have a good system in place for routine accounts, but you should seek professional help from your accountant or a qualified tax adviser on VAT compliance.

4

Review your processes. Ignorance will not be a defence when it comes to tax compliance. Avoid risks by asking an accountant or qualified tax adviser to review your internal accounts system.