What is Value Added Tax (VAT)?
VAT is a tax that is added on to the value of goods and services at every stage of production or distribution. As a consumer, most of the goods or services that we purchase have VAT included in the price.
As a business owner, you charge VAT on your products but you must be registered for VAT first.
We often get questions from our clients about VAT. For example, how do I get a VAT number, when do I start charging VAT and how do I get reclaim VAT? Let’s start by answering your most common questions…
Do I need to register for VAT?
You don't need to register for VAT straight away.
As a new business, you don't need to register for VAT straight away. There is certain criteria your business must meet before you start charging VAT on your products. It's important to note that both Sole Traders and Limited Companies are eligible to register for VAT and you should consult with an expert about registering for VAT before you do so.
VAT registration only becomes mandatory when you reach certain sale thresholds.
The two main sale thresholds for VAT are; €37,500 for the sale of services and €75,000 for the sale of goods. This means that if you sell the threshold amount or above, over the course of 12 months (not calendar year), your business is required to register for VAT. You register for VAT through Revenue and once you reach the threshold, you need a VAT number so you can start charging VAT on your products.
You can choose to voluntary register for VAT.
You may elect to register for VAT if they deal with a lot of other business that charge VAT. The downside to this is that you need to file bi-monthly VAT returns to Revenue. This could be a considerable extra cost for a small business. Speaking to one of our professionals will help you decide if you should register for VAT before you reach the threshold.
Why would I voluntary register for VAT?
Some businesses choose to register for VAT because:
- You can claim back the VAT you have paid on your purchase if you are VAT registered and have business expenses
- You can add VAT onto your products or services from the beginning instead of having to change your prices or add VAT later on
We always recommend discussing your situation with your accountant before deciding whether you should elect to register early or not.
What are the VAT rates in Ireland in 2019?
The VAT rate is the percentage of VAT you will charge on your product or service. In Ireland, the Standard rate of VAT is 23% and there are three further VAT bands at reduced rates of 13.5%, 9%, 4.8%, 0% and exempt.
- 23% is the standard rate of VAT. All goods and services that do not fall into the reduced rate categories are charged at this rate.
- 13.5% is the reduced rate of VAT. This rate covers tourism-related activities including restaurants, hotels, cinemas, and hairdressing. Building services and photography also fit into the bracket for this rate.
- 9% is a special rate for newspapers and sporting facilities. This also includes e-books and electronically supplied newspapers.
- 4.8% is the livestock rate of VAT – specifically for agriculture. It applies to livestock (excluding chickens), greyhounds and the hire of horses.
- 0% (Zero) VAT on all exports, tea, coffee, milk, bread, books, children’s clothes and children’s shoes, oral medicine for humans and animal. Please note, providers charge a 0% VAT rate and are entitled to claim VAT on their purchases.
- Exempt: There is no VAT on certain financial, medical or educational providers.
You can see a complete database of VAT rates on the Revenue website here.
How to register for VAT?
Any business that is based in Ireland or is providing a service or goods to Irish customers can register for VAT.
To receive a VAT number in Ireland you will need to register for VAT with Irish Revenue. During the VAT registration process, Revenue will want to see evidence that you have trade with Ireland.
Based on the evidence you submit Revenue decides whether to accept or reject your application. So what are the reasons your VAT application could be accepted or rejected?
Things to note before you apply for a VAT number
You need proof you require a VAT number
- The business has trading activity in Ireland
- You have invoices from Irish suppliers and customers
- The business owner/Director lives here
- You have a physical office in Ireland, a Virtual Office will not be accepted
Reasons why Revenue might reject your application
- You’re not hiring employees in Ireland
- No customers in Ireland
- You are not trading with any suppliers in Ireland
- The Directors are not based in Ireland
How is VAT charged?
Example: The fee for our Startup Offer is €129 per month and the VAT charge on accountancy services is 23%. Therefore, the client pays €158.67 for the Startup Offer per month. Accountant Online then pays €29.67 to the Revenue Commission when we file our next VAT return.
Provided that the client is VAT registered, they can then claim back the €25.07 by submitting a VAT return.
How long does it take to receive a VAT number in Ireland?
Once Revenue has received your VAT application, it can take 28 working days before you have your VAT number, and this is without any enquiries from Revenue.
Revenue may need you to answer questions about your trade or submit additional evidence before you receive your VAT number. If they do, they will usually give you 30 days to reply to an enquiry, but it’s important to reply to them as soon as possible.
A VAT return outlines the invoices that you have charged VAT on and the invoices that you have claimed VAT on for a given time period.
When you are VAT registered, you must file your VAT3 returns by the 19th day of the month following the end of each taxable period or by the 23rd day of the month if you file via ROS (Revenue Online Service).
The taxable period is a two-month period (bi-monthly) that starts on the first day of January.
For example, the return for VAT period 1 (1st January – 28th February) must be filed on the 19th of March or by the 23rd of March if filed online using ROS.
If you do not file your VAT returns or under-declare your VAT, you can incur fines and penalties.
How do I cancel VAT registration?
If you wish to cancel your VAT registration, you should notify the Irish Revenue Commissioners as soon as possible. Your VAT registration can be cancelled if:
- Trade has ceased,
- Your turnover has fallen below the appropriate turnover threshold,
- VAT registration has been submitted in error,
- The nature of your business has changed so that you are no longer making taxable supplies.
What if I elected to register for VAT?
As discussed, you may elect to register for VAT even if you do not reach the VAT threshold. If you have elected to register for VAT you may cancel your registration by notifying the Revenue Commission.
Please note, cancelling your VAT registration may result in VAT liability. You must pay Revenue any excess of VAT refunded to you over the tax period. Any excess of VAT refunded from the time you elected to register for VAT or during the 3 years prior to cancellation.
If you fail to notify your Revenue office, return forms and demands for estimated VAT liability will continue to issue automatically.
Tax registration for startups
Are you a newly incorporated company in search of Tax Registration? We have a unique Startup Offer for accountancy services for new Limited Companies for just €129 per month + VAT.
We can advise you as to when to register for Tax and liaise with Revenue on your behalf during the application process.
Check out our Startup Offer for a full list of services provided.