When one is in the early stages of setting up a business, it can be very hard to get your head round such complicated ideas as VAT. But in its simplest form, when you become VAT registered, you effectively become a collection agent for the revenue. You agree that you will pay over the correct amount of VAT to them together with a VAT return every 2-3 months. You promise the revenue that you will keep proper books and records which they can inspect at their request.
Once registered, you get to charge your customers an additional amount called “VAT” on all your sales invoices. You are also entitled to re-claim VAT on the cost of goods and services you incur. You pay the net difference over to revenue at the end of each VAT period. If there is more VAT on your sales, you get to pay VAT, and if there is more VAT on purchases you get a refund of VAT.
Most importantly though, you need to remember that this additional money you collect does not belong to you, it belongs to the revenue. You only get to hold it for a short while as a loan.
Does it apply to me? Should I register for VAT?
Generally speaking this will depend on the nature of your business and your expected level of sales in the year. If you are engaged in the supply of services then if your turnover is going to be greater then €37500, you are obliged to register for VAT and charge VAT on these services. If you are supplying goods then this limit is €75,000.
If you are below this limit, then you do not have to register for VAT although you may opt to do so. If your customers are themselves VAT registered, they are entitled to claim back the VAT you charge them against the VAT that they owe. Thus they will not be too overly concerned by this extra VAT charge. However if your customers are end users, the additional VAT amount will be a cost to them and may make your product or service uncompetitive.
Factors which you should consider before you opt to register are
* Additional administrative costs required.
* Whether or not your customers are able to recover the VAT you charge.
* The ability to claim back VAT on purchases.
* The increased risk of revenue audit.
* Giving your business the impression it is more established or larger then it is.
So it is very important that if you are opting to register for VAT voluntarily, that you consider all the repercussions and think it through carefully. Often times I come across situations where a small perceived advantage is wiped out by a massive disadvantage or large or significant cost. While it is possible to de-register, it is generally not possible to do this retrospectively. Nor can you register for VAT retrospectively,
Rates of VAT
There are generally two rates, 21% and 13.5% currently in operation and it is critical that you establish the correct rate you charge from the start.
Some types of business are zero rated which means they do not have to charge VAT but can reclaim VAT on purchases. This is totally different from a VAT exempt business where no vat is allowed to be charged or reclaimed whatsoever.
If you need any further advice and information about any of the above do get in touch with us at info@irishaccounts.ie
The information contained in this blog is for general guidance on matters of interest only and should not be construed as professional advice or service.As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers.