VAT in Ireland: Top Business Tips (Part 1)


VAT isn’t something for business owners to fear – but it does need to be navigated proactively and with informed confidence. Here is part 1 of our series about VAT in Ireland: top business tips.

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For a great many businesses, working with VAT is an inevitability. Even small, recently formed operations are obliged to apply it to the services or goods they supply – and plenty will also need to register for VAT in respect of the overseas-sourced goods and services they buy in. This guide will help business owners navigate the sometimes choppy tax waters.

Where to start with VAT

Paula Travers is the founder of Travers Accounting Services in County Donegal, which specialises in supporting SME owners. She says: “Every business owner needs to consider the expected turnover in the business over a 12-month period. If a company primarily supplies services, the turnover threshold to trigger VAT is just €37,500, and if the company is generating nearly all turnover through supplying goods, the threshold is double that at €75,000 – but it’s still a low bar.”

What this means is, for many active business owners, it’s crucial that they register for VAT as soon as possible.

Recommended Reading: Importing To Ireland - A Guide For SMEs

Why VAT registration is necessary

There is something more strategic at stake here than just keeping to the rules, as Travers explains.

“If there is no possibility that your business will breach the relevant threshold, you still have the option to choose to register for VAT. Why would you do that? Well, for one, if you have a significant amount of input VAT – that is, VAT your business has paid to suppliers. This can’t be reclaimed unless your business is VAT-registered. So that’s one relevant factor.

“But probably the most crucial thing to consider about voluntary registration is whether or not your customers are VAT-registered. If they are, they can reclaim the VAT you charge them. If they aren’t, they’re the end consumer in the chain and cannot reclaim the VAT. It then becomes an irrecoverable cost to them, which in very practical terms could pitch your prices at an unattractive level when compared to competitors that are not VAT-registered and not therefore obliged to charge VAT on sales.”

How to go about registering for VAT

If those are some important considerations, the good news is that registering for VAT is as simple as filling in an form with the Revenue’s revenue online service (ROS).

TR1 is the relevant registration process for individuals, sole traders, trusts and partnerships, while TR2 is for limited companies.

“It can be straightforward for some businesses to understand their situation with regard to VAT, but for many it’s more of a minefield”

John Stewart, Director, Indirect Taxes Group, Deloitte Ireland

Remember to follow up promptly if you don’t hear that all is well with your application. The onus is always on the business owner to ensure a registration is successful and up and running.

Pitfalls and penalties

The flip side to timely VAT registration – not doing so – is worth touching on here. What happens if you don’t register and then breach the VAT threshold? What are the risks to your business?

“You become liable from the point you should have registered,” says Travers. “I have to say, it’s simply not worth it [not to register]. If you’ve made a mistake and not charged VAT that should apply, you become liable and penalties could soon rack up.”

John Stewart, director, indirect taxes group, at Deloitte Ireland, adds: “If you don’t register for VAT, or make a mistake and haven’t paid enough at the right time, you’ll have to pay interest on the late payments as well as fixed penalties, too.”

And Stewart points out that VAT registration, payment and recovery are not always simple either.

“It can be straightforward for some businesses to understand their situation with regard to VAT, but for many it’s more of a minefield,” he says.

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Understanding VAT rates

The rate you pay depends on the type of business, which means there’s definitely scope to get things wrong.

In the food sector, Stewart notes that many everyday foodstuffs are zero-rated for VAT, but some are taxed at the standard 23% rate or at the reduced or second reduced VAT rates (9% or 13.5%).

“Goods like alcohol, ice cream, crisps and confectionery have the standard VAT rate of 23% applied, and reduced-rate VAT applies to flour- or egg-based bakery products, but those are just the basics. Beyond that, the context for how certain food and drink is being supplied governs the VAT rate, and there are plenty of corners of food supply where interpretations come into play.”

One example of the complexity in this space lies in food supplements. When does a supplement count as a food and when does it count as ‘ergogenic aid’ for a sportsperson? It’s a distinction that will make a difference to the VAT rate – and sometimes the answer will have been made by a court where a company has at times challenged an interpretation handed down by the Revenue.

“For companies operating in this space, it’s probably best to get a professional or legal opinion as well as contacting the Revenue directly. Gather as many facts as you can to ensure you are applying a fair rule correctly,” says Stewart.

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