As we have one of the highest standard rates of value added tax of any country in Europe, it is worth taking the time to understand how the various rates might apply to your business. Most goods and services attract the standard rate of VAT (23%), although repairs, catering and hairdressing are examples of services to which the reduced rate of 13.5% applies. The second reduced rate (9%) applies mainly to newspapers and periodicals, while examples of zero-rated goods and services include medicines, clothing and footwear for children under 11 and exports.
There is also a 4.8% rate specifically for agriculture – which applies to most types of livestock, greyhounds and the hire of horses – while farmers who are not registered for VAT are entitled to charge a flat-rate addition of 5.4% on sales to VAT-registered customers.
Exempt or zero-rated?
Certain economic activities, including financial services, health, education, public transport and sporting events are VAT exempt. However, VAT exempt services are not the same as zero-rated services.
A business is not entitled to register for VAT in respect of the supply of exempt goods and services unless it also makes taxable supplies. A company solely engaged in providing vocational training, for example, would not be able to reclaim VAT incurred on expenditure in connection with the supply of that service.
A supplier of animal feedstuffs would similarly not charge its customers VAT, but because it is selling zero-rated goods it could reclaim any VAT it paid on taxable business purchases.
Location, location, location
Distance sales are when goods are bought online by a customer in another EU state who is not registered for VAT and the Irish supplier has responsibility for the delivery of these goods. Irish companies selling to private consumers in other parts of the EU are obliged to charge Irish VAT.
If total sales into a specific country exceed that country’s VAT threshold, the Irish company will have to register and account for VAT there.
Irish companies may also have the option of registering and accounting for
VAT in an EU state where their sales don’t exceed the threshold for mandatory registration.
Business or pleasure?
Revenue are keen to ensure that business owners don’t divert goods that they have bought for their business (and on which they reclaimed any VAT they paid at the time) to their personal use without repaying the appropriate amount of tax.
An obvious example would be where the owner of a mobile phone shop used a device originally purchased for sale for their own use. In this instance, the business owner would have to account for the VAT on this change of use in their sales return.
However, businesses can choose not to apply normal VAT rules in order to avoid double taxation of goods. This is particularly relevant for dealers in second-hand goods as it allows them to pay VAT on the difference between the sale price and the purchase price of an item.
When in doubt…
Using a cloud-based accounting solution such as Big Red Cloud simplifies the VAT reporting process considerably, but there will still be occasions when the appropriate treatment of goods or services in a transaction may not be entirely clear. In such cases, a business may lodge what is known as a letter of expression of doubt.
Revenue will determine whether the application is genuine and if it accepts that there is legitimate doubt around a transaction it will inform the applicant of the correct application of the law. Businesses can appeal if they feel their application has been unfairly dismissed.
