With the ever increasing volume of queries being raised by the Revenue Commissioners with regards to VAT compliance, this article takes a step back look at the essential basics of VAT compliance so as to reduce the risk of costly mistakes and VAT liabilities for businesses.

VAT is chargeable on the supply of goods and services within the state by a taxable person in the course of furtherance of any business carried on and on goods imported into the State from outside the EU.

REGISTERING FOR VAT

An Irish established trader is required to register for VAT in Ireland if its turnover from VATable activities exceeds or is likely to exceed the following thresholds:

Supply of Services                                                                 €37,500

Supply of Goods                                                                    €75,000

Persons making Intra-Community acquisitions                           €41,000

Persons making mail order or distance selling into the state        €35,000

In the case of supplies in the State and Intra-Community acquisitions, registration is obligatory where the appropriate turnover threshold is exceeded or is likely to be exceeded in any 12 month period. The distance sales threshold is based on a Calendar year. A trader may also trigger a requirement for VAT registration where goods and services are acquired in Ireland from abroad, irrespective of value.

A trader who has not exceeded the VAT registration thresholds may elect to register for VAT, even though there is no obligation to do so. Before doing so, a trader should weigh up the benefit of recovering VAT on costs against the obligation to charge VAT to customers and the increased compliance costs. Traders that elect to register for VAT can cancel their registration at a later stage, however a VAT clawback may arise if the amount of VAT accounted for on their sales is less that the VAT recovered by them from Revenue.

PREPARATION & FILING OF VAT

VAT returns must be filed by the 19^th of the month in which they fall due or if filing on line by the 23^rd of that month. VAT returns are, in the majority of cases, required to be filed with Revenue on a bi-monthly basis. Interest and penalties may arise unless the taxpayer ensures that the VAT returns submitted to Revenue are correct and are filed on time together with payment of any VAT due.

CASH BASIS

The following have the option to account for VAT on the basis of cash received in a taxable period rather than on the basis of sales:

1. Where 90% of a person’s turnover is derived from taxable sales to unregistered person
2. Where a person’s taxable supplies has not exceeded and is not likely to exceed €2million with a continuous 12 month period

INVOICE BASIS

VAT should be accounted for at the time a VAT invoice is issued or at the time goods or services are supplied

TAX DEDUCTIBLE

Provided that the goods and services to which such tax relates are used for the purpose of the taxable supply of goods and services, VAT on the following inputs is deductible in computing liability:

• Supplies of goods and services from another accountable person
• Goods imported by accountable person
• Self-supply of goods

TAX NOT DEDUCTABLE

A taxpayer may not deduct VAT on any of the following, even when the goods and services are acquired or used for the purposes of a taxable business:

• Expenditure incurred on food or 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 motor vehicles
• Purchase, Intra-Community acquisition or importation of petrol (other than as stock-in-trade)

INVOICING

Taxpayers should actively monitor and check whether purchase invoices received and any sales invoices required to be raised meet all of the legislative requirements of a valid VAT invoice. The main requirements are summarised below:

• Supplier’s name, address and VAT registration number
• Customer’s full name and address
• Sequential number – this must uniquely identify the VAT invoice
• Date of Invoice
• VAT rate(s) being charged on supply
• Quantity and nature of goods supplied
• Description of goods/services being supplied
• If the supplier is making a “reverse-charge” supply where the foreign customer is obliged to account for any local VAT, the invoice must quote the customer’s non-Irish VAT number and state on its face that a reverse-charge applies
• The amount of VAT being charged must be stated in Euro

Where any one of these requirements is missing from the invoice, Revenue is entitled to assess penalties on the supplier and to disallow the VAT claim on this invoice for the customer. Accordingly, where a taxpayer receives an invoice that is not a valid VAT invoice, the taxpayer should request that the supplier reissue that invoice to include the relevant details.

REVERSE CHARGE

Businesses acquiring goods or services in Ireland from abroad must ensure that VAT is being accounted for as appropriate on the “reverse-charge” basis. This means that the business customer has to account for the Value-Added Tax (VAT) on the purchase of the goods from the other Member State. This is often an easy item to forget when completing the return, as the entries in Boxes T1 & T2 could be VAT cash-flow neutral. This requirement is particularly important where the taxpayer receiving the goods or services has less than a full VAT recovery entitlement, as a VAT cost then arises. Under this system:

• the supply is zero-rated in the Member State of dispatch as an intra-Community supply
• the purchaser is liable for VAT on the acquisition of the goods
• the purchaser must account for the VAT in their VAT return for the period in which the acquisition took place at the rate of VAT applicable in their own Member State
• if they are entitled to an input credit for the VAT payable on the intra-Community acquisition this is reclaimed in the same VAT return and
• the purchaser must account for VAT on any subsequent supply of the goods in the appropriate VAT return.

ADJUSTMENTS FOR VAT ALREADY CLAIMED

There are circumstances where you may have to return reclaimed VAT. You must repay the VAT to Revenue if you have not paid for the goods and services within 6 months of reclaiming the VAT from Revenue. You must repay the VAT in your VAT return following the 6 month period. If you subsequently pay for those goods or services, you can then reclaim the VAT included in the payment.

RETENTION AND STORAGE OF RECORDS

Taxpayers are required by VAT law to keep full and true records of all transactions that may affect those taxpayers liability to tax or entitlement to deductibility. This would normally include all documents issued or received in the course of its business, such as books, invoices, credit notes, receipts, bank statements and any other documentation that relate to the purchase or supply of goods and services in the course of its business. Such documentation should be kept on file for a period of 6 years.

INTEREST & PENALTIES

Revenue is entitled to impose interest and penalties on any overdue liabilities. From 1 July 2010 the rate of interest that Revenue is entitled to impose is 0.0274% per day until the VAT is paid.