Are you a start-up worried about how VAT is going to impact your business? Not sure how to register for VAT? Are you a business that relies on the British market and are concerned about how Brexit is going to affect VAT? In this article, we want to cover everything from the basics of VAT to more complex issues surrounding VAT and Brexit.
The Basics: What is Value Added Tax?
VAT is a tax that is added to goods and services. Almost every product or service we purchase will have VAT added to the price.
Once a business owner registers for VAT they must charge VAT on their service and/or products. A business owner is obligated to account for their VAT in VAT returns and pay VAT liability to revenue, which is usually required by Revenue every two months.
New business owners can oftentimes find VAT a little confusing as different VAT rates apply to different industries. On top of that, different guidelines and rules apply to how VAT is charged in Ireland, within the EU and crucially in Britain.
The Basics: How to register for VAT in Ireland
A common misconception about VAT is the belief that you must register for VAT immediately after being incorporation. This isn’t always true.
Generally, a new business is under no obligation to immediately register for VAT. In fact, a business needs to meet certain criteria before it starts charging VAT on products and services.
Limited companies and sole traders can register for VAT and we recommend getting in contact with of our Swords accountants before you do so.
The Basics: What criteria does a business have to meet before registering for VAT?
1. Before registering for VAT a business must be making a minimum of €37,500 per year on the sale of services or €75,000 on the sale of products.
Important: this sales threshold is calculated over 12 months, not the calendar year.
2. A business must register for VAT if they are receiving goods from another EU member state. These goods must be over the value of €41,000. This is known as intra-Community Acquisitions.
3. If your business is receiving services that are outside Ireland and you’re using these services in Ireland you may need to register for VAT. We recommend speaking to one of our business start-up experts for more information on this point.
Voluntarily Registering For VAT
Some businesses decide to voluntary register for VAT. A business does this when they deal with other businesses that are charging VAT. Once registered, the business with have to file bi-monthly VAT returns to revenue. Again we highly recommend speaking to one of our professionals who will advise if voluntarily registering for VAT is the right option for your business.
VAT Rates in Ireland
Different services and products in Ireland are charged at different VAT rates. As you may be aware, the standard VAT rate in Ireland is 23% on services. However, there are other VAT rates a business should be aware of:
1. 23% – This is the standard rate. All goods and services, in the standard rate category are charged at this rate
2. 13.5% – this is the reduced VAT rate. This rate is used for business in the tourism sector. Building services, hairdressers and photography also fall into this rate.
3. 9% – This is the special VAT rate for sporting facilities and newspapers. This rate also applies to e-books and newspapers supplied on electronic devices.
4. 4.8% – This is the livestock rate. It applies to all livestock except chickens. Greyhounds and the hire of horses are also charged at the 4.8% agricultural VAT rate.
5. 0% – The zero percentage VAT rate applies to exports like tea, coffee, books, bread, milk, children’s clothes, and oral medicines for animals and humans.
6. VAT Exempt – Certain medical, educational and financial providers are exempt from VAT.
VAT and Brexit
Following Brexit, the rules and rates surrounding cross-border transactions will change.
The VAT effects of Brexit will likely include:
– Any business that incurs UK VAT will be required to file the 13th Directive paper claims.
– The supply of products to consumers in the EU from Ireland, generally known as “Distance Sales” may now be treated differently when products are supplied to Britain
– Post-Brexit Britain will no longer fall within the One Stop Shop eurozone and therefore British suppliers will be obligated to register in another EU member state under the EU mini one-stop-shop scheme.
– UK Tourism based businesses like travel agents may need to register for VAT in EU countries that they intend to sell travel-related services in.
The VAT implications of Brexit are far-reaching and will likely affect just about every Irish industry. Therefore it’s more important than ever to speak to a professional accountant to ensure your business is meeting its VAT obligations.
The above is just a quick overview of VAT and we urge business owners to get in contact with our team of Dublin accountants with any questions they may have.
