The basics of VAT in Ireland

About VAT in Ireland

VAT is a sales tax and is paid by the final consumer of goods and services. Anyone who buys goods and services pays VAT. It is included in the price of goods and services that we use every day. It is also charged on goods and services that are imported into Ireland. VAT is a complex and difficult topic. I am illustrating the basics of the VAT system in Ireland here but urge you to speak to your accountant if you are in doubt about your obligations.

Each party in the supply chain (for example manufacturer, wholesaler and retailer) act as VAT collectors. They collect the VAT from their customer and can reclaim if appropriate. This is best illustrated with an example; the manufacturer would charge VAT on their sales to the wholesaler. The wholesaler would charge VAT to the retailer and reclaim the VAT they paid to the manufacturer. The retailer would then charge VAT to the final customer and reclaim VAT paid to the manufacturer. The VAT paid by the final customer is not reclaimed and the retailer returns this VAT to Revenue.

Why register?

All sole traders or companies who meet the criteria below are obliged by law to register for VAT and to charge VAT on their sales. They collect the VAT on behalf of Revenue and return it to Revenue through their VAT returns. VAT returns are usually done bi-monthly (every 2 months) but there is a facility where you might be allowed to opt to do them every 4, 6 or 12 months if you satisfy certain criteria. It is also important to note that there is an additional return that need to be done annually called the Return of Trading Details.

Some people also opt to register to be allowed to claim input VAT on their purchases but I would recommend seeking some professional advice before doing this. If you want to reclaim VAT on your start-up costs when starting a business, you must register for VAT before you start trading.

Who needs to register?

Both sole traders and companies must register for VAT if they reach the registration thresholds. You will be obliged to register for VAT if you exceed the following thresholds;

• When supplying services, if your turnover is expected to exceed €37,500 in a 12 month period.
• When supplying goods, if your turnover is expected to exceed €75,000 in a 12 month period.
• When supplying both goods and services, the €75,000 threshold can be used where 90% of the turnover comes from goods.
• When making acquisitions from other EU member states, if your turnover is expected to exceed €41,000 in a 12 month period.
• When making distance sales into the state, if your turnover is expected to exceed €35,000 in a 12 month period.

It is important to note that you need to register before exceeding this threshold so always keep on eye on your projected income for the next 12 months.

Rates of VAT

• Standard rate of VAT is 23% and this is charged on most goods and services. Some examples include professional fees such as legal or accountancy fees, furniture, motor cars, chocolate, certain photography services ( for example provision of providing photos on a disk, uncommissioned pieces).
• Reduced rate of VAT is 13.5% and applies to certain goods and services such as certain photography services (for example editing work, prints, commissioned pieces), repairs, cleaning and maintenance services.
• Second reduced rate of VAT is 9% and this applies to newspapers, periodicals, certain eBooks. Other services are also covered by the second reduced rate until 31st December 2021 after which the rate for these services will revert back to the reduced rate. These other services temporarily covered include hairdressing services, hot takeaway food, some catering and restaurant supplies and hotel lettings.
• Livestock rate of VAT is 4.8% and applies to livestock.
• Zero rate of VAT is 0% and includes certain food and drink, certain medicine, certain books, children’s clothes, animal feed, exports and intra community supplies to VAT registered persons in other EU member states. When supplying zero rated goods or services, you can opt to register for VAT and reclaim VAT on purchases without having to charge VAT on your sales.
• Exempt services include certain types of vocational training, medical services, educational services, banking, insurance, live performances. When supplying exempt services, you cannot register for VAT and reclaim VAT back on your purchases.

Please note that this list is for illustration only and is not exhaustive. Revenue have a huge database on the VAT rates for specific items here.

How do I register for VAT?

Registration is done through your Revenue Online Services (ROS) account. Go to Manage Tax Registrations and Register for VAT. Ensure to click Submit once it goes into your requests as this step is often overlooked. Alternatively your accountant or tax agent can do this for you.

VAT is a very complex subject. I have listed the basics here but I would highly recommend speaking to a professional before commencing with VAT registration to ensure you have the correct understanding of your obligations.

Please note changes to the e-commerce VAT rules from 1st July 2021 – see updated blog post on these changes here.

Disclaimer: This post does not constitute financial advice and is for information and educational purposes only. This blog does not constitute an accountant/client relationship.