Value Added Tax (VAT) is a minefield for many people in business and it is something we are asked about by our clients on a regular basis. Most people ask us how they can avoid it!
VAT THRESHOLDS
It is not possible to avoid VAT however if your business generates a turnover from the provision of services to the value of €37,500 in any continuous 12 month period. This threshold is increased to €75,000 for the sale of products.
REGISTER VOLUNTARILY
You can of course elect to voluntarily register for VAT. There are a few reasons why some businesses do this. The simple answer is so that one can reclaim a credit for the VAT suffered on their purchases. The purchases must be “wholly and exclusively for the purposes of the trade” – this means that the item being purchased must be a valid business expense. The downside of this is that the business must also charge VAT on its sales.
VAT RATES
There are four main VAT rates in Ireland:
| VAT RATE | Examples |
|---|---|
| Exempt | Certain financial, medical and educational providers do not charge VAT on sales or reclaim VAT on their purchases. |
| Zero | Main example is provision of food but there are many exceptions to this specified in legislation. |
| 13.5% | Examples are building services. Charge 13.5% on sales and may reclaim VAT on purchases. |
| 23% | This rate applies to all goods and services that don’t fit into the other categories. |
**There is a special reduced rate of 9% for tourism related activities introduced in Budget 2014.
DEREGISTRATION FOR VAT
While the above is just a basic introduction to VAT, the purpose of this article is to explain the vat deregistration procedure which can be costly if not planned correctly. This is very important as not many people are aware of its implications.
While you can deregister for VAT at any time, it is not as easy as you would think as a repayment of VAT recovered from Revenue may arise.
What happens is that when an individual or company is seeking to deregister for VAT, the amount of VAT paid to the Revenue on sales will be compared to the amount of VAT that has been reclaimed on inputs or purchases for the period of registration or 18 vatable periods, which is three years before the deregistration – whichever is shorter. The Individual or Company will have to refund the difference, if any to the Revenue Commissioners.
Therefore the first step before deciding whether you will deregister for VAT or not is to determine if you have reclaimed more VAT from the Revenue Commissioners than you have paid on your sales over the last three years in most cases.
If you require our assistance in determining in relation to this please do not hesitate to contact us. If there is a lot of money at stake it might be worth leaving the deregistration until a later date.
