When you set up your new business in Ireland, one of the important things to understand is Value Added Tax (VAT). This article looks at what is essential for entrepreneurs when starting a company and working out what VAT is required for your products or services. 

There has been a recent increase in startups in Ireland, which is great because it means entrepreneurs are starting to invest in small businesses again. This article should help emerging business owners know everything related to VAT. 

As an Irish company, you might be wondering what VAT applies to your business

VAT is an indirect tax that the Irish Government places on goods and services. The rate depends on how much you consume/use, so when you purchase something, the price typically includes VAT. There are typically three VAT collectors in the supply chain (manufacturer, wholesaler and retailer) who each take care of their own VAT obligations. This means that they calculate and collect the correct VAT amount from their customers and send it to Revenue for inspection.

When Revenue collects VAT from a company and sends the money back, they can reclaim it as appropriate for any VAT that the company had to pay to their suppliers.

What are your requirements to register for VAT?

Whether or not you decide to register for VAT will depend on what you do and the revenue generated by your sales.

First, you need to consider if your product or service is subject to VAT.

Not all products and services are liable for VAT. For instance, medical, training, financial or not-for-profit services usually don’t have to pay for it. If your product or service qualifies for an exemption from VAT, you cannot register for it.

Next, you need to consider if you will exceed the thresholds of €37,500 for consulting services and €75,000 for selling goods.

If you don’t see yourself going over those limits in any given period of 12 months, you don’t need to register.

Thirdly, you may become eligible to register if your product’s sales or service revenues are below the thresholds and you want to make use of significant VAT tax exemptions(e.g. Germany, France, Belgium etc.)

How can I get the rates of VAT in Ireland?

The Retail Prices Index has risen by 6% over the last year. This is due in part to rising inflation and Irish VAT rates are among the highest in Europe. Goods and services such as consumer electronics come into this category, along with professional services such as accountancy. The standard rate of VAT is currently 23%. 

The next lower rate is 13.5%. This is applied to most ‘non-business’ services. Examples include car repairs, cleaning, construction work and domestic electricity supply

About halfway down, the lower rate of 9% is applied to the hospitality sector. That includes things like food and accommodation. Alcoholic drinks are not included, but non-alcoholic drinks are included.

VAT exempt items and VAT zero-rate items are two separate things. The latter needs to have a certain level of tax to be able to be deducted, while the former is basically what its name implies it is exempt from VAT entirely. The net effect for businesses is the same. The zero-rated ones may be able to claim VAT on their purchases

Let us help you meet your country’s specific compliance requirements

If you’re registered for VAT, it’s important to keep records of invoices and receipts to calculate how much money is owed to Revenue. Failure to do so could result in penalties. It is important to note that records should be kept for 6 years whether or not the company provides VAT

The frequency with which businesses file their taxes can vary depending on their agreement with Revenue. Generally, they will pay bi-monthly payments.

If you fail to pay VAT in the appropriate time, or you don’t meet legal obligations, revenue can impose penalties.

What sales are exempt outside Ireland but within the European Union?

When running a business within the EU, you don’t need to charge VAT on goods sold by your company if it’s registered as a VAT exempt company. This is a common misunderstanding for many small business owners in Ireland. 

Do businesses with VAT and VAT-exempt activities need to keep them separate?

 Yes, providers should indicate appropriate VAT rates on all invoice communications. 

What types of refunds can be claimed on personal purchases?

You can only claim VAT on purchases if they were bought for business purposes.

Are meals, accommodation and entertainment VAT reclaimable?

The following purchases cannot be typically claimed for VAT: meals, accommodation, entertainment and petrol for motor cars.VAT can be a difficult accounting requirement for small businesses. That’s why many turn to outside help with their reporting needs – such as professional accountancy agencies. If you need more information about accountancy services or need any help, contact a professional accountancy firm.