One problem many business owners face when it comes to VAT Returns is that they get a big shock when they find out how much VAT they have to pay!
On the 23rd of the month (or close to the deadline) they receive the figure and it’s a big chunk of cash.
In a fast-growing business, VAT can increase substantially from month to month. If you paid €20k in January, you could be paying €40k in March.
Need some help staying on top of your VAT Returns?
Jetbooks can take care of your VAT Returns - completing all the paperwork and ensuring that your returns are processed accurately and on time
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The Certainty of Taxes
Benjamin Franklin, whose likeness appears on US dollar bills, once famously said;
"There are only two certainties in life. They are Death and Taxes".
Even though that was said a few hundred years ago and despite the massive changes in the world it still holds true today.
Direct and Indirect Taxes
In the modern world taxes can be divided into two broad categories, which are Direct Taxes and Indirect Taxes.
The direct taxes are directly deducted from your income by the government while the indirect taxes are levied on the goods and services that we consume as customers – either as individuals or businesses.
VAT (Value Added Tax) is a tax levied on goods and services at the point of purchase and as such is an indirect tax.
The basic formula of VAT for businesses is as follows;
- My business pays a fee (VAT) while purchasing goods or services from my suppliers.
- My business charges a fee (VAT) when selling goods or services to other businesses or individual customers.
- Any surplus between the VAT my business pays suppliers and the VAT my business charges customers is paid by my business to the government on bi-monthly basis.
Whilst this sounds straightforward, in reality there are many schemes, clauses, exemptions and other variables which make VAT extremely complicated.
Read More About VAT;
Here’s how you can stay on top of VAT;
Invoice customers directly from your accounting software. If you do this, VAT will automatically be recorded at the time of sale.
If you use a POS or online platform e.g. Shopify, for sales, connect your accounting software directly to this system so that when you make a sale, everything is recorded in the accounting software automatically.
Post supplier invoices on the same day as you receive them. There are a number of software tools that can be used to automate this posting – we use HubDoc.
Reconcile the bank regularly. If you pay VAT on a cash basis, reconciling the bank will ensure that your VAT figure in your accounts is accurate, and based on what has actually been paid.
If these four steps are completed, you can login to your accounting software and check your VAT figure at any time.
At Jetbooks we use Xero as our recommended accounting software because it allows for the above four steps to be automated.
This saves business owners huge amounts of time and most importantly, makes sure that they always know how much VAT they have to pay.
There are two main accounting methods used to calculate VAT in Ireland:
Cash Accounting: VAT is considered on a per invoice basis i.e. when a payment is received for a good or service or when a payment is made for a good or a service.
Most small business employ this method as it is more effective in keeping track of their cash flows.
In Ireland, if you are using a cash accounting for VAT, it means that your sales are on cash basis but your purchases are still accruals, which means you can claim VAT on purchase invoices before you pay them.
Accrual Accounting: The main difference of this method from Cash Accounting is that the VAT amount is considered when an invoice is raised and not when it is received.
It takes the Receivable or Payable period into consideration.
There are different rates of VAT applicable depending on what goods and services are being provided.
- The standard, base rate of VAT is 23%.
- There is a reduced rate of 13.5% for certain leisure and tourism services, also including construction and photography services.
- Sporting venues and newspapers, including digital books and news, have a preferential 9% rate.
- Agricultural businesses enjoy a 4.8% rate for livestock, which excludes chickens, but includes greyhounds and horse hire.
- Zero rate or exemptions apply to many non-alcoholic beverages, books, children’s clothes oral medicine, certain financial, medical, and education providers.
Jetooks can help you set up your VAT reporting in Xero and ensure your returns are correct and on time - complete the form below to request a quote;
A business first has to register for VAT – there are circumstances that dictate that you must register your business for Vat, however some businesses do so voluntarily for a number of different reasons.
These are the rules for mandatory VAT registration;
- If your business receives E75,000 or more for the sale of goods, or E37,000 or more for the sale of services.
- If the business receives goods of E41,000 values or more from other EU member states.
- If the business receives services from outside Ireland but sells services inside Ireland – regardless of value.
Again, whilst those rules may seem fairly black and white, there is in fact quite a few grey areas.
For example, in an age of globalisation and the breaking down of international borders through digital commerce, exactly how is a business classified as being resident in one country or another?
Are You a B2B or B2C Business?
There are also different rules depending on the type of customers you sell to – do you sell primarily to business customers (B2B), or to private individual consumers (B2C)?
B2B Business VAT
Depending on whether your business customers are in the EU or outside the EU will matter.
Using the ICS (Intra Community Supply) rule, if your EU customers have a VAT number you can apply a 0% Vat rate to these sales, provided you have made the correct VRIES Returns.
VRIES is the VAT Returns Information Exchange System which is used to ensure that 0% VAT rates are applied correctly and are not being abused for profit.
For B2B customers outside of the EU, which now includes Great Britain, there is no VAT, or a zero rate applied. However, it is important to establish that that business is legally resident in a non-EU country or else you may find yourself owing hefty VAT fees if this is shown to not be the case!
B2C Business VAT Returns
Whilst there are exceptions, the general rule is that VAT is charged on goods and services supplied to private individuals at the point of sale in Ireland and other EU countries.
Once again this sounds like a black and white scenario, however, there are sometimes exceptions and there are always different rates charged depending on which country inside the EU you are doing business in.
For those selling to consumers outside of the EU (now including Great Britain), there is no VAT levied on goods and services, however businesses can deduct the VAT from any expenses incurred to make that sale.
It becomes clear that VAT rules and their application are rather complicated, plus they often change – Brexit has made quite a difference to tax and VAT implementation as Britain has moved outside the EU, but with special circumstances for Northern Ireland still in effect when it comes to trade and therefore tax.
Jetooks can help you set up your VAT reporting in Xero and ensure your returns are correct and on-time - click below to request a quote;
VAT Service for Irish Businesses
Jetbooks gives you the confidence that your VAT Returns
will be processed correctly on time, every time!