What is VAT (Value Added Tax) ?
VAT is a transaction based tax that we all suffer on an ongoing basis. There are special rules applicable to business and property matters. We do not intend to provide a detailed guide to the operation of VAT. It is an extremely complex tax particularly in relation to property transactions.
Any person running a business either as a sole trader, partnership or through a limited company must register for VAT purposes with the Revenue Commissioners if the turnover of the business exceeds certain levels and the products they deal in are liable for VAT.
Certain business activities are exempt from VAT, e.g. medical practice, insurance brokers, and such business are not required to register for VAT regardless of their turnover levels.
There are two levels of turnover which must be exceeded before you are obliged to register for VAT.
Where services only are provided e.g. freelance consultants and annual turnover is likely to exceed €37,500 then you must register for VAT and charge VAT on your sales.
A higher threshold of €75,000 applies where the business is selling goods as distinct from services.
V.A.T. Rates
The two most common rates are
13.5 %: Applies to property sales and certain other services.
21% Applies to most products and services not qualifying for the 13.5% rate.
Certain goods and services qualify for a 0% rate of VAT.
How to Calculate your V.A.T. Liability
Simply multiply the net amount by 1 + VAT % (i.e. multiply by 1.23 if VAT is 23%) and you’ll get the total chargeable to the customer.
For Example
Amount on which Vat is chargeable €1,000 by 1.23 = €1,230
Vat @23 % €230
Total chargeable to the customer €1,230
When do I pay and file my Vat returns?
Once you are registered for VAT purposes the Revenue Commissioners will issue VAT return forms to you. The calendar year is divided into six VAT periods i.e. January/February, March/April, May/June and so on for the year. However a new simplified payment arrangement for VAT has been introduced by the Revenue. The new arrangement consists of biannual filing and payment where total VAT payments for the year are €3,000 or less, and fourmonthly filing and payment where total VAT payments for the year are between €3,000 and €14,000.The future schedule for VAT payments and returns will be as follows:
Total VAT payments for the year of less than €3,000
| Tax Period | Frequency | File & Pay |
| July /December 2010 | BiAnnual | BiAnnual VAT 3 return and payment (if due) by 19th January 2011. |
| January/June 2011 | BiAnnual | BiAnnual VAT 3 return and payment (if due) by 19th July 2011. |
| July/December 2011 | BiAnnual | BiAnnual VAT 3 return and payment (if due) by 19th January 2012. |
Total VAT payments of between €3,000 and €14,000 for the year
| Tax Period | Frequency | File & Pay |
| September/December 2010 | Four Monthly | 4 Monthly VAT 3 return and payment (if due) by 19th January 2011. |
| January/April 2011 | Four Monthly | 4 Monthly VAT 3 return and payment (if due) by 19th May 2011. |
| May/August 2011 | Four Monthly | 4 Monthly VAT 3 return and payment (if due) by 19th September 2011. |
| September/December 2011 | Four Monthly | 4 Monthly VAT 3 return and payment (if due) by 19th January 2012. |
Payment and filing requirements will continue on a similar basis thereafter.
When a business is VAT registered it is collecting VAT from its customers and also paying out VAT on its costs.
The VAT return form is very simple and easy to complete. The return form should be sent directly to you by the Revenue.
You should obtain VAT invoices for all business expenses incurred on which VAT was charged to you. These invoices are needed to complete your VAT return.
You divide your invoices by date order into the relevant VAT period e.g.
| Invoice date 28th February | VAT period January/February |
| Invoice date 1st March | VAT period March/April |
If you qualify for the new arrangements for completion of VAT returns as explained above use the new longer VAT period as appropriate.
Summarise the total amount of the VAT incurred according to your invoices for the VAT period in question, which is called your VAT on Purchases. The total is entered in Box T2 on the VAT return form.
Assuming you account for VAT on the cash receipts basis your sales VAT will be based on your receipts from debtors for each VAT period. This is known as your VAT on Sales. The total VAT is entered in Box T1 on the VAT return form.
You then deduct the VAT on Purchases figure from the VAT on Sales figure and the result will either be a refund due to you (Box T3 on the VAT return form) or an amount owed to the Revenue (Box T4 on the VAT return form) depending on the amount of your VAT claims for the period.
As an alternative to completing VAT returns during the year you can elect to go on a yearly VAT return combined with a monthly direct debit in favour of the Revenue. You will have to estimate your VAT liability for the year ahead and allowable VAT expenses and then balance out the figures in the yearly return. Any overpaid VAT would of course be repaid after the end of the tax year. In practice most people stay with the completion of the bimonthly VAT returns as it ensures that the correct amount of VAT is paid during the year and also ensures that the job is dealt with on an ongoing basis rather than having to work out a yearly return after the end of the year.