Understanding if you need to register for VAT and how to do it

“Do I need to register for VAT?” – it’s a question that’s asked by sole traders and people running their businesses time and again. But what’s the answer? In this article, we help you to answer the question.

Turnover (sales) thresholds have been set by the Revenue Commissioners to determine if you do need to register.

If you operate a services business (such as hairdressing) and your turnover is above €37,500 then you do need to register. If you operate a business where you supply goods (such as a publican), once turnover is above €75,000 you also need to register.

For those setting up in business for the first time, while all clients hope their turnover exceeds these thresholds for obvious reasons, it may take a year or two to become established and do so.

You can therefore elect not to register for VAT until you feel 12 months of turnover will be at the levels defined above. Once you reach that level you must register with Revenue.

Registration is simple enough and is done through the ROS (Revenue Online Services) system.

Filing VAT returns

VAT3 returns can be filed every two, three, four, six or 12 months, and are due on the 19^th of the month following the last day of the VAT period end due.

So if you register for VAT on 1 September, and operate returns on a bi-monthly process (every two months), your first VAT3 will be for September/October, and will be due on 19 November.

The returns basis for VAT is an important option when registering for the first time.

Cash received basis vs invoice basis

You can either elect to choose the cash received basis or invoice basis to account for VAT.

Cash basis

This means you will file your VAT returns based on VAT monies received (for turnover) and paid (for purchases and expenses) in the taxable period.

Receipts would equate to customers paying you for goods and services and payments would be monies paid to suppliers etc.

Invoice basis

The invoice basis means you file your VAT returns based on what date VAT appears on your sales invoices and purchases invoices for the period. The downside to this option, in my opinion, is cash flow.

If, for example you invoice a customer on 31 October, and you give that customer 30 days’ credit, you still have to hand over the VAT to Revenue on 19 November, even though you may not get your invoice until 30 November at the earliest.

Read more about VAT

• VAT jargon buster: Key phrases for your business to know
• Accounting for VAT on a cash received basis
• When to submit your VAT return
• How to account for VAT when buying from abroad

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Registering for VAT for other issues

Registering for VAT can also be a strategic decision for a small business. If the turnover is not going to exceed the thresholds, you need to ensure you are not registering for VAT for the wrong reasons.

• Charging someone VAT is fine, if they are also registered for VAT as there is no extra cost to them. But, if for example you are a tradesman, and the bulk of your sales are to the general public who are not registered, you are adding 13.5% to your sales price and this could price you out for the market.

• Filing VAT returns may have extra business costs, such as bookkeeping fees for maintaining the records and filing the VAT3s.

• If you are not registered, you can write the full cost of an expense against your income, for example telephone costs can include the full amount including the 23% VAT.

If you have registered for VAT and realise you do not need to be, you can simply go online and de-register at any time. You will still need to file any returns outstanding up to that point, though.

Don’t ignore the returns even though you may not have traded – file them as zero. If you have a liability but are not in a position to pay, file this too on time.

Ignoring tax returns just leads to you being highlighted on the tax system as an issue, which won’t be ignored. Not filing could result in a revenue audit and/or penalties and interest.

Talk to your accountant if you have any concerns or issues with VAT and remember to invest in a good accounting software package to keep you on top of your VAT at all times.

Editor’s note: This post was originally published in January 2014 and has been updated for accuracy and relevance.