There’s often a lot of jargon used when talking about Value Added Tax (VAT), so it’s important to understand as much of it as possible.
To help you translate the complex language, we’ve identified the most commonly used terms and provided some plain English definitions in this VAT jargon buster. Hopefully you’ll find them helpful.
Accounting or tax period
This is the period of time reported in your VAT return; usually three months.
Goods brought into Ireland from other European Union (EU) countries. This is different from goods brought into Ireland from outside of the EU, which are known as imports.
An incorporated body. For example, a limited company, limited liability partnership, friendly, industrial or provident society.
This is when a business in one EU country sells and ships goods directly to consumers in another EU country. For example, internet sales.
Goods sent to countries outside of the EU.
Goods sent to another EU country.
Goods brought into the EU from countries outside of the EU.
The VAT you pay on purchases, whether supplies, products, goods or services used when running your business. Goods coming in, therefore input VAT.
Revenue has broad ranging powers and will enforce them if you are not compliant. Penalties are normally a percentage of underpaid VAT and can range depending on the case.
There are also fixed penalties for infractions, including but not limited to:
- Failure to register for VAT on time
- Failure to submit VAT returns on time
- Failure to keep proper books and records
- Failure to comply with invoicing requirements
- Failure to charge VAT correctly
If Revenue requests copies of purchase invoices, you must comply. The following are some examples of expenses that are not allowed to be reclaimed, even if the expense relates to the business:
- Expenditure incurred on food and drink, or personal or entertainment services
- Expenditure incurred on accommodation other than qualifying accommodation in connection with attendance at a qualifying conference
- Purchase, hire, intra-community acquisition or importation of passenger cars or other vehicles
- Purchase, intra-community acquisition or importation of petrol (other than as stock-in-trade)
The VAT you charge on sales which your clients pay you. Goods going out, therefore output VAT.
Where a business incurs input tax on both taxable and exempt activities, it is partially exempt and will probably have to carry out calculations to split the VAT incurred on expenditure between what can and cannot be claimed.
Place of supply
The country in which the supply of goods or services must be accounted.
Prepare and file VAT returns
Revenue has set no requirement to submit supporting invoices with VAT returns. However, you can expect queries regarding submissions without invoices attached.
- Respond to queries from Revenue as soon as you can
- Check every supplier’s invoice to ensure it’s valid
- Retain your VAT records for the required time period of six years
- Make sure you charge the right rate of VAT on your products
Taxpayers are required by law to keep full and true records of all transactions that may affect their liability to tax or entitlement. This includes all documents issued or received:
- Credit notes
- Bank statements
- And all other documentation that relates to the purchase or supply of goods or services.
This documentation should be kept on file for six years from the date of the latest transaction to which the records relate, and should be updated regularly.
If you do not have a system in place, make sure you consult your accountant or tax adviser as soon as possible to agree on an appropriate system for the ongoing management of these documents to ensure revenue compliance.
Registering a company or individual for VAT requires the completion of a registration application form for an individual, partnership or unincorporated body (Form TR1) or for a company (Form TR2).
To avoid a Revenue query, all required fields must be filled out.
VAT returns submitted to Revenue must be correct and filed on time, together with the amount due. Failure to submit VAT returns correctly can lead to the payment of interest and penalties.
Businesses receiving goods or services into Ireland from abroad must ensure VAT is being accounted for on a “reverse-charge” basis.
Irish businesses moving goods from Ireland to VAT-registered customers in other EU states must ensure requirements are met in order to “zero-rate” these supplies.
Statistical VAT compliance
File annual returns of trading details. File Intrastat and VAT Information Exchange System (VIES) returns for cross-border EU transactions.
Providing some form of goods or services (normally in return for payment, including barter).
Supply of goods
When exclusive ownership of goods passes from one person to another. For example, I’ve paid for a hot cup of tea, so it now belongs to me.
Any business that buys and sells goods or services and is required to be registered for VAT.
This includes individuals, partnerships, companies, clubs, associations and charities (although some products are not eligible for VAT).
Goods and services sold or supplied by a taxable person that are liable to VAT at the standard rate, reduced rate, second reduced rate, livestock rate or flat-rate addition.
Tax point or time of supply
The date by which you must account for VAT. For goods, this is usually when you send the goods to a customer or when the goods exchange hands. If you provide a service, this is usually when the service is performed or completed.
If you are a startup business, you may need to register for VAT to claim VAT on set-up costs. Talk to your accountant or tax adviser to understand the VAT registration thresholds, and register for VAT if they have been exceeded.
If you wish to cancel your VAT registration, provide Revenue with all the necessary details and confirmations. Reasons for VAT deregistration include:
- you have stopped trading
- your turnover has dropped below the relevant VAT threshold
- you have been registered for VAT in error
- your business has changed
Final thoughts on VAT
If you require professional VAT advice, make sure you consult your accountant or tax adviser as soon as possible.