VAT question

jrey1981

Am not currently vat registered as have always gone under a colleagues company.

However, as a sole trader with ad-hoc sales now and then, the advantages would be that I would benefit from VAT-free purchases from UK suppliers and also getting vat back on expenses such as phone and internet bills, etc.

Are there any disadvantages such as risk of unwanted interest into my affairs (ie an audit by the Revenue) or any other financial considerations I should be aware of?

antoinolachtnai

Yes, you would have to charge your customers VAT, so the total price would be higher. As a result you might be less competitive.

jrey1981

That is true to an extent. I sell on to businesses anyway who are themselves VAT registered, so unfortunately this would add to the cost for the end customer.

The 21% extra might be a bit of a bitter pill for them to swallow I think, so I will have to give it a miss for the moment.

antoinolachtnai

If you are selling to vat-registered businesses, the VAT won't make any difference to the end customer.

kluivert

you can only register for vat if your above a certain limit

13.5% the limit is 25600e a year in sales (without vat) for services
21% the limit is 51000e a year in sales (without vat) for products

antoinolachtnai

I don't think that's true, but I am happy to be proven wrong.

Under these thresholds, I think you can elect to register for VAT or not.

The 13.5 and 21 percent rates don't really have anything to do with it. The standard rate for services is 21 percent.

Savman

antoinolachtnai wrote:

I think you can elect to register for VAT or not.

Correct

TommyK

antoinolachtnai wrote:

I don't think that's true, but I am happy to be proven wrong.

Under these thresholds, I think you can elect to register for VAT or not.

The 13.5 and 21 percent rates don't really have anything to do with it. The standard rate for services is 21 percent.

I thought 21% was the standard rate for products... and 13.5% is for services?

Tommy.

Reyman

I'm charging 21% VAT for services.

I think the 13.5 % rate is for a very limited range of services eg. Electricity and Gas.

Revenue don't like anything that reduces their 'take'

antoinolachtnai

Revenue just collects the amount that is due to them.

13.5 percent tends to be for labour-intensive, building-related services. There are also some 0-rated goods which are rated that way more for political reasons than anything else.

The EU likes rates to be 15 percent or more. Countries have to make their case and get agreement from the others for the categories they are charging less on.

kluivert

Sorry there was an error in my original post, as pointed out 13.5% is not necessarily charged on the provision of services.

A more explainatary note may help:

You must register for VAT if your annual turnover from the supply of taxable goods and services exceeds or is likely to exceed the following annual limits:

• €51000 in respect to the supply of goods
• €25500 in respect to the supply of goods

If your annual turnover is less than this, as said before you can elect to register for Vat.

Goods and Services are charged at different rates. In order to satisfy yourself that you charging the correct rate please consult with the revenue, either through their website or by telephone.

Many people ask the question of what rate they should charge when it is not obvious, is it 21% or 13.5%.

The revenue have a test to determine which rate you are to use. Its called the 2/3 rd's Rule. In its simplest terms if your trade is installing safes in homes or offices, and you supply and install a safe for an individual, if the cost of supply the safe is greater than 2/3rd's of the total invoice then its deemed to be a supply of goods and charged at 21%. If the cost of supplying the safe is less than 2/3rd's it is deemed to be a supply of services and charged at 13.5%.

Now some services are charged at 21%, ie accounting and legal. Insurance services are exempt, so check with the revenue as to which category you fall into. Basic guidle outlined below:

The standard rate of VAT is 21%:
This applies to all goods and services that are not exempt or liable at the zero or reduced rates

Reduced rate of VAT - 13.5%:
This applies to certain fuels, buildings and building services, certain newspapers etc.

Reduced rate of VAT - 4.4%:
This applies to livestock, live greyhounds and the hire of horses.

Zero-rated goods and services:
These include exports, certain food and drink, oral medicine, certain books etc.

Exempted goods and services:
These include financial, medical and educational activities.

sflinter

kluivert wrote:

• €51000 in respect to the supply of goods
• €25500 in respect to the supply of goods

I presume one of these means "the supply of services" and the other "the supply of goods". Which is which?

Carb

sflinter wrote:

I presume one of these means "the supply of services" and the other "the supply of goods". Which is which?

The lower figure is supply of services

Cal

Carb wrote:

The lower figure is supply of services

That is not necessarily true.

This is the breakdown of VAT in Ireland.

What rate is VAT charged at?

The standard rate of VAT is 21%:
This applies to all goods and services that are not exempt or liable at the zero or reduced rates

Reduced rate of VAT - 13.5%:
This applies to certain fuels, buildings and building services, certain newspapers etc.

Reduced rate of VAT - 4.8%:
This applies to livestock, live greyhounds and the hire of horses.

Zero-rated goods and services:
These include exports, certain food and drink, oral medicine, certain books etc.

Exempted goods and services:
These include financial, medical and educational activities.

If you need further information on the rate at which VAT is charged on goods or services please contact your Revenue office.

Cal.

chump

Cal wrote:

That is not necessarily true.

He's talking about the VAT thresh-hold where you HAVE to register for VAT. The lower is for services...

I've a question, fairly simple but just want to confirm it...

If setting up a new company or business, and you do not register for VAT... and then you buy in equipment and services, let's say;
4 Desks & chairs setup for you
4 PC's installed and networked
You lease a premises, and start paying bills...

Now you are not registered for VAT, so do you pay VAT on all these expenditures and are not in the position to ever reclaim (or pass on) the VAT liability?

Also then you start selling your service ... let's say you're selling online websites to the irish/european market to companies that enable them sell goods online. How does VAT work here? I charge these companies VAT and then pass that on? But I have no input VAT to minimise what I do eventually pass on?

SouperComputer

If setting up a new company or business, and you do not register for VAT... and then you buy in equipment and services, let's say;
4 Desks & chairs setup for you
4 PC's installed and networked
You lease a premises, and start paying bills...

Now you are not registered for VAT, so do you pay VAT on all these expenditures and are not in the position to ever reclaim (or pass on) the VAT liability?

You may know this already, but just to clarify for others:

VAT registered or not you still pay the VAT on the purchase!

Basically your VAT return is:

VAT taken in on Sales - VAT Paid on pruchases = VAT payable to Revenue.

IE, its a credit system. You dont really get the VAT back as such.

Also then you start selling your service ... let's say you're selling online websites to the irish/european market to companies that enable them sell goods online. How does VAT work here? I charge these companies VAT and then pass that on? But I have no input VAT to minimise what I do eventually pass on?

Basically, you charge them Irish VAT unless they provide you with a Valid VAT number in their country, in which case they get VAT relief on the spot. If they dont provide a VAT number to you, you charge them VAT and its up to them to claim the VAT back from revenue here.

Im not sure what the figure is, but if you cross a threshold of sales to another EU state, revenue in that state may force you to get a VAT number there. This is why komplett for example have an Irish VAT number.

Unless you are exceeding the turnover figures for irish VAT, I would say for most people, dont get VAT regged. It makes managing your money much simpler and keeps your cashflow up which is crucial.

chump

chump wrote:

Now you are not registered for VAT, so do you pay VAT on all these expenditures and are not in the position to ever reclaim (or pass on) the VAT liability?

Also then you start selling your service ... let's say you're selling online websites to the irish/european market to companies that enable them sell goods online. How does VAT work here? I charge these companies VAT and then pass that on? But I have no input VAT to minimise what I do eventually pass on?

My question is, you are not Vat regged.
You buy the items I listed and you pay VAT on them as you aren't regged.
Now you sell a service for 100euro, but you charge VAT at 21%, so you charge 121 euro, and you turn 21euro over to the REV.
If, however, you have paid tax on the items you purchased of 19euro, and you are allowd to claim this VAT back, do you forward 2euro over to the REV, or the whole 21euro?

If you were registerd you wouldnt have paid over the 19euro in the first place?

SouperComputer

My question is, you are not Vat regged.
You buy the items I listed and you pay VAT on them as you aren't regged.
Now you sell a service for 100euro, but you charge VAT at 21%, so you charge 121 euro, and you turn 21euro over to the REV.

If you dont have a VAT number, you are not eligible to charge VAT. So any price you sell at well effectively be VAT relief at source for customers.

If, however, you have paid tax on the items you purchased of 19euro, and you are allowd to claim this VAT back, do you forward 2euro over to the REV, or the whole 21euro?

You pay the €2 to revenue, if you are regged. However you will still have to pay the full price, including VAT at the time of purchase.

If you were registerd you wouldnt have paid over the 19euro in the first place?

Regardless of weather you are regged or not, you will have to pay €19 on the day of purchase as you will be charged VAT on the spot. Its not VAT back really, its just a credit on the VAT you owe revenue on sales.

Exeptions to this are if you are a charity of a certain status or if buying from another EU state, the suppiler takes your VAT number and has the systems set in place to give you VAT relief at source.

chump

SouperComputer wrote:

If you dont have a VAT number, you are not eligible to charge VAT. So any price you sell at well effectively be VAT relief at source for customers.

So if I have a small shop that sells pullovers, and I don't have a turnover more than 51k a year - I don't charge VAT?

My question really is - if you're registered and setting up, can you claim input VAT on the goods purchased to enable you to trade, in my example computers, network service, etc...
If however, you are not registered, you pay VAT on these items, and receive no input credit and you won't be charging VAT when you sell on your product.

Therefore in the first case you make a saving
In the second case you don't

??

Carb

chump wrote:

So if I have a small shop that sells pullovers, and I don't have a turnover more than 51k a year - I don't charge VAT?

My question really is - if you're registered and setting up, can you claim input VAT on the goods purchased to enable you to trade, in my example computers, network service, etc...
If however, you are not registered, you pay VAT on these items, and receive no input credit and you won't be charging VAT when you sell on your product.

Therefore in the first case you make a saving
In the second case you don't

??

The benefit really depends on who your selling to. If your sales are to the public who are unlikely to be VAT registered, your prices are going to be 21% more expensive, for you to receive the same value. If you were selling to a VAT registered entity, it won't matter to them if you charge them VAT. Is it worth saving the VAT on your start up costs if you are going to have to charge everyone 21% more. That said though,you would also be claiming the VAT back on your stock, so there would be scope to drop your sales price a little.

Its a bit like the way some landlords register for VAT. They can claim the VAT back on the property, but they really have to charge less rent (before VAT) to let the property.