VAT question - freelance journalist

ThirdEdition

Am a freelance journalist and am a bit flummoxed (freaked) by the question of VAT. I know that a freelancer earning 35k in a year must pay VAT of 21%. I know that I can subtract vat paid on certain expenses but as someone who works from home, these expenses are minimal (broadband, phone bills, bit of petrol but not much more really).

I realise that I am meant to charge VAT but most of the time, a newspaper tells me what they will pay for an article, eg, let’s say a payment of 250 euro for a piece. Some papers ask me to send on an invoice but usually, the money is sent into my bank a/c and I receive a receipt for same. Am I meant to ask the editors I deal with to add an extra 21% to the total? Can’t imagine them agreeing to that, in which case I am paying an extra 21% on all my earnings.

It doesn’t make sense to me and I am hoping that I have misread the situation in some way. Any advice/info appreciated.

Thanks in advance

ThirdEdition

Have just came aross some info from a UK site, says that "because (almost) all clients are registered for VAT, the work of a VAT-registered freelance does not cost them any more. They claim back the VAT on their inputs from VAT-registered freelances, just as these claim back the VAT on their inputs."

http://www.londonfreelance.org/feesguide/gevattxt.html

Pardon my ignorance but don't really get it - if neither the writer nor the publisher is financially burdened by VAT, then how does the government profit from it?

Should I send new invoices for all the work I have done in 2008 , ie, invoices for VAT?
What about work done for European publications - would they too attract a VAT levy?

Again, thanks in advance for any replies.

Mr. Incognito

Hi there,

There are two methods of accounting for VAT as a sole trader- the invoice method and the cash receipts method. In your position as the pay is infrequent you'd be better off accounting on cash receipts basis. The Reveue recently published an update (last March) you'll find it under www.revenue.ie, leaflets and guides and go to VAT. Her it is anyway.

Value-Added Tax
Moneys Received Basis Of Accounting
General
This Information Leaflet sets out which VAT-registered traders may opt to account for VAT on the basis of moneys received from their customers instead of the normal method based on the issue of invoices to their customers, and how such traders may apply to operate this scheme.

Description of moneys received basis
VAT is normally accounted for on the invoice basis, i.e. VAT is payable on the total sales invoiced in the relevant period regardless of whether or not the trader has been paid for the supply in that period. However, certain traders can opt for the moneys received (cash) basis of accounting, under which the trader is not required to account for VAT until payment for the supply is actually received.

Traders who may opt for moneys received basis
The traders who may opt to account for VAT in this way are:-

VAT-registered traders whose supplies of goods or services are almost exclusively (at least 90%) made to unregistered persons. This would apply in practice mainly to retail outlets, public houses, restaurants, hairdressers and any similar type of business, or
VAT-registered traders whose annual turnover(exclusive of VAT) does not exceed or is not likely to exceed €1,000,000 (with effect from 1st March 2007).
It should be noted that the use of this basis of accounting in no way removes from a VAT-registered trader his or her obligations as regards the issue of invoices and other documents, the maintenance of records, lodgment of returns etc.

The supply of goods and services to a person who is not entitled to full deduction of the VAT charged in respect of that supply may be treated as a supply to an unregistered person, for the purposes of determining whether a person qualifies to use the cash basis (i.e. for the purpose of the 90% rule).

Examples of such supplies are:

the supply of a car;
provision of accommodation or entertainment services;
the supply of goods to an exempt body;
the supply of goods to a person who is registered for VAT solely in respect of his intra-Community acquisitions or Fourth Schedule services provided that in each case the person in receipt of the supply is not entitled to a full deduction of the VAT charged.
Excluded transactions
Transactions between connected persons are excluded from the moneys received basis of accounting. VAT on any transactions between such persons must be paid by reference to the normal invoice/sales basis. VAT on property transactions must always be accounted for on the invoice basis.

Application and authorisation
A taxable person who wishes to account on the cash basis, should apply in writing for authorisation to his or her local Revenue District setting out the following details: –

name and address;
VAT registration number, where appropriate;
the nature of the person’s business activities;
the percentage of turnover from taxable supplies, if any, which related to supplies to unregistered persons for whichever of the following periods is the shorter:
the period of 12 months ended on the last day of the taxable period prior to the application, or
the period from the commencement of business activities to the last day of the taxable period prior to the application;
an estimate of the percentage of the turnover from taxable supplies to unregistered persons for the 12 months from the start of the taxable period during which the application is made;
level of annual turnover, if under €1,000,000.
An authorization to account for VAT on the cash basis has effect from the start of the period during which it is given, or from a subsequent date if so specified.

Persons who are applying for VAT registration for the first time, and find that they are eligible for this basis of accounting should indicate in the appropriate box on the application form (TR1 or TR2) whether or not they wish to use the moneys received basis.

VAT liability on moneys received
A trader who has opted to account on the moneys received basis is liable for VAT at the rate applicable at the time the goods or services are supplied and not at the rate applicable when payment is received, if a change in rate has taken place in the interim.

Moneys received by a VAT-registered trader include any sums:

credited to the trader’s account in a bank, building society or other financial concern,
received by another person on the trader’s behalf, or
paid to Revenue by a third party to the trader’s account in accordance with the Commissioners’ power of attachment,
deducted as Professional Services Withholding Tax by an accountable person. See professional Services Withholding Tax below).
deducted as Relevant Contract Tax deducted by a principal contractor or a sub-contractor. See Relevant Contract Tax below.
A VAT-registered trader is also deemed to have received money if liability in respect of a business transaction is settled by setting off against it a credit due in respect of some other transaction. Care must be taken when money is received through an agent that any amount withheld by the agent to cover fees, expenses etc., is included in the taxable amount.

Professional Services Withholding Tax
Income Tax withheld from payments for professional services is deemed, for VAT purposes, to have been part of the consideration received by the trader.

Relevant Contract Tax
Relevant Contract Tax deducted from payments for relevant contracts is deemed, for VAT purposes, to have been part of the consideration received by the sub-contractor.

Credit card transactions
In the case of credit card transactions the taxable amount is the marked selling price, that is, the amount actually charged to the customer by the supplier. Amounts withheld by credit card companies from their settlements with traders are part of the taxable amount and should not be disregarded.

Credit notes
A VAT-registered trader accounting for VAT on the basis of moneys received must issue to a VAT-registered customer a credit note showing VAT if there is a discount or price reduction allowed subsequent to the issue of an invoice. The effect of the credit note is to reduce the VAT deduction available to the customer on the basis of the original invoice. This has no effect on the liability of the person issuing the credit note since he or she is calculating liability by reference to the moneys actually received.

Review of eligibility and cancellation of authorisation
Where a taxable person is authorised to account for VAT on the moneys received basis and, for a period of four consecutive months his or her turnover from taxable supplies to unregistered persons is less than 90% of total turnover, the taxable person should notify the local Revenue District accordingly by the end of the following month and indicate the actual percentage of such supplies. If the change in the level of such supplies to unregistered persons is of a marginal or temporary nature, the authorisation may be allowed to continue.

Where a taxable person is authorised to operate the cash receipts basis because his/her annual turnover is less than €1,000,000, that person must apply to have that authorisation cancelled where it is clear that the turnover will exceed the limit in any continuous period of twelve months.

Where a taxable person fails to notify the local Revenue District as in paragraph 11.1 above, the authorisation will be deemed to have been automatically cancelled with effect from the start of the VAT accounting period within which the notification should have been made.

Cancellation of an authorisation will have effect from the start of the VAT accounting period during which the person is notified of such cancellation by the local Revenue District or from the start of a later VAT accounting period if specified in the notice.

Changing from moneys received basis to invoice/sales basis
Where a taxable person who for any period is authorized to account for VAT on the monies received basis ceases to be so authorized, or ceases to be a taxable person, liability for VAT at the time of the change, or cessation, must be adjusted. Where the authorisation was issued for a period of more than 6 years the authorized period, for the purposes of this adjustment, is deemed to be for a period of 6 years. The adjustment is calculated as follows:

The total amount due to the person at the end of the authorized period shall be apportioned between each rate of VAT in accordance with the following formula:

(A multiplied by divided by C

Where:-

A is the total amount due to the person at the end of the authorized period for goods and services supplied during the authorized period.

B is the taxable amount in respect of taxable supplies at each rate of tax in the twelve months prior to the date of cessation or in the authorized period, whichever is the shorter.

C is the total amount taxable in respect of total taxable supplies in the twelve months prior to the date of cessation or in the authorized period, whichever is the shorter.

However, the apportionment between the various rates of tax may be made in accordance with any other basis agreed between the taxable person and the local Revenue District. The amount so apportioned at each rate is a tax-inclusive amount and the tax included is to be treated as tax due for the period in which the cessation of the monies received basis occurs. No adjustment of liability is made where the cessation is occasioned by the death of the taxable person.

Changing from invoice/sales basis to moneys received basis
Where a VAT-registered trader already accounting for VAT on the invoice basis obtains permission to change to the moneys received basis, that trader is liable for VAT on any moneys received on and after the approved date of the change, excluding any payments on which VAT has already been accounted for in respect of goods and services supplied while accounting on the invoice basis.

Further information
Enquiries regarding any issue contained in this Information Leaflet should be addressed to the Revenue District responsible for your tax affairs. Contact details for all Revenue Districts can be found on the Contact Details Page

VAT Appeals & Communications Branch ,
Indirect Taxes Division,
Stamping Building,
Dublin Castle.

March 2007

Am I meant to ask the editors I deal with to add an extra 21% to the total? Can’t imagine them agreeing to that, in which case I am paying an extra 21% on all my earnings.

Yes- once you quote a price they are entitled to assume it includes VAT

What about work done for European publications - would they too attract a VAT levy?

This fallsunder 4th Schedule services. VAT Information Leaflet 1/05.

In brief where you (An Irish business) supply a service to a business in another EU state they will be oblidged to self account in their own country, but if you are supplying to a private individual you will have to account for VAT in Ireland on the transaction. Anyway if you log onto the Revenue website and download the leaflet and have a read it should become clearer.

Isn't VAT so wonderfully complicated.

ThirdEdition

Thanks for detailed reply SetantaL

I'm not too worried about the cash receipts/invoice method for now.

You say that "Yes- once you quote a price they are entitled to assume it includes VAT".

OK, but what about the notion that the publisher will not actually be out of pocket (quote from UK site - "because (almost) all clients are registered for VAT, the work of a VAT-registered freelance does not cost them any more. They claim back the VAT on their inputs from VAT-registered freelances, just as these claim back the VAT on their inputs.")

If this is the case, then is it not academic/irrelevant to the publisher whether or not I am VAT-registered, ie, they will be able to claw back the extra 21% levied by me and it should not be a problem if my rates jump by 21%?

Hope I'm being clear...

Mr. Incognito

No you're not- you're using an obscure internet reference from a tax jurisdiction that does not apply in ireland. Ireland and the UK's VAT rules differ.

I'm not too worried about the cash receipts/invoice method for now.

You should be because Revenue are going to come knocking and the onus is on you.

If this is the case, then is it not academic/irrelevant to the publisher whether or not I am VAT-registered, ie, they will be able to claw back the extra 21% levied by me and it should not be a problem if my rates jump by 21%?

You're not looking at this the right way- you are looking at the end position as opposed to your actual legal obligation to account for VAT and file VAT returns. There are many many rules and some may end in a nil vat position for both parties but this is irrelevant in YOUR circumstances.

flogen

Just to add to the question here if it's OK with ThirdEdition (it might help him out actually)

A self-employed person must register for VAT when earning over €35k a year, and the VAT rate for journalists is 21% - so would a VAT-registered journalist have to pat 21% of €35k or just 21% of whatever amount they earn in excess of €35k?

dooloo

Once you're VAT registered, all of your income is Vatable, not just the excess above the €35k

ThirdEdition

SetantaL wrote: »

No you're not- you're using an obscure internet reference from a tax jurisdiction that does not apply in ireland. Ireland and the UK's VAT rules differ.



You should be because Revenue are going to come knocking and the onus is on you.



You're not looking at this the right way- you are looking at the end position as opposed to your actual legal obligation to account for VAT and file VAT returns. There are many many rules and some may end in a nil vat position for both parties but this is irrelevant in YOUR circumstances.

Setanta, I appreciate that UK VAT laws differ to Ireland's but the quote in question tallies with a reply on another thread (I posted this same query in the News/Media section of boards.ie) - "surely the newspapers will be able to claim the vat back as they'll be vat registered, so it won't be an extra cost, just a formality?"

Re. my legal obligation to file VAT returns - am guessing that will have an income of 40-45k from journalism this year. I could ensure that my Irish media income comes in just below the 35k threshold (by doing increasd work with UK/Euro publications - awkward, but possible). That would mean no need for VAT returns (I think). However, if it's not an extra cost to publications because they are able to claim the VAT back, then I would not have to worry about crossing the 35k threshold and could happily file my VAT returns.

My initial fears re. VAT were that I would be penalised for working harder, ie, Journalist A earns 34k p.a. and pays no VAT. Journalist B earns 35k and ends up losing approx 7k in VAT, leaving him with just 28k. It seems ridiculous and I assumed that I must be misreading the situation. The reply from the other boards thread, coupled with the UK link, suggested that my initial reading was wrong and that I could add 21% on to future articles without worrying that I was pricing myself out of the market.

If I sound muddled on this issue, it's because I am...

Mr. Incognito

You both seem to think that if you earn below 35K you are not oblidge to account for VAT. This is incorrect, you are oblidged to account/charge for VAT on either the invoice or cash receipt basis regardless of your overall income.

If you have income of over 35K you are legally oblidge to register for VAT purposes. You can elect to register if your income is below 35K. This is a GOOD thing. If you are VAT registed you can claim back the input VAT on your purchases. If you are not registed you cannot. If you are providing services to Irish VAt registered companies they in turn can claim a credit for the VAT paid to you and as such they do not suffer any VAT burden.

indiewindy

ThirdEdition wrote: »

Am a freelance journalist and am a bit flummoxed (freaked) by the question of VAT. I know that a freelancer earning 35k in a year must pay VAT of 21%. I know that I can subtract vat paid on certain expenses but as someone who works from home, these expenses are minimal (broadband, phone bills, bit of petrol but not much more really).

You can't claim vat refunds on petrol, you can only claim on diesel

flogen

SetantaL wrote: »

You both seem to think that if you earn below 35K you are not oblidge to account for VAT. This is incorrect, you are oblidged to account/charge for VAT on either the invoice or cash receipt basis regardless of your overall income.

If you have income of over 35K you are legally oblidge to register for VAT purposes. You can elect to register if your income is below 35K. This is a GOOD thing. If you are VAT registed you can claim back the input VAT on your purchases. If you are not registed you cannot. If you are providing services to Irish VAt registered companies they in turn can claim a credit for the VAT paid to you and as such they do not suffer any VAT burden.

So you have to pay VAT on your earnings even if you're earning under 35k?

pigeonbutler

VAT is not a tax on earnings! It's a consumption tax, which is borne by the end consumer. You sell the article to the newspaper and charge them VAT, they claim an input credit for the VAT you've charged them and that is offset against the VAT they've collected on their sales (which they've charged VAT on).

By the same token, business expenses you incur can be claimed as input credits and offset against the VAT you receive from clients.

In a nutshell, if your clients are a business selling on VAT taxable products/services then neither you nor they are any worse off by you charging them VAT (except for the cashflow issues and/or administrative burden).

Mr. Incognito

So you have to pay VAT on your earnings even if you're earning under 35k?

Apologies, my bad for the confusion. You don't have to pay tax regardless. You are oblidged to charge tax if you are over the registration thresholds and account for that vat to the Revenue. It is not a VAT charge on your earnings.

If you earn under the thresholds you may elect to register and account for VAT and are entitled to input deductions as such. If you do not register by virtue of being under the thresholds you may not claim an input credit and are not oblidged to account for VAT

flogen

SetantaL wrote: »

So you have to pay VAT on your earnings even if you're earning under 35k?

Apologies, my bad for the confusion. You don't have to pay tax regardless. You are oblidged to charge tax if you are over the registration thresholds and account for that vat to the Revenue. It is not a VAT charge on your earnings.

If you earn under the thresholds you may elect to register and account for VAT and are entitled to input deductions as such. If you do not register by virtue of being under the thresholds you may not claim an input credit and are not oblidged to account for VAT

My understanding (from being told by a knowledgeable friend over the weekend) is that you cannot claim VAT back unless you're over the threshold, even if you've elected to register yourself.

So if I'm earning 20k a year, am charging/paying VAT on my work and am registered for VAT with Revenue, I still won't be able to get the VAT back on business purchases I make.

Mr. Incognito

My understanding (from being told by a knowledgeable friend over the weekend) is that you cannot claim VAT back unless you're over the threshold, even if you've elected to register yourself.

This is incorrect. If you are registered for VAT you are entitled to an input credit on purchases but only after the registration and not before the registration period.

If you go to www.revenue.ie

click on business on the left hand side- go to VAT and you will see the following.

Option to register
2.8 A person whose turnover from supplies in the State or whose intra-Community acquisitions do not exceed the appropriate thresholds may opt to become registered but only from a current date. The procedures for those opting for VAT registration are the same as those for traders who are obliged to register and a person who opts to become registered is subject to the same obligations as other registered traders (but see paragraph 2.9 of Chapter 2).

» Back to Top


Registration procedures
2.9 Every applicant for VAT registration must complete either a form TR1 or TR2, each of which is available from the Taxes Central Registration Office (TCRO), Arus Brugha, 9/15 Upper O’Connell St., Dublin 1, from the office of any inspector of taxes, or from the Revenue website at www.revenue.ie. The application form must be completed, signed and returned to the TCRO or to the local inspector of taxes as appropriate. Registration is effective from the date on which the application for registration is processed, or from such earlier date as may be agreed between the Inspector and the applicant. In the case of a person not obliged to register but who is opting to do so, the effective date will be not earlier than the beginning of the taxable period during which the application is made.

Any change in the particulars supplied by a trader for the purposes of registration (for example, a sole trader becoming a limited company or the cessation of a partnership) must be notified to the Inspector within 30 days of the change.

» Back to Top


Registration of new business
2.10 A person who is setting up a business but who has not yet commenced supplying taxable goods or services may register for VAT as soon as it is clear that he or she will become a taxable person. This will enable that person to obtain credit for VAT on purchases made before trading actually commences.

In general, farmers are not obliged to register for VAT in respect of their farming activities. However special rules apply to farmers who, for example, supply bovine semen, agricultural contracting services and who retail horticultural products. VAT Information Leaflets Nos. 12/01 and 24/01 are available.

» Back to Top


Cancellation of registration
12.11 A person who has opted to register for VAT may, subject to conditions which may include the repayment of any excess of VAT deductions over payments, cancel his or her registration by arrangement with the local inspector of taxes. Similarly, a person whose turnover has fallen below the appropriate turnover threshold may have the registration cancelled. A person ceasing to trade should notify the inspector of taxes of this fact in order that the VAT registration number may be cancelled promptly.

This is important to note, otherwise return forms and demands for estimated VAT liability will continue to issue automatically.

Revenue will also cancel a person’s VAT registration if he or she has been registered in error, or he or she has ceased to be a taxable person. In circumstances where a person elects to register for VAT, a cancellation of registration may give rise to recovery by Revenue of all or some of the net VAT repaid to the person during the period of election.

» Back to Top


Relief for stock-in-trade for newly registered traders
2.12 A person who has become liable for VAT may claim a credit, if any, for the stock-in-trade (i.e. goods for resale but not capital goods, tools etc.) held at the beginning of the first taxable period for which he or she is registered. Where the rates actually charged at the time of purchase of the goods differ from the rates applying at the time the relief is being sought the inspector of taxes should be consulted in relation to the amount to be reclaimed. No relief is available in respect of VAT on goods purchased prior to registration by a person supplying services.

» Back to Top

angelfire9

flogen wrote: »

My understanding (from being told by a knowledgeable friend over the weekend) is that you cannot claim VAT back unless you're over the threshold, even if you've elected to register yourself.
So if I'm earning 20k a year, am charging/paying VAT on my work and am registered for VAT with Revenue, I still won't be able to get the VAT back on business purchases I make.

No, no, no you are not right at all!

Registering for VAT is not a big deal, do it it will save an awful lot of hassle in the long run and you can claim rebates from the first VAT period regardless of the threshold!

When you invoice out a piece of work add 21% on to the net price, i.e. for example you do a piece of work with a net price of €100.00, invoice including VAT and the newspaper/magazine pays you €121.00, €21 of that belongs to the Revenue commissioners €100 belongs to you, the newspaper will claim back the VAT so you don't have to worry about it that's not your concern, really!


Then lets say you buy €500 of stationary / CD-R's or ink or whatever for your business the next day, VAT will be charged to you @ 21% so you pay a net of €413.22, VAT of €86.78 total paid by you will be €500.00, assuming you have no further purchases or sales for the current vat period the revenue commissioners will refund you €68

This is how it works, if the VAT on Sales exceeds the VAT on Purchases you owe the Revenue the difference and Vice Versa
VAT is calculated bi-monthly and you have until the 19th of the following month to pay your VAT bill i.e VAT from Jan-Feb payable by 19th of March

I would always recommend that you register for ROS (revenue online service) they send out email reminders when your VAT return is due and calculate your VAT liability for you online

Failure to make VAT returns can lead to prosecution by Revenue commissioners and hefty fines you're far better off to do it correctly from the start!

Should i even ask what you are doing about your income tax liability?
Income tax is a different kettle of fish from VAT which is simply a Value Added Tax for Goods / Services sold in Ireland

Hope this helps

AngelinaJolie

VAT is a very confusing system in my 'no accountancy background' eyes!
So if I earn under €35k, does that mean I don't have to register for VAT? I haven't done so so far as I will earn approx €27k this year as a journalist. If I register now does that mean I have to save 21% of my €27k income for VAT? Or go back to the company to look for this VAT money? I don't particularly want to go through the quagmire of the VAT that I can claim back..
Wow.. Revenue don't make it easy do they?

Mac71

I am currently faced with the same situation. I have been asked to prepare and submit vat returns for a vat registered individual. I am familiar with whole vat preparation and filing returns. As I am doing this job on the side I am not sure of the vat issues relating to my fee. Do I need to prepare an invoice which includes vat at 21% even though I am not registered? ie Fee €250+21.5% vat = €304?
Also even though I am not registered can the vat registered individual claim this vat back?

swanvill

Mac21
If you are not registered for VAT & you services for the year will not exceed €37,500 then you do not have to charge VAT or account for VAT.

Swanvill