Way to avoid charging VAT

whoknowsthis

I do consulting work through a company that I set up. The company is registered for VAT and everything is above board. I do some work for a charity that is VAT exempt so they are unable to reclaim the VAT I charge on my invoices. They are under financial pressure so to save them the VAT I am thinking of invoicing them in my personal capacity. I would be below the VAT threshold so I don't think I have to register for or charge VAT. Of course I would declare the income in my tax return. Can I do this without falling foul of the VAT man?

J.Ryan

No, don't do it, you are asking for trouble.

exaisle

+1 to J.Ryan

If you were audited by Revenue, you would undoubtedly fall foul of the anti-tax avoidance legislation and even if you weren't, you would be in breach.

So, if you want to save your client money, just charge them a bit less ;-)

drunkmonkey

I didn't think you charged a Charity Vat once they have an exemption, you just don't charge it to them. 0% the Vat rate on the Invoice if they have the cert, if they don't charge them Vat as there chancers.

Mr. Incognito

I didn't think you charged a Charity Vat once they have an exemption, you just don't charge it to them. 0% the Vat rate on the Invoice if they have the cert, if they don't charge them Vat as there chancers.

Common misconception. Being VAT exempt does not mean that you are entitled to not pay VAT - it means that charitable activites do not attract VAT- they still pay it.

Now as to the question in hand.

If the company is legit and VAT registered I presume that you have a practicing cert in the companies name to give you the legal right to provide said consultancy work, going in a personal capacity may open you up to personal liability for the quality of said work.

There is nothing to disallow it and on an audit it has nothing to do with the company as long as it is declared in your Form 11 as income. The main difference is that in one case the Company is liable for said advice and in the other you are personally liable. If you do go personally then be prepared to stand over the advice personally.

nompere

This is copied from Revenue's own notes on S.8.8 VAT Act 1972.

Section 8(8) allows the Revenue Commissioners to group register
• Two or more persons established in the State;
• Who are engaged in the supply of goods or services in the course or furtherance of business; and
• Who are closely bound by financial, economic and organisational links; and
• To do this where it seems necessary or appropriate for the efficient and effective administration, including collection, of VAT.
This allows the Revenue to compulsorily group register inter-linked persons who are manipulating the system.

Splitting a consulting business into two bits is very likely to be seen as manipulating the system.

Do bear in mind that "person" covers both an individual and a company.

www.revenue.ie/en/about/foi/s16/vat/chpt-09/9-16.pdf

Mr. Incognito

oh dear.

The above relates to partnerships or corporate VAT groups

it has nothing whatsoever to do with the point in hand.

You can work for a company, own a company, and yet still be a sole trader in the same field. Happens all the time in political circles, business circles, legal circles and even in the provision of tax advice. I could have a tax company and still give advice in a personal capacity.

As long as there is no conflict of interest you are fine.

Slasher

Mr. Incognito wrote: »

Happens all the time in political circles, business circles, legal circles and even in the provision of tax advice.

Oh well, if it Happens all the time it must be OK:D

It's not, for the reasons stated above by nompere and exaisle. Don't do it!

whoknowsthis

Thanks to all for your advice. I can't afford PI insurance so I suppose I should remain within the company and enjoy the benefit of limited liability in the very unlikely event of a claim.

nompere

Mr. Incognito wrote: »

oh dear.

The above relates to partnerships or corporate VAT groups

it has nothing whatsoever to do with the point in hand.

I’ve never seen myself as infallible, particularly when writing late at night, so I decided to go back to the actual legislation on this. It isn’t easy to read, but Revenue’s comment on it is straightforward and unequivocal.

S. 8(3)(e)(i) VAT Act 1972:

“ …where in the case two or more persons one of whom exercises control over one or more of the other persons, supplies of … services of the same nature are made by two or more of those persons, the total of the consideration relating to the said supplies shall, for the purposes of the application of paragraphs (c) and (e) in relation to each of the persons aforesaid who made the said supplies be treated as if all of the supplies in question had been made by each of the last-mentioned persons;”

Revenue’s comment in relation to the meaning of this is simple:

“Proviso to subsection (3)
“(i) prevents connected persons from splitting their business activities into business units which can trade below the registration thresholds thus avoiding VAT,”

Jim Somers, once Revenue and latterly Ernst & Young, one of the foremost authorities on Irish VAT, and author of the only closely argued book on VAT, uses the word “must” in discussing how Revenue operate this provision, and illustrates it with an example of a hairdresser trying to split her sole trade with her two hairstylists, so that there is a sole trade and two limited companies. The author is in no doubt that this will not work. The Irish Taxation Institute’s book on VAT at page 25 of the 2008 edition (it’s the copy I have to hand, but the legislation is unchanged since FA 1993) refers to S.8(3)(e)(i) as being an “anti-fragmentation” provision.

The critical thing in this is the nature of the services. So a tax consultant, registered for VAT, who sets up a company to run dinner parties, will not have to charge VAT on his catering activities unless the turnover exceeds €37,500. But a tax consultant who attempts to divide his business so that he doesn’t have to charge VAT to non-registered or exempt clients is going to get caught.

Given that the present registration for services is €37,500 it is only small businesses and perhaps start-up businesses that are likely to fall within these provisions. The registration level for goods is €75,000 which is still a fairly small operation.

Mr. Incognito

Thank you for that info. I stand corrected.

Alan Shore

I'm with Nompere on this one.
Anti Fragmentation would catch you on the VAT. Nice to see a good discussion on a VAT topic reaching the right answer after visiting a couple of red herrings.
Nice one guys.