UK-Ireland vat query

swimming in a sea

Hi, I have a relative who is Ireland based with vat number, he bought a machine in UK last week and paid no vat since he has a vat number.
But now if he sells it to a person in Ireland who doesn't also have a vat number he will have to charge them 23% vat. This works out financially much worse than if he had just paid the vat in the Uk at 20%(where he would have also got a vat clearance cert to give to person in case he sold to a vat registered person in ireland).

Am I seeing this right?

antoinolachtnai

I think you have it wrong. He would have to charge the person in Ireland Irish VAT at 23 percent in either case, since he is registered for VAT in Ireland and is selling goods to a non-registered person in Ireland. He would have to do considerable extra maneuvering to save VAT in the way you describe above.

swimming in a sea

antoinolachtnai wrote: »

I think you have it wrong. He would have to charge the person in Ireland Irish VAT at 23 percent in either case, since he is registered for VAT in Ireland and is selling goods to a non-registered person in Ireland. He would have to do considerable extra maneuvering to save VAT in the way you describe above.

still confused though....he basically wants to know is he better off paying the vat in the UK, since most of his customers in Ireland won't be vat registered.

I was trying to do the maths on this and have come up with.

If product exvat is 10,000 + ukvat20% = 12,000 sell in IRE 14,000, profit 2,000

to make same 2,000 profit if you don't pay vat in UK and have to charge IREvat23% means a sale price of 14,760.

antoinolachtnai

Then that's the price he has to charge. Your relative is supplying in Ireland, so he needs to charge Irish VAT. Whether he pays VAT in the UK or not, he is going to have to charge VAT in Ireland at the Irish rate regardless.

He might be able to jump through some hoops to avoid some VAT if his volumes are low, but I don't think it would be worth his while.

Who are these customers buying this expensive kit? Are they VAT-exempt businesses, or end-customers? If they are the former, they might have to remit the VAT themselves if they avoided paying Irish VAT.

smeharg

swimming in a sea wrote: »

...
If product exvat is 10,000 + ukvat20% = 12,000 sell in IRE 14,000, profit 2,000
...

You can only do this if you are not VAT registered in Ireland. The UK VAT would become a cost so the total purchase price would be 12,000. If you want to make 2k profit then you sell at 14k, as you say.

swimming in a sea wrote: »

...
to make same 2,000 profit if you don't pay vat in UK and have to charge IREvat23% means a sale price of 14,760.

As your relative is VAT registered no UK VAT is charged. The purchase price is then 10,000. To make a 2k profit you must sell fro 12k plus VAT at 23%. The total payable by the customer is 14,760. If the customer is VAT registered they can reclaim the 2,760 VAT; if not the cost to them is the VAT inclusive price, ie 14,760.

Your relative's profit will only be effected if the customer cannot reclaim the VAT and insists on a lower price as a consequence.

swimming in a sea

thanks for all the feedback, I think you've confirmed what we were thinking.

So basically he is from now on going to pay the vat in the UK since you still get a vat cert there so if you sell it to someone in Ireland with a vat number they can claim the vat back.

While if you don't pay the vat in the uk and you are selling to a non vat registered person in ireland you have to charge a higher price to get the same profit that you would have got if you simply paid the vat in the uk.

nompere

swimming in a sea wrote: »

thanks for all the feedback, I think you've confirmed what we were thinking.

So basically he is from now on going to pay the vat in the UK since you still get a vat cert there so if you sell it to someone in Ireland with a vat number they can claim the vat back.

While if you don't pay the vat in the uk and you are selling to a non vat registered person in ireland you have to charge a higher price to get the same profit that you would have got if you simply paid the vat in the uk.

If he is registered for VAT here then he must charge Irish VAT on the price he sells at.

So if he is charged UK VAT, and doesn't claim it back, he then has to charge someone here Irish VAT on an already UK VAT inclusive figure. They might well get the Irish VAT back, but the UK VAT is going to be irrecoverable.

Seems daft!

smeharg

swimming in a sea wrote: »

...

So basically he is from now on going to pay the vat in the UK since you still get a vat cert there so if you sell it to someone in Ireland with a vat number they can claim the vat back.

I don't think you get it at all. Listen to nompere. If he is VAT registered he MUST charge VAT on his sales - he has no choice.

What is this "vat cert" you keep referring to?

rainbowdash

I would love to know what this "VAT cert" is?

VAT is 23% in Ireland., end of story.

The only legal alternative that I am aware of is to buy it in the UK paying 20% VAT and sell it here at a profit, which only applies if his annual sales are below a certain threshold.

antoinolachtnai

I think your relative has the wrong end of the VAT stick and should seek advice from an accountant or from his local Revenue office.

Scotty #

Been looking into this a lot lately myself and from Revenue.ie...

I am a VAT registered person. Can I buy goods VAT free from a business in another Member State of the E.U.?

Yes, once the goods are purchased for the purposes of your business. The purchase of goods from a person in another E.U. Member State is called, in VAT terminology, an 'intra-Community acquisition' of the goods. The sale of goods to a VAT registered person in another Member State is called an 'intra-Community supply'. The procedures to be followed are set out below:

• You must quote your VAT number to the supplier. The supply will then be zero-rated in the Member State of dispatch as an E.U. intra-Community supply.
• You (the taxable customer) become liable for VAT on the acquisition of the goods in this State. You must account for VAT on the goods at the rate that would apply to the supply of those goods in Ireland.
• To do this, you declare a liability for VAT in your VAT3 return form in the T1 box.
• If you are entitled to full deductibility (input credit), the VAT payable on the intra-Community acquisition is deducted in the same VAT period at T2 on the VAT3, thus effectively cancelling out the VAT liability. If you are not entitled to deductibility (e.g. flat-rate farmer, State body) you put a zero in the T2 box. If you are entitled to partial deductibility, and the good represents a 'dual-use input', you may claim the appropriate percentage of the VAT, as agreed with the local Revenue District.
• You must also account for VAT on any subsequent supply of the goods in the appropriate VAT return.

In addition to the accounting requirements above, the VAT 3 return requires the taxable person to declare summary VAT details. It includes a statistical box in respect of intra-Community Acquisitions that must be completed (E2).
Further information is available in the information leaflets on the subjects of E.U. Intra-Community Acquisitions and E.U. Intra-Community Supplies on the Revenue website.

So, while you don't pay VAT in the UK on the purchase, you do pay it (or rather, are liable for it) on entry to Ireland.

smeharg

Yes, but you need to read the whole thing.

If you are entitled to deduct VAT on purchases you claim a corresponding input credit. The net effect being nil.

EG

You purchase goods for €100 from the UK, and meet all the criteria to have them invoiced with no UK VAT. Cost to you €100.

In your VAT return you account for Irish VAT in the sales box (T1) - €23.

If you can reclaim VAT on your purchases you put the same amount in the VAT on purchases box, T2 - (€23).

Total net liability is therefore nil.

If you're not entitled to reclaim VAT on your purchases, then yes you would pay the €23 to Revenue. (you would enter nil in box T2).