=Understanding VAT =

seanaway

Hi. I am opening a small cafe and I will get an accountant in a bit. However, I have a VAT question. I know I don't have to register for VAt unless I am turning over €75k or thereabouts as i am providing goods; but what does that really mean?


Does it mean I don't have to charge VAt or pay revenue VAt until I go over the 75k? Or does it mean I have to pay anyway but can't claim anything back?



I am getting some equipment which will run to around 10k so is it worth my while registering to claim back now or can I claim back later?


Help please. Very confused.

fankity flank

It means that you are obliged to register for VAT once the value of your sales reaches 75K within any continuous 12 month period. It's fine to register once this happens, with no need to backdate.

However the legislation states that if you are "likely" to hit the threshold within the next 12 months (for example if a large multinational opened a food outlet in Dundrum), then you must register for VAT right away.

I'm figuring you might get away with that one

I wouldn't get too bogged down on when you should register, but I would probably avoid it for as long as possible.

The reason is that the addition of VAT will make your food 13.5% more expensive to your customers. You have to price your food accordingly, and as a result your sales will take the hit on this VAT cost.

The flip side is that you can reclaim any VAT that you incur on costs, but unless your costs are huge, and you're likely to make a loss in the first year, then I'd avoid registering for VAT.

You can opt in to register at any time, but you can only claim back VAT from date of registration, you cannot backdate any reclaim.

Once you register you must charge VAT on all sales from that date, and while you can de-register at any time (if still below threshold), there is a potential claw back from Revenue if you have claimed more VAT that you have remitted during the period of registration.

seanaway

Wow. That's so much more simple than what I rad on revenue's website. So I don't have to charge VAt until and unless I hit the 75k mark. Is that right? I was thinking I had to charge VAT from the get go. So much easier if I don't have to at the start as I have enough headaches

Thank you so much for clearing that up. I really appreciate it.

fankity flank

seanaway wrote: »

So I don't have to charge VAt until and unless I hit the 75k mark. Is that right?

Thank you so much for clearing that up. I really appreciate it.

That's right. As soon as you hit the threshold, you register from that point onwards.

No worries at all, good luck with the new venture :pac:

duffysfarm

However the legislation states that if you are "likely" to hit the threshold within the next 12 months (for example if a large multinational opened a food outlet in Dundrum), then you must register for VAT right away.

Are you sure about the likely bit? I always thought you only had to register if your turnover actually reached the threshold not if it was "likley"?

thegolfer

fankity flank wrote: »

It means that you are obliged to register for VAT once the value of your sales reaches 75K within any continuous 12 month period. It's fine to register once this happens, with no need to backdate.

However the legislation states that if you are "likely" to hit the threshold within the next 12 months (for example if a large multinational opened a food outlet in Dundrum), then you must register for VAT right away.

I'm figuring you might get away with that one

I wouldn't get too bogged down on when you should register, but I would probably avoid it for as long as possible.

The reason is that the addition of VAT will make your food 13.5% more expensive to your customers. You have to price your food accordingly, and as a result your sales will take the hit on this VAT cost.

The flip side is that you can reclaim any VAT that you incur on costs, but unless your costs are huge, and you're likely to make a loss in the first year, then I'd avoid registering for VAT.

You can opt in to register at any time, but you can only claim back VAT from date of registration, you cannot backdate any reclaim.

Once you register you must charge VAT on all sales from that date, and while you can de-register at any time (if still below threshold), there is a potential claw back from Revenue if you have claimed more VAT that you have remitted during the period of registration.

The supplying of food and drink is not the supply of goods, but seemed a service, applicable VAT threshold is 37500, and not 75k.

Legislation reference is S.25(2) VATCA.

drunkmonkey

You'll have a headache if your turn over is only 75k. 120/150k would be a minimum you need to turnover i'd guess. Did you make a cash flow statement?

thegolfer

fankity flank wrote: »

That's right. As soon as you hit the threshold, you register from that point onwards.

No worries at all, good luck with the new venture :pac:

This is wrong.

If you hit the threshold in the first 7 months, then you backdate the VAT registration to the date of commencement, and not from the date of hitting the threshold figure.

Teddy Daniels

thegolfer wrote: »

This is wrong.

If you hit the threshold in the first 7 months, then you backdate the VAT registration to the date of commencement, and not from the date of hitting the threshold figure.

Also it’s 37.5 k

thegolfer

Teddy Daniels wrote: »

Also it’s 37.5 k

Already posted

fankity flank

thegolfer wrote: »

The supplying of food and drink is not the supply of goods, but seemed a service, applicable VAT threshold is 37500, and not 75k.

Legislation reference is S.25(2) VATCA.

Of course, apologies....

If cafe serves hot food then more than likely it may be considered a supply of services (37.5K) instead of goods (75K).

But the sale of coffee, drinks, ice creams, crisps, pastries...etc is considered a sale of goods (75K)

Assuming your cafe will sell the former then the lower threshold would apply.

Sorry about that, thanks for clarifying

fankity flank

thegolfer wrote: »

This is wrong.

If you hit the threshold in the first 7 months, then you backdate the VAT registration to the date of commencement, and not from the date of hitting the threshold figure.

Really? Been searching for that and cannot find anything to say that. Do you have a link/ref?

thegolfer

fankity flank wrote: »

Really? Been searching for that and cannot find anything to say that. Do you have a link/ref?

There is nowhere to say it will on Revenue, as it's scripted in legislation.

If your turnover exceeds 37500 within 12 months, you register for VAT.

Section 6(1)(d) VATCA....
...a person (other than a person to whom paragraph (a), (b) or (c) applies) for whose supply of taxable goods and services the total consideration has not exceeded, and is not likely to exceed, the services threshold in any continuous period of 12 months

Legislation is framed in the negative, thus for the above if you don't exceed the threshold, you're okay. Other wise register, and become an accountable person for VAT.

fankity flank

thegolfer wrote: »

There is nowhere to say it will on Revenue, as it's scripted in legislation.

You've quoted legislation for the 12 month rule, where is this 7 month backdate provision you referred to?

Stratvs

I imagine it would be a rare cafe that doesn't meet the lower threshold turnover. Given that at least 90% of outputs of the business would have to be sale of goods to avail of the higher threshold. That's only sales of €721 per week on average needed to pass requirements for the lower threshold to apply. If they don't expect to do at least that from the start then they're unlikely to be profitable.

I assume the OP has done at least some projections on break even turnover before taking on this venture. What is the minimum turnover required just to keep the door open? That might give an answer to the VAT registration issue.

Finally OP, I would advise a chat with that accountant sooner rather than later.

seanaway

fankity flank wrote: »

Of course, apologies....

If cafe serves hot food then more than likely it may be considered a supply of services (37.5K) instead of goods (75K).

But the sale of coffee, drinks, ice creams, crisps, pastries...etc is considered a sale of goods (75K)

Assuming your cafe will sell the former then the lower threshold would apply.

Sorry about that, thanks for clarifying

I'm not planning hot food as such but more the second list. One product can be sold hot or cold so I don't know about that one. I did ask the VAT helpline but the person there hadn't a clue as to what VAT rate would apply and the product isn't listed in their database so I'll check with an accountant on that.

Thanks fo ryour help.

seanaway

Stratvs wrote: »

I imagine it would be a rare cafe that doesn't meet the lower threshold turnover. Given that at least 90% of outputs of the business would have to be sale of goods to avail of the higher threshold. That's only sales of €721 per week on average needed to pass requirements for the lower threshold to apply. If they don't expect to do at least that from the start then they're unlikely to be profitable.

I assume the OP has done at least some projections on break even turnover before taking on this venture. What is the minimum turnover required just to keep the door open? That might give an answer to the VAT registration issue.

Finally OP, I would advise a chat with that accountant sooner rather than later.

Hi and thanks for this. I have done the maths on it and, luckily, I have a low break even on it. My supply costs are low and profit margin very high which is why I chose this idea as opposed to a 'standard' cafe set up so even low sales will allow me to keep the door open and make enoughof a living to make it worthwhile.

fankity flank

seanaway wrote: »

Hi and thanks for this. I have done the maths on it and, luckily, I have a low break even on it. My supply costs are low and profit margin very high which is why I chose this idea as opposed to a 'standard' cafe set up so even low sales will allow me to keep the door open and make enoughof a living to make it worthwhile.

Are you selling hot food?

Assuming the lower threshold of 37.5K applies then there may be some benefit in waiting until hitting that before registering - assuming of course you're not likely to blow that total out of the water in the first 12 months?

The saving here would be over 5K in sales VAT, very helpful for a small business getting off the ground.

thegolfer mentioned a 7 month backdate rule, which has yet to be verified, so maybe best to get some advice on it first

Stratvs

Just remember, even cold food supplied in a 'catering' setting such as restaurant/cafe is subject to the reduced rate of VAT even where it otherwise would have been zero as a sale of goods. So just because it's cold, if it's supplied in the course of 'catering' then VAT applies.

See 3.2 and 4.1 in the link below for what constitutes 'catering'. [ they haven't updated it for the removal of the 9% rate in the budget so where they refer to the 'second reduced rate' (9%) you need to read 'the reduced rate' (13.5%) ]

https://www.revenue.ie/en/tax-professionals/tdm/value-added-tax/part03-taxable-transactions-goods-ica-services/Goods/goods-food-and-drink.pdf

drunkmonkey

seanaway wrote: »

Hi and thanks for this. I have done the maths on it and, luckily, I have a low break even on it. My supply costs are low and profit margin very high which is why I chose this idea as opposed to a 'standard' cafe set up so even low sales will allow me to keep the door open and make enoughof a living to make it worthwhile.

If your costs are very low I'd say your opening in the wrong location. You need good footfall and want to be aiming for at least 100 customers a day with an average spend of about €5.
You'll need to register as an employer as well it would be madness to try and do it as a one man band.
Rent 12k
Equipment you said 10k
Staff maybe 20k
Insurance 1k
Heat and electricity maybe 5k
It won't leave a lot if anything for yourself when everything is paid for.

You may aim high rather than low as your going to have to put in the same hours anyway and your fixed costs will remain the same. I can't stress how important location/footfall is.

seanaway

drunkmonkey wrote: »

If your costs are very low I'd say your opening in the wrong location. You need good footfall and want to be aiming for at least 100 customers a day with an average spend of about €5.
You'll need to register as an employer as well it would be madness to try and do it as a one man band.
Rent 12k
Equipment you said 10k
Staff maybe 20k
Insurance 1k
Heat and electricity maybe 5k
It won't leave a lot if anything for yourself when everything is paid for.

You may aim high rather than low as your going to have to put in the same hours anyway and your fixed costs will remain the same. I can't stress how important location/footfall is.

Hi. Thanks for your advice. I'm in a high footfall area and I've designed it so I can manage it myself - at least initially. My rent is actually half that above. I've spent about thee years on honing the original idea and have taken all the above into consideration. your other figures are accurate enough. If I do employ it will be only if the business needs demand it and can justify the expense. As for the madness part; I have oft thought I must be for even considering it but if I don't I'll never know so..

Stratvs

seanaway wrote: »

I have oft thought I must be for even considering it but if I don't I'll never know so..

Better an 'oops' than a 'what if'

drunkmonkey

How do you take a day off, how do you even go to the toilet, your going to need staff be realistic from the start.
What hours are you open? 6 or 7 days a week? This isn't a one man show it's going to fail quick if you don't cost it properly and have ambitious growth plans.
The customer experience is essential in your business, you running around like a headless chicken isn't going to win much repeat business, if someone is left waiting they might not be back.

thegolfer

fankity flank wrote: »

Are you selling hot food?

Assuming the lower threshold of 37.5K applies then there may be some benefit in waiting until hitting that before registering - assuming of course you're not likely to blow that total out of the water in the first 12 months?

The saving here would be over 5K in sales VAT, very helpful for a small business getting off the ground.

thegolfer mentioned a 7 month backdate rule, which has yet to be verified, so maybe best to get some advice on it first

To clarify the position for VAT registration, if you exceed the threshold within the 12 months period, say within 3 or 4 or even the 7 months noted above then you are considered an accountable person, ie obliged to register for VAT at the start of that period.

There is no backdate rule, you have exceeded the thresholds set out and must register from the start of the period under review.

Other conditions trigger VAT registration, such as intra EU acquisitions, and reverse charge reporting, however these may not apply.

OP speak to an accountant, this is one of the reasons you shouldn't get advice online!

fankity flank

thegolfer wrote: »

This is wrong.

If you hit the threshold in the first 7 months, then you backdate the VAT registration to the date of commencement

thegolfer wrote: »

There is no backdate rule, you have exceeded the thresholds set out and must register from the start of the period under review.

So do you backdate the registration or not?

And is this 7 month rule written into legislation like you said?

Sorry to be the dog with a bone, I'd genuinely love to know.... and since you made the claim...