VAT Registration and Rates for software company

ianjohn

Hi,

This is a two part question, I'm a small business and write/design software that I then supply to government bodies.

I haven't reached the vat threshold of €37,500 ridiculously low! (in the UK its £85,000 that about €110,000).

Because my customer are government dept, I charge them vat on my service and pay it back to the government, doesn't make sense, pure bureaucracy!

Second part of my questions is my software is licensed service in other words they pay for the license to use it, they can download form the web but don't own it, should the rate be 13% or 23%, I'm confused have asked diff accountants and get diff answers any advice appreciated!

Regards Ian

Xander10

https://www.boards.ie/discussion/2058223122/vat-registration-and-rates-for-software-company

I presume you mean you have breached the threshold and that is why you are charging VAT?

The use of the licence would be 23% for domestic supply of the service. For EU and Non EU different rules apply B2B. You need to engage a tax consultant

ianjohn

https://www.boards.ie/discussion/comment/118330766#Comment_118330766

Not yet!, but getting close, Im new to running my business and so might have to turn away business to avoid the messy vat problem.

My problem is also that most of my business income is charged at the 40% rate plus UCS and PRSI.

So for every quote I send out with vat for €1000 + 23% = €1230 of which €730+ goes to the government and my business gets €500

a) It doesn't seem fair and b) the bill is paid by the government anyway!

So for every euro I charge I have to add 1.23 for the government. Not exactly business friendly, yet large companies like apple pay 2% and vulture funds pay 0% because there registered elsewhere!

I know there is no way around it unless I live abroad but just wanted to express my anger!😱

Xander10

You can't charge someone VAT if you are not registered for VAT!!!

PaybackPayroll

https://www.boards.ie/discussion/comment/118330919#Comment_118330919

You seem to be mixing up different taxes.

It's my understanding that Apple etc pays low corporation tax, no low VAT.

Even for VAT, apart from the cost of collecting it, it should not be costing your business anything. You invoice amount + VAT, and then you pay back the VAT and your company keeps the invoice amount.

PAYE, USC and PRSI are personal taxes on income (apart from employer PRSI). If your business does not pay you, then you do not pay these taxes.

relax carry on

Please engage a tax consultant to help you avoid costly mistakes.

Tow

It is still not clear, I assume you are VAT registered but have not reached the VAT threshold.

You are lucky your customers are used to paying VAT, even if they probably cannot claim it back. May small business hit a problem when they have to register, having to suddenly raise end prices to customers or take a hit in income.

You are also lucky, as many government bodies will also deduct 'professional service withholding tax' from their payments for software services.

ianjohn

https://www.boards.ie/discussion/comment/118331000#Comment_118331000

I'm a sole trader so I dont get paid I go outof business!

The example I gave was for when I register for VAT after the 37500 limit!

So I collect the taxes into my bank account, add up for each two months how much that is, then calculate VAT paid across dozens of purchases and deduct one from the other and then pay the balance to revenue.

And thats not costing me anything, how do you work that out, an accountant will charge a fortune for that!

Taxes are Taxes don't let anybody kid you its something else!

Of course I will be engaging a tax consultant!

loveall

https://www.boards.ie/discussion/comment/118331320#Comment_118331320

I must be a bit lost but.....Sage, QB etc...

Xander10

https://www.boards.ie/discussion/comment/118331320#Comment_118331320

To be clear. If you charge €1000 for service and then register for vat and charge €1,000 plus €230 vat, you are only collecting the vat on behalf of revenue. You are no worse off.

Yoo are taxed on the net amount of €1,000 with rate bands & tax credit to allow for some at 20%

I am sure you could find a small practice that would agree a reasonable fee. And you can write that cost off against your tax, so the real cost might be only 50% of the fee approx.

PaybackPayroll

https://www.boards.ie/discussion/comment/118331320#Comment_118331320

Sorry, I didn't realise you had set up as a sole trader.

(I also did mention 'apart from the cost of collecting it' - which would be your admin costs)

StupidLikeAFox

https://www.boards.ie/discussion/comment/118331320#Comment_118331320

If you are not VAT registered you charge €1000 and declare that as income. If your purchases are €200 (Inc VAT) then your profit is €800 - you then pay income tax on this

When you are VAT registered, you charge €1000 + VAT, I.e. your income is still €1000. You can deduct the vat from your purchases, so that now becomes €154 + VAT. You deduct the vat you have paid from the vat you have collected and pay the difference to revenue.

You have to realise that for businesses who are vat registered the vat isn't an important part of the price, as you are just acting as a collector for the government.

jimmycrackcorm

Regardless if you haven't reached the threshold yet, you should be vat registered and charging and paying the VAT because you can claim VAT back on equipment and supplies that you are using for your business.

Xander10

https://www.boards.ie/discussion/comment/118331654#Comment_118331654

Beware, if you elect to register and don't breach threshold, you may have to pay back the vat reclaimed when you de-reg

ianjohn

"You have to realise that for businesses who are vat registered the vat isn't an important part of the price, as you are just acting as a collector for the government."

When dealing with public bodies they cannot claim back the vat! I think?

ianjohn

My main gripe is the vat threshold is so low, like 37500 that's nearly every small business unless they're part time.

Why doesn't the govt encourage small businessess like they do elsewhere...

StupidLikeAFox

37.5k is the turnover, not the profit

ianjohn

https://www.boards.ie/discussion/comment/118334918#Comment_118334918

I know!