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Contrary
to general opinion Value added tax is one of the more complex areas
of tax law. VAT chargeable on the supply of goods and services within
the State by a taxable person in the course or furtherance of any
business carried on by him, and on goods imported into the State from
outside the EU.
VAT is also chargeable on the intra-Community acquisition of goods by
VAT registered persons and on the intra-Community acquisition of new
means of transport such as motor vehicles, boats etc. by either a
registered or unregistered person.
The amount on which VAT is chargeable is the total consideration
which the person supplying goods or services becomes entitled to
receive. Taxable persons account for VAT on their outputs and they
are allowed credit against this liability for tax borne on business
purchases and other inputs as evidenced by correctly prepared VAT
invoices.
Taxable persons (generally, people or corporate entities in business)
must be registered with the Revenue Commissioners for VAT purposes
where the amount of their annual turnover (i.e. the amount of
receipts excluding VAT) from the supplies of taxable goods and
services exceeds or is likely to exceed certain limits. For suppliers
of goods the limit is Euro75,000 . For suppliers of services the
limit is Euro37,500.
Farmers, sea fishermen and traders whose turnover is below these
limits are not generally obliged to register for VAT, but they may do
so if they wish.
Accounting for VAT
Generally VAT must be accounted for on an accruals basis (i.e. when
sales are invoiced, not when cash is received). There is an exception
to this rule for small businesses whose turnover over a 12 month
period does not exceed Euro1million. These small businesses may
account for VAT on a cash accounting basis. Returns are made every 2
months although Revenue have introduced less frequent return
requirements where VAT liabilities are small.
The main VAT rates are:
Exempt
Details are set out in the First Schedule to the VAT Principal Act.
Those carrying on exempted activities cannot, with some minor
exceptions, register for VAT.
Zero
Rate
Details of goods and services taxable at this rate are set out in the
Second Schedule to the Principal Act.
13.5%
Rate
Details of goods and services taxable at this rate are set out in the
Sixth and Eight Schedules to the Principal Act.
21%
Rate
All goods and services which do not fall into the categories
mentioned above are liable to VAT at this rate.
When is VAT not deductible ?
No
deduction is allowed in respect of tax paid on expenditure on the
following:
(a) The provision of food, drink, accommodation or other personal
services supplied to the taxable person, his agent, or his employees.
(b) Entertainment expenses incurred by the taxable person, his agent
or his employees.
(c) The acquisitions, hiring or leasing of motor vehicles other than
as stock in trade or for the purposes of a business which consists in
whole or part of the hiring of motor vehicles or for use in a driving
school business for giving instruction.
(d) The purchase of petrol otherwise than as stock in trade.
(e) Expenditure incurred on food, drink, accommodation or other
entertainment services as part of an advertising service is not
deductible in the hands of the person providing that advertising
service.
(f) Any VAT incurred by a taxable person in a transaction where the
margin or auction schemes apply.
Where the activities
carried out are exempt or partially-exempt only the VAT that relates
to the non-exempt activities is deductible.
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