How to do Irish VAT Returns (basic)

If you are operating a business in Ireland, selling a vatable product or service and you exceed the turnover thresholds as prescribed by the Consolidated Tax Acts in any one year, then you are obliged to register for vat. It is a legal obligation to register if your turnover exceeds these thresholds. If you go above these thresholds and do not register then if the Revenue Commissioners become aware that you haven’t registerd then they will register you themselves. Then they will charge you vat on your sales on the basis that you should have been charging vat for the whole of the year that you first exceeded the threshold onwards. If as is often the case in a recession you fall below the thresholds then you can also deregister for vat.
The standard rate of vat in Ireland is at present 21% this applies to most vatable good and a lot of services. There is a reduced rate of 13.5% of vat for some services especially those in the building industry. Some products have a zero vat rate such as medical goods. The best aspect of the zero rate is that you charge no vat on your sales but you can still claim back vat on your purchases. All other goods and services are then exempt from vat and these include schools and banks. There is a special flat rate vat rate for farmers which will be the subject of a separate article. There is a comprehensive list of the vat rates applicable to particular products and services on the Revenue commissioners site www.revenue.ie.
Once you have been registered for vat you will be required to submit vat returns periodically. The periods will depend on the expected turnover of your business as explained in the article on the fundamentals of vat. The basic structure of vat returns is that the vat you pay on your purchases is taken away from the vat you charge on your sales to calculate your vat liability or vat refund. If the vat on purchases is the greater then you are due a refund. This refund can be used to offset against other tax liabilities or you can get the refund back into your bank account from the tax office. if all your tax liabilities are paid. The name of the periodical return is a Vat3 form.
The records you need to keep are as follows:
(1) all of your sales invoices. Sales invoices need to show your name and address and vat number. It also need to give a description of the goods or services been sold as well as the date of the sale. All invoices should be numbered in a sequential order and must include the net amount of the sale before vat, the vat amount at each vat rate and the total gross amount of the sale.
(2) Sales day book: which is essentially a list of all your sales broken down between date, invoice number and net, vat and gross amounts. The total of these is then used as the sales vat in your vat 3 return.
(3) All your purchase invoices. In order to claim the vat on any purchase the Revenue Commissioners insist that you have a valid invoice which meets the criteria for sales invoice as detailed above in (1). So it is important to keep invoice for everything you buy relating to your business. Such receipts might relate to the following expenses:
        (A) Telephone
        (b) Diesel, petrol motor insurance and motor tax
        ( c) All goods and  materials for resale or to be used in the manufacture of good for                resale
        (d) Computer Expenses including computers, printers, ink cartridges, USB disks etc
        (e) Stationery
        (f) Advertising
        (g) heating and Lightening
        (h) if you run your business from home then the revenue in their discretion allow domestic heating and electricity bills to be claimed on a percentage basis usually one fifth of their total cost on the assumption that the business uses a room as an office within the house.
        (I) any other expenses you may incur in relation to the business. The rule is that the expense must be wholly and exclusively incurred for the purposes of the business. The best policy is to hold on to all your receipts and allow your accountant to decide are their claimable. If you don’t have the receipt then the accountant can’t claim the expense or the vat for you.
(4) Purchases day book which is the same as the sales day book. The total of all purchase invoice vat is then claimed against the total of sale vat.
(4) Cheque and direct debit Payment book. This is a list of all the payments you make to suppliers employees and drawing etc.  It can then be used to verify that you did indeed pay for all the purchases that you have claimed in your vat return
(5) Lodgement book which should match up to the sales day book to show that all sales receipts have been accounted for properly

The following are some guidelines for helping you do your vat returns
(1) if you are claiming expenses from your Principal private residence, for operating the business from it, then only claim one fifth of the expense and one fifth of the applicable vat
(2) Although vat is charged on petrol and mobile phone top ups the Irish government has in its own wisdom decided to not allow business’s to claim this vat in their vat returns. The same is true for any vat incurred on purchases bought for clients or customers and also any travel or accommodation costs of the owner or directors
(3) you can claim the vat on diesel
(4) There is no vat on toll bridges, public parking charges, motor tax, insurance, air travel,  etc or any items exempt from vat or zero rated so don’t claim vat on them in error.
(5) To get the vat on the gross amount of a sale or purchase at 21% you divide the total amount by 1.21 and multiply by .21. Therefore if you are basing you sales on your total lodgements, then add the total up then divide by 1.21 and multiply by .21 to get the vat amount. To get the net amount (the sales price before vat ) take the above calculated vat figure from the gross amount. The same applies to purchases.

This is a very simple guide to vat. Vat legislation is very complex and goes into very detailed and complex issues. Such things such as inter community sales within the EU and the determination of the point of sale of goods or services can be very complicated. However for a lot of small and medium size business a lot of the more complex issues will not affect them.
The one item relating to foreign purchases or sales that does effect Irish business’s a lot is when you buy or sell to other countries in the EU including Northern Ireland. If you buy something from another EU country and you are registered for vat and what you buy is for your business then the business in the other country should request your Irish vat number and not charge you vat on the sale. The same is true for an Irish company selling to a business registered for vat in another EU country. You can ring the revenue commissioners to check the validity of any vat number you are given by such a customer.
Overall the operation and collection of vat is a substantial cost to any business. However as it is open to scrutiny by the revenue commissioners it is vital that all vat returns are done correctly in order to avoid potential additional interest and penalty charges.

The thresholds for Vat Registration as at 14 April 2010 are as follows as per the Revenue Commissioners site:



The principal thresholds applicable are as follows:

• (a) €37,500 in the case of persons supplying services,
• (b) €37,500 for persons supplying goods liable at the 13.5% or 21.5% rates which they have manufactured or produced from zero rated materials,
• (c) €37,500 for persons making mail-order or distance sales into the State,
• (d) €41,000 for persons making intra-Community acquisitions,
• (e) €75,000 for persons supplying goods,
• (f) €75,000 for persons supplying both goods and services where 90% or more of the turnover is derived from supplies of goods (other than of the kind referred to at (b) above) and
• (g) A non-established person supplying taxable goods or services in the State is obliged to register and account for VAT irrespective of the level of turnover.

A taxable person established in the State is not required to register for VAT if his or her turnover does not reach the appropriate threshold above. However, they may opt to register for VAT.