Accounting for VAT

Table of Contents

Collecting VAT

The obligation to charge VAT and account for it to the Revenue, arises in the period in which the supply is made. This is the chargeable event. Unless the trader qualifies for and has been permitted to use cash accounting it may arise before the payment is made.

Imported VAT is paid on the full price to the border including transport and insurance cost to that point. Where there are customs duties, VAT is payable on the customs duty element. Since 1st January 2021, it has been possible to claim postponed VAT accounting so that import VAT is payable (and usually is simultaneosuly reclaimed) on the VAT return.

Where excise duty applies VAT is payable on the price plus excise duty.

Goods

A supply of goods takes place when ownership, or the right to dispose of ownership passes. There is a self supply at the time goods are appropriated for a nonbusiness purpose.

In the case of deemed supplies there is deemed to be a supply at a particular point in time generally when goods are delivered or become available. Certain apparent supplies are deemed not to be supplies. These are dealt with in a separate chapter.

Where goods are purchased from another EU state, VAT becomes chargeable on the 15th day of the month following the importation or earlier when the invoice issues. VAT becomes due on services on the date of the invoice or if not issued by the latest due date it should have been issued. The is 15 days after the end of the month in which the services are supplied.

In relation to goods acquired which are subject to excise, from within the EU by an entity which is not VAT registered, VAT is payable at the same time as excise is payable. Where the person acquiring the goods is VAT registered, VAT is accounted for in the normal way.

Invoice

VAT becomes due on the earlier of the date on which the invoice is in fact issued or if not issued, by the latest date when it should have been issued.

An invoice must be issued where a Vatable person supplies goods and services:
• to another taxable person;
• to a person carrying on an exempt business;
• to a person other than an individual in another EU state;
• to a person in an EU state who must apply reverse charge;
• in a distance sale.
The invoice must be issued within 15 days after the end of the month in which the supply is made.

An invoice must be issued when services are provided to:

• another Vatable person;
• a person undertaking exempt activities;
• a person other than individual in another member state;
• a person in another member state who must apply reverse charge.

In other cases, the tax arises when the supply is made.

Prepayments

Where a prepayment is made VAT is chargeable at that time on the amount of the prepayment.

The supply of a voucher, stamp, token or equivalent giving rise to a right to receive goods or services of equivalent value is not usually a supply of goods or services. There is deemed to be a supply when the voucher or coupon is redeemed or used or sold to a third party.

Price or Value Charged

VAT is charged on the total price which the business is entitled to receive for the goods and services. This includes all charges made. Where the purchaser of goods from another EU state self accounts for VAT on goods received, the tax is paid on the full price and charges made .

VAT is levied on the gross charges, costs and expenses incurred in making the sale. Where however, a supplier incurs outlay or expenses specifically on account of the buyer, VAT is not payable on it. This is a separate sum incurred for and on the behalf of the buyer.

Where goods are purchased in a foreign currency the sum on which VAT is accounted for is that converted into Euro at exchange rates, published by the Central bank for the relevant currency. It is possible to agree other exchange rate measures.

If for any non-business reason, goods and services are supplied at less than market value, VAT is chargeable on the market value. Market value may also be substituted for any transactions between connected persons.

Subsequent Adjustments

If an overpayment is made, VAT is due on it, subject to any credit for a refund.

Relief may be given for bad debts, reductions agreed and other consideration not ultimately received. In the case of discounts, returns or deductions from the price, a VAT credit note must issue. There are strict conditions for claiming relief. The amount not received is given as a credit if relief is allowed.

It must be shown that all reasonable steps have been taken to recover the debt. It must be shown to be written off in the financial accounts. The requisite record keeping requirements must be fulfilled and the debtor must not be connected.

Self Supplies

Where VAT arises on a self supply of goods or services, the VAT is generally charged on the cost.

This would arise where a trader takes stock for personal use. This includes a self supply where a business moves its goods to another EU state in which it is not registered and cannot be treated as an intra-community supply and acquisition. VAT is payable on the full costs

Certain Contractors

Relevant contract tax or withholding tax applies to principal contractors in the construction and certain other industries. It requires them to make a deduction from sums payable to subcontractors unless tax clearance certificates are held.

Further obligations have been extended to principal contractors to account for VAT on services received by them from subcontractors. There are liable to self account on services rendered as if they had supplied them to themselves. This is similar to the reverse charge mechanism on the acquisitions of goods from other EU states.The requirement to self account also applies between certain connected parties.

Mixed Supplies

Where there is a supply of services and goods, there is deemed to be a supply of goods if the value of the goods is more than two thirds of the total price payable for the goods and services together. This does not apply to the supply of food.

The rule does not apply in reverse. Its application is of particular significance in relation to many building and maintenance services which are subject to the reduced 13.5% rate of VAT. Where the purchase price of the goods element in the installation exceeds two thirds of of the price, it will be treated as a supply of goods and subject to 23% VAT.

Vouchers

On 1 January 2019 new rules took effect in relation to VAT on vouchers, tokens and coupons which may be redeemed for goods and services. Formerly VAT applied at the point of sale and did not apply at the point of issue of the token.

A voucher is any instrument electronic or physical by which there is an obligation to accept it in payment of part payment of the price of goods and the goods or services to be supplied by the potential suppliers are indicated in the instrument or related documentation. A voucher in the sense may include discount vouchers certain online credits tokens.

Under the new rules, vouchers are split into two categories:

Single-purpose vouchers (SPV)
Multi-purpose vouchers (MPV).

A Multipurpose voucher is a voucher that is not a single purpose voucher. VAT is chargeable at the point it is redeemed. The issue of a multi-purpose voucher or its transfer is not subject to VAT. The taxable value of a discounted multipurpose voucher is determined by what it is redeemed at upon purchase.

Single Purpose Voucher

A single-purpose voucher means a voucher issued on or after 1 January 2019, where the following are known at the time of issue of the voucher:

the place of supply of the goods or the services to which the voucher relates and
the VAT due on those goods or services.

A voucher, subject to these conditions, can only be considered a SPV where the underlying supply(ies) to which the voucher relates, is / are liable at a single rate of VAT.

The issue of a SPV and each subsequent transfer of a SPV are subject to VAT at the rate that applies to good(s) or service(s) to which the voucher relates. Effectively, the underlying supply and applicable VAT rate is known at the time of issue of the SPV.

The VAT is due in the VAT period in which it is sold. Where a SPV is not redeemed or partially redeemed no adjustment can be made in respect of the non-redemption. This applies regardless if the SPV is redeemed or not

There is no VAT at the point when the voucher is redeemed. The trader is not liable for VAT on redemption. If there is extra purchase monies VAT is payable on it.

The taxable amount of the voucher is the sum received for the voucher and not the face value.

Staff Canteen

There is deemed to be a self supply of a service when a subsidised canteen is provided by a business for its own use for the use of its staff. Where the cost of the canteen operated by the employer exceeds the threshold for the supply of services, VAT is chargeable on the receipts.

Where there is no charge for its services the employer is liable for VAT on the cost of the supply of the canteen services.

Where the canteen is operated by an external entity the caterer charges VAT on receipts from employees and the employer. The employer is liable VAT on payments to the canteen and additional canteen costs.