Special VAT Reclaim

Zero rated supplies and VAT recovery

Unlike the case with exempt supplies VAT recovery is allowed for zero-rated supplies. The recovery is allowed on inputs (purchases), notwithstanding that no VAT is in fact chargeable on sales.  Exemption from VAT differs in that no VAT is chargeable and the supplies do not trigger registration.

The general rule is that where supplies are exempt, there can be no deduction. Qualifying activities are those in respect of which a deduction is nonetheless available. The deduction is available notwithstanding that the business concerned cannot register for VAT. Pacific form of application for recovery applies

Qualifying activities include the following

• supplying goods and services outside the State which would be taxable if made in the State other than hiring motor vehicles for use in the State;
• services consisting of the issue of new stock, shares or debentures used for the purpose of raising capital for a taxable business;
• services supplied outside the European Union or directly in connection with the export of goods outside the EU
• supply of goods which are deemed to take place in another state, e.g., distance selling and transport of passengers and the baggage outside the State;. The supplier must be registered in the other state

Most of the above activities would be exempt in themselves (particularly exporting).  Nonetheless, deductibility is allowed.

Denial of recovery

There is specific rules restricting deductibility in certain cases ,for policy reasons.  They include the following:

• expenditure incurred on food or drink, or other personal services for themselves, their agents or employees, except to the extent, if any, that such expenditure is incurred in relation to a supply of services in respect of which they are accountable for tax(e.g. as a pub or restaurant)
• expenditure incurred on accommodation other than qualifying accommodation in connection with attendance at a qualifying conference as defined in the legislation
• expenditure incurred by the accountable person on food or drink, or accommodation or other entertainment services, where such expenditure forms all or part of the cost of providing an advertising service in respect of which tax is due and payable by the accountable person
• entertainment expenses incurred by the accountable person, their agents or employees
• the purchase, hiring, intra-Community acquisition or importation of passenger motor vehicles other than certain qualifying motor vehicles used as outlined below (and other than motor vehicles held as stock-in-trade, or for the purposes of the sale of those motor vehicles by a financial institution in the context of a hire-purchase agreement, or for the purpose of a business of the hiring of motor vehicles, or for use in a driving school business)
• the purchase, intra-Community acquisition or importation of petrol otherwise than as stock-in-trade. VAT is deductible on diesel.
• contract work involving the handing over of goods when such goods are themselves not deductible

Vehicles

Vehicles other than  vehicles for the transport of goods or more than 16 passengers or vehicles designed for use by invalids or infirm persons  do not qualify for deduction and recovery.VAT is allowed on certain vehicles with low carbon dioxide emissions.

Petrol is not deductible. Diesel is deductible to some extent.

VAT  is recoverable on the acquisition of a certain vehicles which are used for not less than 60% business purposes. This  applies to vehicles meeting certain low carbon emissions criteria. They must be retained for at least two years.

VAT is recoverable on the hire or purchase of vehicles designed or constructed for the transport of goods or the transport of passengers (designed to transport 16 persons as or more including the driver.

VAT is recoverable on the hire or purchase of vehicles for the transport of goods which have the rear windows blanked out and have no seating accommodation behind the driver

Refusal of Deduction

The Finance Act 2014 gives statutory effect to a principle evolved by the Court of Justice of the European Union to the effect that a taxable person who knew or should have known that by his purchase he was taking part in the transaction connected with VAT fraud committed by the supplier or by another trade acting upstream or downstream, can be refused the right of deduction.

The first accountable person is the person engaged in fraud and the second accountable person is the innocent trader.  The innocent trader involved in a series of taxable supplies, who knew or was reckless as to whether the supply of goods or services was connected with the fraudulent evasion of tax, is jointly and severally liable for the payment of any tax which has not been remitted by the person who committed fraud.

The provision is applicable if he should have known of the fraudulent transaction or was reckless.  This implies he knew of the transaction or was reckless as to whether or not the supply was connected with fraudulent evasion. The innocent trader is liable for up to the net amount of tax lost.  This is in effect the tax, which the  fraudster was entitled to deduct  or reclaim.

Where inputs exceed outputs, VAT may be repaid by Revenue.  Because of the sensitivity of repayment of revenue, the Revenue may examine the entitlement. Revenue may undertake an inspection of records and accounts. The may be a desk audit.

A reclaim a arise by reason of an earlier error or the failure to make claims when incurred. A claim for repayment of VAT must be made during the normal period for making claims to  Revenue, namely, four years from the end of the period to which it relates.

If an input credit/claim for repayment is made in circumstances where the summary claimed has not fact been paid within six months of the end of the tax period, VAT is adjusted relative to the unpaid price. This will reduce the deduction in a later period or obliged the trader to repay revenue. There is an exception where there are reasonable grounds for not having made the payment. This may arise in relation to a bone fide dispute.

The Revenue may defer VAT repayments in certain circumstances.  Revenue  may require security in respect of VAT to be refunded, by way of bond or by guarantee.

Overseas VAT

Generally a trader needs to be registered for VAT to reclaim VAT. It is possible to reclaim VAT incurred in other EU states in the course of the trade where the purchase is for the purpose of a Vatable trade in Ireland.. It may also be possible to recover VAT and like taxes incurred in other countries depending on their legislation.

The United Kingdom for example has preserved a similar system of VAT recovery although the expedited EU mechanisms for reclaim via Revenue are not available.

The EU wide system allows traders to submit a claim for reclaim to their domestic revenue which in turn reclaims it from the revenue in the EU state where it was incurred. This may be done through ROS in Ireland. Non- EU established traders must apply under a different system directly to the revenue in the state were VAT was incurred.

Traders who are  established in Ireland,  who are not registered for VAT ,and make supplies overseas may be able to recover Irish VAT incurred, where the recipient is the accountable person or where  qualifying activities are undertaken, to customers outside the EU. See above in relation to qualifying activities.

Where goods and services are supplied / provided outside of Ireland which would be taxable if supplied / provided in Ireland the seller/provider may claim repayment of VAT incurred in Ireland. The principle also applies to certain services provided outside the EU including financial and insurance services. The claim is made directly to Revenue Commissioners in a prescribed form.

Farmers and fishermen

There are special provisions in respect of farmers and fishermen which allow recovery of VAT in certain circumstances, notwithstanding that they are not registered for VAT generally or are registered only in respect of intra-EU  and acquisitions. The reclaim is limited to certain types of purchases for the business. Conditions apply.

Included are

• certain farm building and land drainage and reclamation works;
• marine diesel by sea fishermen;
• purchase hire and repair of certain fishing vessels
• the purchase, hire repair and maintenance of certain sea fishing equipment;

Finance Act 2012 provides that the Minister may make orders by statutory instrument to allow repayment of VAT to persons who would not otherwise be entitled to repayment.  In making an order for repayment of input  tax to which a person would not otherwise be entitled, the Minister should have regard to the nature and purpose of the goods and services and the person who seeks the refund.

Special Deductions

Persons who elect to be accountable are entitled to reclaim VAT on stock and trade purchased before their first VATable period on the same basis as if he was VAT-registered at the date of supply. This arises under a specific provision which allows exemption in these particular circumstances.

A VAT deduction also arises in a number of other more unusual circumstances including the following:

• VAT on supplies that are postponed in respect of alcohol products under duty suspension arrangements;
• any unrelieved VAT liability arising from transfer of goods from a business and one member state to the other;
• certain Vatable costs associated with transfer of an undertaking which are not subject to the general exemption.

Misc. Rights to Reclaim

There are a range of other concessionary provisions for refund of VAT, for social and policy reasons.  They include

• the purchase by certain bodes of radios for the blind
• the purchase of motor vehicles acquisition and refurbishment costs for certain  disabled persons;
• mobile homes for use by permanent residence or letting by local authorities;
• sea rescue craft in respect of sea rescue organisations;
• the purchase of medical equipment by hospitals over certain thresholds
• purchase of goods supplied apply to certain approved bodies carrying out charitable humanitarian or teaching activities.