Application of VAT
VAT applies to the sale of goods and provision of services ( both called a ‘supply’) by VAT registered businesses in the state. The supply must be in return for some payment or value (consideration).
VAT is charged on the price which the supplier becomes entitled to receive. This includes taxes, commissions and costs. Where the price is not monetary, the open market value applies. If for non-business reasons, the price is less than market value, market value apples. Where the transaction is between connected parties, the Revenue can impose market value.
VAT also applies to the importation of goods into the state regardless of whether there is a purchase or supply by anybody. It applies to the acquisition of goods by a Irish business from a supplier in another EU state. It also applies to the acquisition of a new means of transport (generally a car) by anybody from a supplier in another EU state
Most businesses must register for VAT, unless their turnover is less than certain relatively low thresholds. VAT is European Union wide tax. Some classes of businesses are exempt from VAT.
Prices must be quoted and displayed, inclusive of VAT
Most goods and services are subject to VAT at 23% of the sales price. Some goods and services are subject to the lower 13.5%, 5% and zero rate. Other goods and services are exempt from VAT for social and policy reasons. The goods and services subject to the lower rates are listed in the VAT legislation.
Charging the Added Value
VAT applies when there is a sale of goods or supply of services by a VAT registered person in the course of business within Ireland. Companies, sole traders and partnerships must register for VAT. Sales outside Ireland are subject to special rules. They differ depending on whether the recipient is inside or outside the European Union and whether or nor the recipient is a business.
Each business in the supply chain must charge VAT. For example, the manufacturer must charge VAT to the wholesaler and wholesaler must charge VAT to the retailer. The retailer charges VAT to the consumer. Each person, other than the consumer, reclaims VAT on the all their business related costs and purchases (inputs).
For example, the retailer can reclaim or obtain a credit for the VAT charged by the wholesaler. VAT is in effect, only paid on the net value added by the business. The effect is that the net VAT is paid on the difference between sales and purchases i.e. the value added.
In making the VAT return the seller sets off VAT payable by him on sales against VAT reclaimable by him on purchase. Only the net VAT is paid in the bi-monthly VAT return. Where purchases exceeds sales, the there may be a reclaim of VAT form the Revenue.
Recovery of Purchase VAT
The supplier is entitled recover VAT on all inputs. This includes not only purchases such as raw materials or goods but also, the property, equipment, plant and anything else used for the purpose of the trade. VAT on all these supplies will be fully recoverable where they are used wholly for a vatable business.
Where the business is partly vatable, and inputs are used for both the vatable and non-vatable business, an apportionment is made .
Supplies of Goods and Services
VAT applies to the supply of goods and the supply of services. The definitions in each cases is very wide. A wide category of transactions may be subject to VAT, well beyond the sale of goods or services.
The supply of goods includes the sale of goods for money, the transfer of goods without payment , hire purchase and compulsory purchase. The supply of services is defined to cover the performance or omission of any action or the toleration of any situation other than the supply of goods.
There can be thin line between the supply of goods and supply of services. In some cases there will be a supply of both goods and service. The categorisation may have consequences in terms of rates and tax treatment.
In some cases there are deeming provisions. The supply of food in a restaurant or hotel is deemed to be service and is taxable in a different manner to the supply of food. The supply of electricity and power is deemed to be the supply of goods. The leasing or hiring of goods is deemed a financial service rather than a supply of goods, which carries a different VAT treatment of the supply of the goods themselves..
Where there is a supply of services with the provision of goods the two thirds rule operates to deem there to be a supply of goods if the value of the goods exceeds two thirds of the price payable. The entire supply is deemed to be a supply of goods. The rule does not apply in reverse to deem there to be a supply of services.
A so called “self supply” where goods are put or appropriated to a private use or a non-vatable use, for example, it a trader takes goods for his own use, there is a self supply. VAT must be accounted for, on the original cost of acquisition. The scope of self supply of services is narrower, A self supply may arise where a person carries out a service for a non vatable business.
The supply of a canteen may constitute the self supply of a service, subject to VAT. If the canteen is provided by outside provider, then the cost accounted for, is the actual price.
Where property is used within the period of 20 years after development, other than for the purpose of a vatable business, then there is self supply. VAT must be accounted for on the self supply. See our chapter on VAT on property.
Domestic Reverse Charge
There are special rules in relation to VAT accounting on contracts in the construction industry and other industries subject to so called Relevant Contract withholding tax (RTC). The principal contractor under that legislation must account for VAT on services received from sub-contractors.Where a principal contractor receives construction services, he is liable to account for VAT due on them.
FA 2012 extends this mechanism to supplies of construction services between connected persons, irrespective of whether the recipient is a principal contractor. The supplier must be an accountable person who supplies services to a taxable connected person. The two-thirds supply rule does not apply to services within this new reverse charge.
The recipient if entitled to deduction, is entitled to recover the VAT. There is provision for a document similar to a VAT invoice, to deal with the reverse charge.
Place of Supply
The place of supply determines whether Irish VAT is chargeable. This will usually be self evident in domestic transactions. Goods are supplied where the ownership or equivalent rights pass.
The general rule is that services are supplied with the supplier is established. Where goods are transported, (e.g. out of Ireland), the place of supply is where the transport begins. There are also special rules that alter this general rule in various contexts.
The basic rule is that the place of supply is the supplier’s place of establishment. However, since 1st January 2010, EU wide rules generally deem the place of supply of services of cross border service to a VAT registered business, to be where the customer is established. This does not apply to private customers, who are taxed, under the basic rule, at the supplier’s place of establishment.
Special Place of Supply Rules
Services in relation to immovable goods (land and buildings) are deemed supplied where the property is situated. Therefore, architects fees and solicitors fees connected with a property (e,,g, conveyancing) will always be subject to VAT in the state where the relevant properly is situated.
Where plant and equipment is installed or assembled, the place of installation or assembly is the place of supply.
In the case of transport services, the place of supply is where the transport takes place.
Where the customer is VAT registered and the supply is within the EU, the supply is where the EU customer has his VAT number. Where the customer is not registered, the supply is the place of departure.
Telecommunications, broadcasting and radio services, are deemed supplied in the State when provided to private individuals in the State, by non- EU suppliers.
In the case of hire of a car, the place of supply is where it is placed at the disposal of the customer.
Business Recipient of Services
Generally, services to business customers within EU are deemed to be supplied where the business customer is located. The business customer accounts for the VAT on a so-called “reverse charge” basis. They simultaneously claimed VAT imput VAT and account for the VAT. If their business is fully vatable, then there is no cash cost.
Where the supply is made from an establishment in Ireland to a non-VAT registered customer or consumer within the EU, Irish VAT is chargeable. Where the supply is to outside the EU, VAT is not generally chargeable.
Where a supply is made to private consumers in the EU, from outside the EU, the supplier can opt to register in one EU state and remit the VAT to that member state. That member states remits the relevant proportion of VAT to the other states in which supplies are made.
The following services are deemed supplied where performed; artistic, sporting, scientific, educational, entertainment, exhibitions, conferences, work on immovables, The hiring of vehicles cars ships and aircraft are supplies where transport is used. Services provided by intermediaries and agents are deemed supplied, where the underlying transactions is performed.
There are four rates of VAT. 0% 4.8% , 13.5% and 23%
Certain goods and services are exempt from VAT. Where a supply of goods of services is exempt. This has the consequence that is not possible for the supplier of the service to reclaim VAT on his purchases and business costs, that bear VAT .
Zero rate is the most beneficial in that the input tax is recovered but VAT is not chargeable.
Turnover and Registration
Traders with turnovers below certain level need not register for VAT. Where a trader is not registered, it cannot recover VAT on inputs or purchases. The trader could elect to register in which event he can recover input VAT but must charge VAT on his supplies. If his customers cannot recover VAT, this may advantageous.
The turnover thresholds for registration are the following in a continuous twelve month period are as follows;
- Sale of goods €75,000;
- Supply of services €37,500
- Mixed sale of goods and supply of services where goods exceed 90% €75,000
- Mixed sale of goods and supply of services where service exceed 10% €37,500
Non-established traders who make a supply in Ireland must register for VAT on any supply. There is not registration threshold.
The following traders must register regardless of turnover.
- principal contractors who receive supplies from construction workers and subcontractors;
- businesses receiving services for aboard;
- businesses acquiring goods from other EU states in excess of €41,000
- foreign traders, who sell to non VAT registered people in Ireland whose turnover exceeds €35,000 per annum
Where group of persons or companies have close commercial, organisational and economic ties, they may apply to be treated as a VAT group. This may usually apply to group of companies. They will be treated for VAT purpose as a single entity with single accounting. The nominated remitter files returns.
Transactions within the groups are not subject to VAT. Each entity is jointly liable for all the VAT. The option not limited to companies. The Revenue can insist upon compulsory registration of group.
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