Everyone has heard of VAT at some point and have a notion of what it means to them as a consumer. However, if you run a business, your knowledge of VAT should be more than just the extra pennies you spend at the store. How you handle VAT could be the difference between running your company legally and not.
What Is VAT?
VAT is a type of consumption tax which is applied to the purchase of goods and services as well as other taxable supplies. In business, VAT will play an important role and will be charged on a range of goods and services. Charities have different rules when it comes to VAT, but VATIT advises that for most businesses the taxable areas will be:
- Sales of your services or goods
- The loan of your goods
- Exchanges such as the swapping of a new product in exchange for an old one
- Staff sales such as meals
- Business goods that you will personal use
- The sale of any business asset
VAT will be ultimately paid by the consumer and it is not a tax on individual businesses. While the business will pay VAT to the revenue service, the consumer is the one who actually pays it. The VAT will be covered by the purchase price of the goods and services that they buy. This means that it is an indirect tax that businesses have the responsibility of reporting.
What Is The VAT Threshold And Do You Need To Register?
If you have a business that has a turnover which is over a certain amount, you will have to register for VA. Once registered, you will have to charge VAT on all the services and goods that you offer to customers. It is important to note that you will only be able to charge VAT if you are registered. Registration will enable you to reclaim VAT on the goods and services that your business purchases.
What Is Your VAT Number?
A company is only provided a VAT number when they have registered for VAT and this number will be found n the VAT registration certificate. This is a very important piece of paperwork that will also tell you when your first VAT return is due. It will also include the date your business went over the threshold and had to register for VAT.
The VAT charged by your business will be calculated on the full value of what you sell. This tax will need to be applied to all sales even if you are operating on an exchange or part-exchange system. If you charge your customer without VAT, the sales price that you charge will be considered as inclusive of VAT by revenue.
VAT-registered businesses will need to report the amount of VAT charged or paid through a VAT return. This will need to be submitted every 3 months to the revenue service. These returns will have to be completed even when you have no VAT to report.
If there are any over-charges of VAT by you to your customers, you have to pay it to revenue services. If you have paid out more VAT than you charged your customers, you can reclaim this difference from the revenue service.
What Is The Current Rate Of VAT?
There are three rates of VAT that you need to know about. The Standard is 20% and will be charged on the majority of goods and services. A reduced 5% rate will be charged on select goods and services such as power bills. Zero rate is only charged on certain goods and services such as children’s clothing.
What Is Exempt From VAT?
The rate of VAT charges will vary depending on the nature of the goods and service being purchased. There are some services and goods which are completely exempt from VAT. This will include:
- Training and education
- Charitable fundraising
- The selling and letting of commercial properties
- Finance and insurance services
- Postage stamps
The revenue service website will have a listing of all the VAT levels and the products and services related to them.
What Is The Difference Between Zero-Rate And VAT Exempt?
Zero-rated supplies will not be charged VAT in the traditional sense, but will be charged 0%. This allows businesses to supply these items or services and recover VAT from their business overheads and costs. The VAT exemption goods and services will not be eligible for any VAT reclaim. If your business offers only VAT exempt items and services, you do not have to register for VAT.
What Can You Reclaim VAT On?
It is possible to reclaim VAT on a number of services and goods used for businesses for their operation. It is possible to do this on items such as:
- Staff travel
- Business use only vehicles
- Maintenance, accessories, and fuel for business use only vehicles
- Mobile service plans for business calls only
- Utility bills if you have a home-based business and this will be proportional to the percentage of utilities which are used for the business
There are some items that are not eligible for VAT reclaims including:
- Anything that is for purely personal use
- Entertainment costs
- Items bought from other EU countries