VAT requirements for Sole Traders in Ireland

How does VAT work?

Valued Added Tax (VAT) is a tax charged by Irish and other European businesses on the sale of goods and services. VAT is included in the price of most everyday items already so as a consumer you don’t usually see what percentage of VAT you’re paying. For business expenses,  such as stock, advertising & professional services, you will see it broken down on the VAT invoice that you receive from a VAT registered supplier. 

On becoming VAT registered in Ireland, you will be obligated to file a VAT return on a bi-monthly basis with the revenue detailing your VAT on sales for the relevant period, your deductible VAT on purchases for the same period and details of any intra EU sales or purchases. You will be obligated to file the return and pay any net VAT liability owing by the 19th day of the month following the end of the relevant 2-month period. On an annual basis, you will be obligated to file a VAT RTD return providing further information relating to your VAT trading activities carried on during the relevant trading period. All of this can create a high administrative and reporting burden particularly for small businesses – this might translate into higher accountancy fees if you do not have the time to process the VAT reports & returns yourself. Therefore it’s important to know when you need to register, and when it might be appropriate to make the decision to voluntarily register. 

If you are a VAT registered sole trader or company in Ireland, you are required to charge VAT on your products or services to your customers. The VAT rules that apply to you are dependent on the type of product or service that you offer, how you offer it (i.e. online or bricks & mortar) and also on the type (i.e. business or consumer) & location (i.e. In Ireland, In the EU, or outside the EU) of the customer that you serve. Depending on the type of business you have, VAT rules can be notoriously complex, and it is generally advisable to speak with your accountant before making any VAT decisions – failure to comply with VAT rules is very easy, and it can often be a very expensive learning curve for business owners if not done right at the outset. 

Do I need to register for VAT?

You don’t always have to register for VAT straight away as a new business.  There are some situations where your business will be obliged to register – In general, a business in Ireland is required by law to register for VAT

When you will be required to register

If in a 12 month trading period (not a calendar year) you go above €37,500 for the sale of services or €75,000 for the sale of goods

If you receive goods from other EU member states above €41,000 

If you are outside Ireland and make mail-order or phone or online sales (“distance sales”) into Ireland above €35,000

If your business receives services from outside Ireland at any level and these services are used in Ireland your business may need to register for VAT

A person, while not established in the state, needs to register and account for VAT if that person supplies: taxable goods to ‘taxable customers’ in the State 

or

services to ‘taxable customers’ in the State.

When does this apply?

This applies irrespective of the level of turnover.

Further, you may have obligations to register for VAT in other EU states if you sell into those states and you exceed certain thresholds dependent on location. This is not an exhaustive list, and again it is generally advisable to speak with your accountant to determine if you should or need to register for VAT in Ireland.

Can I voluntarily register for VAT?


  • Why would I choose this?! Well aside from the mandatory criteria above, sometimes it makes sense to register voluntarily – whether for financial or for other business reasons.

    When you register for VAT you:
    1. Reclaim VAT on your expenses
    2. Charge VAT on your sales
    3. You have to prepare and file VAT returns as outlined earlier.


    As you can see, you can reclaim VAT on your expenses so depending on your expected level of VATable business expenses versus the expected level of VAT on sales, it might make financial sense to voluntarily register for VAT before you reach the mandatory thresholds. You might have high start-up business costs for example, and your turnover may be low for the first while as you get your business off the ground – in this situation, registering for VAT would provide a cashflow benefit to the business.


  • However, once you are registerd for VAT you must charge VAT on your sales - this will matter less if your customers are mainly VAT registered businesses like yourself (as they will be able to reclaim the VAT cost in their VAT returns). If your customers are mainly non-VAT registered individuals however the cost to your customers could go up by as much as 23%.

    This can be a difficult decision to make for any new business as you might not have all off the information needed i.e. sometimes the decision is based on anticipated or forecasted events. You could end up loosing a portion of your customer base due to the increase in cost – particularly for businesses with non-VAT registered individuals as their primary customer base.

    Then again, some new businesses find that they have more credibility in dealing with suppliers etc. if they can provide them with a VAT number. Again, it is generally advisable to speak with your accountant to determine if you should or need to register for VAT in Ireland

How do I register for VAT in Ireland?

To register for VAT in Ireland you need to register with the Irish Revenue. You can submit a VAT registration application via Revenue Online Service (ROS). Alternatively, your tax agent or accountant can do this for you on your behalf. Revenue have become stricter recently with regard to VAT registration to avoid rogue traders and to guard against abuse of the system. Generally, in order to register you will need to show proof of trading with Ireland.

 

For example, you will need to show (amongst other things)

  • Your business has trading activity in Ireland
  • Invoices from Irish suppliers and to customers
  • The owner/Director of the business lives in Ireland
  • You have a physical office in Ireland

Why would my application be rejected?

  • You haven’t hired employees in Ireland 
  • You don’t trade with suppliers in Ireland
  • Your Director isn’t based in Ireland
  • You have no Irish customers

How long is the process of getting a VAT number?

Once your application has been submitted if can take up to 28 days.  This is if there are no requests for further information from Revenue, and on the basis it is not a peak time for Revenue (e.g. end of October / Middle November and end of December / January each year).

How often do I need to submit a VAT return?

Generally, you are required to submit a VAT return bi-monthly, by the 19th of the month for that two month period or by the 23rd if you’re using Revenue’s online service (ROS).  The two month period starts on the first of January every year. 

It is important to ensure you have adequate bookkeeping processes in place to ensure you have the reporting capability to produce information and reports in a timely manner so as to meet your VAT return deadlines. Depending on the number of transactions in your business, you might look to get set up with an accounting software (whether cloud based e.g. Xero, Big Red Cloud, Quickbooks, Surf Accounts, or desktop) to help you meet your reporting needs. For businesses with lower volume of transactions, an excel spreadsheet is probably good enough, but it is important to keep it up to date throughout the year. If you do not file a VAT return or if you are late in filing a VAT return, you can face fines and penalties for missed deadlines – late filings can also impact on your tax clearance certificate, which will then have a knock on effect with some of your suppliers who might refuse to work with you until you have a valid tax certificate in place.

What do I need to show on my VAT invoices to customers?

  1. Date of issue
  2. A unique sequential number
  3. The suppliers full name, address and registration number
  4. The customer’s full name and address
  5. In the case of a reverse charge, the customer’s VAT number and a notion that a “reverse charge applies”. (This does not apply to construction servives subject to Relevant Contracts Tax)
  6. In the case of a intra-Community supply of goods, the customer’s VAT number and a notion that this is a “intra-Community supply of goods”
  7. The quantity and nature of the goods supplied
  8. The extent and nature of the services rendered
  9. The VAT exclusive unit price
  10. The payment recieved net of VAT
  11. The discounts or price reductions
  12. The breakdown by the rate of VAT
  13. The total VAT payable in respect of the supply
  14. The date on which the goods or services were supplied
  15. Where an early payment is made prior to the completion of the supply, the date on which the payment on account was made. This only applies if the date differs from the date of issue of the invoice
  16. The full name and address of the Member State’s VAT number representitive. This is the case where a tax representitive is liable to pay the VAT in another Member State.

The concept of VAT is relatively straight forward, however the application in practice is not always so simple. Please contact us with any questions you have.