Top Tips on Managing your VAT

VAT accounts for over 30% of the total tax take every year and it really is an ingenious tax. The man who first though of must have had a brilliant, albeit mean spirited, mind. The argument runs like this; if you have enough money to spend on things you want you must have enough money to pay more tax.

Not only this, but the VAT system turns businesses into tax collectors. When you start off you decide you’re going to be a mechanic, a solicitor, a musician, but after some success Revenue also insist on you being a tax collector, obliged to gather VAT from your customers and pay it over to the government. What’s more is that even though you didn’t want to be a tax collector in the first place and have had no training in the profession, if you do it wrong then stringent penalties are levied against you. From a tax legislation perspective it really is inspired. Unfortunately although it is great for Revenue it’s not so good for the rest of us.

The correct management of VAT is essential to all registered businesses. Here are some tips that might provide food for thought.

1. Consider changing the filing frequency of the VAT return. Merely filing late is not an option. You may qualify to file quarterly or bi-annually.
2. If filing on an annual return basis, consider changing the amount of the monthly direct debit payment. However, you must be careful that you don’t end up with an end-of-year shortfall.
3. You may be entitled to switch to accounting for VAT on the cash-receipts basis. This can be a significant advantage at a time when debtors may be slow to pay. Switching is subject to Revenue agreement and must be applied for.
4. If the business has both VAT-able and non VAT-able income, it is obliged to carry out a review of the apportionment rate at the end of each accounting period. A detailed review may uncover new possibilities for VAT recovery.
5. If a supply of services is on going but the business is entitled to receive a payment on account, it may be permissible to seek remittance by issuing a “payment document” instead of a VAT invoice, thus deferring the requirement to account for sales VAT.
6. Be attentive to the date on which VAT invoices are issued. It may be possible to raise some sales invoices on the first day of a new VAT period instead of the last day of the previous one without causing a further one-month delay in payment by the customer.
7. If it is necessary to write off a debt, be sure to claim bad debt relief in relation to the sales VAT on the original invoice. This may soften the blow of the write off somewhat but is subject to quite strict conditions. Bad debt relief can only apply when the business accounts for VAT on the invoice basis.
8. Consider deregistering for VAT if the turnover falls below the obligatory VAT registration threshold (currently €37,500 p.a. for services and €75,000 p.a. for goods).
9. If it becomes apparent that a VAT refund is due, apply for it on a timely basis. Apart from the importance in cashflow terms, the four-year cap has to be taken into account.
10. Ensure you are apprised of any potential advantages which changes in legislation or Revenue procedure may offer. There were significant changes in place of supply rules in relation to services from 1 January 2010. Some Irish businesses will be able to stop accounting for Irish VAT on supplies of services to non-Irish customers, while other Irish businesses will have to start accounting for VAT on the reverse-charge basis in relation to services received from outside of Ireland.
11. Reclaim sales VAT on deposits taken where the supply does not subsequently take place.
12. It is now possible to recover VAT in relation to expenditure on conference accommodation and the purchase of certain cars (both subject to conditions). Tour operators are also entitled to claim VAT in relation to certain overheads.
13. Recover input VAT incurred in other jurisdictions. The Eighth EU Directive procedure improved significantly from 1 January 2010.
14. If a business restructure involves a disposal of immovable property (even to a spouse) remember that there may be VAT implications even if there the transfer does not crystallise other taxes. Similarly renting out a property pending a sale may give rise to VAT issues, since renting is prima facie an exempt activity.
15. If a business does encounter difficulty in dealing with its obligations vis-à-vis Revenue, take a proactive rather than an ostrich approach. Revenue has indicated that it is “disposed to working with … businesses and tax payers to find a way through … difficulties, provided that there is a positive and honest engagement with Revenue and the fundamentals of the underlying business are sound”.