Survey shows 28% of companies don’t understand benefits available to them
Dublin, 7th August 2013 – Irish businesses are overpaying thousands of euro in VAT due to a lack of familiarity with the complexities of Ireland’s VAT regime, according to research conducted by business software and services provider Sage.
Companies with turnover below €1.25m are allowed to account for VAT on a Cash Receipt Basis, and therefore can wait until invoices get paid before paying VAT owed. If a company faces 5% of its invoices going unpaid, then it could end up overpaying VAT by €14,000. This overpayment can be claimed back using VAT bad debt relief but any business unaware of this would end up overpaying their VAT.
The research reveals that 28% of businesses do not understand what VAT cash accounting is, and only 53% of businesses surveyed are very confident they are processing their VAT correctly. Nearly one in three (32%) of respondents do not understand how to account for VAT when trading abroad.
Miriam Berney, VAT Education Manager for Sage Ireland commented: “Companies who face challenges with customers not paying invoices could significantly improve their cashflow if they move to VAT cash accounting. Even where bills are eventually paid, VAT cash accounting makes it much easier to manage cashflow and ensures the VAT due is only paid when your business actually receives the funds.”
VAT is a sales tax that’s charged on most goods and services bought in Ireland and accounts for 10 billion paid to Irish Revenue in 2012. Budget 2013 increased the turnover threshold for cash-based VAT accounting from €1 million to €1.25 million, giving hundreds more companies the opportunity to manage their tax bills more efficiently.
Sage’s research also showed that small businesses are also prone to error through processing their VAT returns manually (5% of companies surveyed) or using basic excel spreadsheets (10% of companies surveyed).
Miriam Berney continued: “Businesses that don’t understand the VAT system are really putting themselves at a competitive disadvantage. Despite being around for years the ever changing nature of VAT has put many business owners off from trying to fully understanding what can be refunded and what scheme is best for them. In Sage 50 2014 the new VAT Verifier gives businesses the confidence that their VAT return is accurate as it has passed the seven independent checks; for example checking for duplicate transactions so you are not over paying on VAT. This gives peace of mind that it is accurate and safe from penalties.
Ireland has one of the most complex VAT systems in Europe, with five VAT rates and two VAT schemes, understanding VAT is a big challenge that many organisations face.
Software exists today that can make claiming money back from revenue a five minute job and it is easy to change from the Invoice Basis to VAT Cash Accounting if your business is eligible. A low-cost investment in technology could prevent a business from over-paying thousands in tax.”
Since June 2012, all businesses in Ireland are required to submit their VAT returns online via the Revenue Online Service (ROS) and thousands of businesses in Ireland use Sage 50 to submit their VAT return via ROS every year. For the latest version of its flagship accounts software, Sage 50 Accounts 2014: The VAT Edition, Sage has introduced a number of features to make VAT submissions even easier helping businesses avoid costly VAT mistakes.