I operate a small accounting practice in Sligo town, with 90% of my clients being sole traders.
One of the questions I am often asked by a new client is “Do I need to register for VAT?”
Turnover (Sales) thresholds, have been set by the Revenue Commissioners to determine if you do need to register.
If you operate a services business (e.g. Hairdressing) and your turnover is above €37,500 then you do need to register. If you operate a business where you supply goods (e.g. publican) once turnover is above €75,000 you also need to register.
For those setting up in business for the first time, while all clients hope their turnover exceeds these thresholds for obvious reasons, it may take a year or two, to become established and do so.
You can therefore elect not to register for VAT until you feel, 12 months of turnover will be at the levels defined above. Once you reach that level you must register with Revenue.
Registration is simple enough and is done through the ROS system.
Once logged on to ROS, within ‘Manage Tax Registrations’ you will choose VAT option.
Click on Add and link to a new registration.
This brings up a detailed screen, as shown below, where you must specify what date you are registering from. This will determine when your first VAT return (VAT3) will fall due.
VAT3 returns can be filed every 2,3,4,6 or 12 months, and are due on the 19th of the month following the last day of the VAT period end due.
e.g. if you register for VAT on the 1st of September, and operate returns on a bi monthly process (every two months), your first VAT3 will be for September/October, and will be due on the 19th of November.
The returns basis for VAT is an important option when registering for the first time.
You can either elect to choose the Cash or Invoice basis.
This means you will file your VAT returns based on VAT monies received (for turnover) and paid (for purchases and expenses) in the taxable period.
Receipts would equate to customers paying you for goods and services and payments would be monies paid to suppliers etc.
The invoice basis means you file your VAT returns based on what date VAT appears on your sales invoices and purchases invoices for the period. The downside to this option, in my opinion, is cash flow. If, for example you invoice a customer on 31st October, and you give that customer 30 days credit, you still have to hand over the VAT to Revenue on the 19th November, even though you may not get your invoice until at earliest 30th November.
Registering for VAT for other issues
Registering for VAT can also be a strategic decision for a small business. If the turnover is not going to exceed the thresholds you need to ensure you are not registering for VAT for the wrong reasons.
- Charging someone VAT is fine, if they are also registered for VAT as there is no extra cost to them. But, if for example you are a tradesman, and the bulk of your sales are to the general public who are not registered, you are adding 13.5% to your sales price and this could price you out for the market.
- Filing VAT returns may have extra business costs like bookkeeping fees for maintaining the records and filing the VAT3s.
- If you are not registered you can write the full cost of an expense against your income e.g. telephone costs can include the full amount including the 23% VAT.
If you have registered and realise you do not need to be you can simply go online and de register at any time. You will still need to file any returns outstanding though up to that point.
Don’t ignore the returns even though you may not have traded – file them as zero. If you have a liability but are not in a position to pay, file this too on time!
Ignoring tax returns just leads to you being highlighted on the tax system as an issue which won’t be ignored! Not filing could result in a revenue audit and/or penalties and interest.
Talk to your accountant if you have any concerns or issues with VAT, and remember to invest a good accounting package – like Sage One, to keep you on top of your VAT at all times.