Remaining VAT Compliant

Tax legislation is constantly changing and this brings both risks and opportunities. The Revenue Commissioners are tasked with ensuring that the correct amount of VAT is collected and have significant powers to review a taxpayer's affairs.

Most Revenue audits often focus on the fiduciary taxes, such as VAT. This is one area where even minor errors can build into substantial liabilities because mistakes made in VAT tend to be repeated by a taxpayer. An increasing number of taxpayers are therefore reviewing their VAT affairs more regularly and taking a proactive approach to minimising risks.

Invoices Issued and Received

When issuing a sales invoice taxpayers should ensure that the information detailed on the invoice complies with current VAT legislation and regulations, that the invoice is issued in a timely manner and that the correct VAT rate is used.

The Irish VAT regulations provide that an invoice is only valid where the following information is stated on the invoice:

• The date of issue of the invoice;
• A sequential number, based on one or more series, which uniquely identifies the invoice;
• The seller's full name, address and VAT registration number;
• The purchaser's full name and address;
• In the case of a “reverse charge” supply of goods or services to a customer registered for VAT in another Member State:
• the customer's VAT number; and
• an indication that the “reverse charge” applies or that the invoice relates to an intra- Community supply of goods;
• The quantity or volume of goods;
• The date the goods or services were supplied;
• The unit price exclusive of VAT and any discounts or price reductions not contained in the unit price;
• A description of the goods or services;
• The consideration exclusive of VAT;
• The rate(s) of VAT;
• The amount of VAT (at each rate if more than one rate);
• If goods are given in exchange or in part exchange, a description of those goods plus the amount allowed on them must also be shown on the invoice;
• In the case of a prepayment, the date on which the payment on account was made (if that date can be determined and differs from the date of the invoice);
• If goods or services are supplied to the holder of a Section 56 VATCA10 zero-rating authorisation, the authorisation number must be shown on the invoice.

The Revenue Commissioners can impose a penalty for failing to issue proper VAT invoices. For this reason it is extremely important that taxpayers take extreme care when issuing VAT invoices to customers.

Recently, Revenue have been seeking payment of underpaid VAT in cases where taxpayers have issued incorrect VAT invoices and zero-rated supplies in error. As stated above, the VAT regulations provide that the EU VAT number of the customer should be stated on all VAT invoices where the “reverse charge” applies. Otherwise the supply is liable to Irish VAT. Care should be taken in this regard as this error can prove costly.

A valid VAT invoice is generally required in order to reclaim VAT paid to suppliers. It is therefore important that a business is satisfied that it is receiving proper VAT invoices when making claims for repayment of VAT.

Where simplified or electronic invoicing is being used, businesses should ensure that all the relevant required procedures are adhered to.

Invoice Timing

Taxpayers should also ensure that all VAT invoices are issued in a timely manner. The 2010 VAT regulations provide that VAT invoices must be issued by taxpayers within 15 days of the end of the month in which the goods or services were supplied.

Invoice Rates

In addition, taxpayers need to ensure the correct rate of VAT is applied to all goods and services supplied. While the standard rate of VAT in Ireland is 23%, the reduced rates of 13.5%, 9% and 0% apply to many goods and services. Taxpayers can make supplies at different rates and this can cause some confusion, particularly where a mixture of goods and services are supplied for a single consideration.

Deductible VAT

VAT registered businesses are entitled to reclaim VAT charged on the majority of goods and services which are used for their taxable business. However, VAT legislation specifically states that VAT cannot be reclaimed on the following items:

• Food and drink (unless acquired as stock-in-trade for resale);
• Accommodation (with some minor exceptions for attendance at certain conferences);
• Entertainment for clients, staff, personal use of assets;
• The acquisition, hiring or leasing of motor vehicles (some exceptions apply);
• The purchase of petrol otherwise than as stock in trade;
• Goods/expenses incurred that relate to a VAT exempt activity.

The vast majority of businesses reclaim some or all of the above, in error.

Businesses Without Full VAT Recovery

Taxpayers that make VAT-exempt supplies should ensure that VAT is not reclaimed on any purchases which solely relate to the VAT exempt supplies. However, where the taxpayer makes both VATable and VAT exempt supplies, its VAT recovery rate should be apportioned. There are a number of ways in which to calculate the appropriate VAT recovery rate, as long as it is done in a reasonable manner, and is reviewed regularly. This review should be done within the first three VAT periods, following the year end of the taxpayer. Taxpayers frequently forget to review the rate used to ensure it reflects their business activities.

Filing of Returns With Revenue

It is important that taxpayers complete and submit all returns on time as Revenue can impose penalties for failing to do so. Failing to file statistical returns (such as VIES, Intrastat and Annual Return of Trading Details) can also lead to significant penalties and there has been an increased focus on these returns from Revenue lately.

VAT 56B Authorisations

Certain taxpayers can apply to the Revenue Commissioners to receive goods and services from its suppliers at the 0% VAT rate. This is known as a VAT 56B authorisation (previously known as a VAT 13B authorisation).

This authorisation only applies to taxpayers that derive 75% or more of their turnover from the following:

• Exports of goods to non-EU countries; and/or
• Dispatches of goods to VAT registered persons in other EU Member States; and/or
• Contract work carried out on goods imported into Ireland which subsequently will be exported outside the EU by the person providing the contract work services; and/or
• Contract work, which is deemed to be supplied in another EU Member State

Once Revenue have issued the VAT 56B authorisation, the taxpayer is entitled to:

• Acquire goods from Irish suppliers at the 0% VAT rate;
• Self account for intra-Community acquisitions of goods at the 0% VAT rate;
• Self account for VAT arising on receipt of reverse charge services at the 0% VAT; and
• Import goods from outside the EU at the 0% VAT rate.

One of the conditions of this authorisation is that the authorised taxpayer must notify Revenue when it is no longer deemed to be a “qualifying person” i.e. the taxpayer no longer meets the conditions mentioned above.

The Revenue Commissioners can issue a penalty of €4,000 (every two months) for failing to notify Revenue that the VAT 56B authorisation no longer applies. Given that these certificates can be issued for up to 36 months, it is possible to incur substantial penalties for holding such a certificate, in error. It is also worth pointing out that the certificate applies to supplies of goods, but not services.

The above are a selection of common VAT issues which arise during Revenue audits. There are many others. It is therefore vital that businesses dedicate resource to evaluating their VAT position as this can help to ensure that liabilities are less likely to accrue and may well open up the possibility of some actual savings.

Caitriona Fitzpatrick is a VAT Consultant with Grant Thornton.

Email: caitriona.fitzpatrick@ie.gt.com

Tele: + 353 (0)1 680 5900