Insights

VAT apportionment and recovery

Does your VAT registered business have restricted input VAT recovery and a December year-end?

An annual review of VAT recovery is a mandatory requirement at year-end where a provisional VAT recovery rate has been used in the year just ended to calculate the deductible VAT. Most December year-end entities will not yet have reviewed their actual 2016 VAT recovery rate and calculated the resultant adjustment to the VAT deducted.

Bearing the above in mind, now is an opportune time for entities with an input VAT restriction to consider:

  • The VAT recovery rate for 2016;
  • The question of any 2016 VAT adjustment;
  • The appropriateness of the VAT recovery methodology they are currently using (and used for 2016);
  • Whether the VAT apportionment method used is fit for purpose and is consistent with the current business model;
  • If there are opportunities to improve the VAT recovery position going forward

Whilst applicable to all entities with restricted input VAT recovery, the main industries impacted include:

  • Banking
  • Other financial services
  • Insurance / Reinsurance
  • Investment funds (e.g. management companies, Section 110s, funds, ICAVs)

We have extensive experience in the FSI sector and are currently working with numerous clients to provide commentary and recommendations on methods in place, together with guidance on a “best fit” framework, and most appropriate VAT recovery rate calculation basis going forward.

If, for example, there has been a change in the current business offerings, the VAT recovery methodology may need to be revised to accommodate such changes. Additionally, where VAT non-deductible activities have commenced within a business which previously had full input VAT recovery the implementation of a VAT recovery methodology must be considered.

In doing so an assessment must be made as to what the most efficient VAT recovery methodology would be, both from an overall cost perspective in terms of the staff and other resources necessary to implement and monitor such a method, to whether such a method is equitable and represents a fair and reasonable basis for cost allocation which would stand up to Revenue scrutiny.

If you have any queries or would like our assistance with regards to the annual VAT adjustment, structuring a VAT recovery methodology or any other FSI VAT related matter please contact Ciara McMullin or Richard McDaid

 

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