VAT – General savings/ opportunities
In the inaugural edition of Indirect Tax Matters Alan Kilmartin explored how Indirect Tax risks must be managed by companies and Ruth Linehan, through a case study example, identified the common difficulties which companies’ encounter during the VAT compliance process. Read these articles here Managing Risk and exploiting opportunities and The Reality of VAT Compliance - A Case Study
In addition to ensuring that your company “gets it right” from a VAT compliance perspective, there are various savings and reliefs available to ease the burden of VAT on companies. In this article, we briefly take you through some of the opportunities that may be available to your business.
1. Bad Debt Relief
If your business has written off an irrecoverable debt you may be able to obtain relief for all or part of the VAT paid by your business on the original supply to the customer in default.
Many business fail to recognise this opportunity to reclaim VAT previously accounted for and where large debts are written off, significant savings can be made.
Certain conditions and steps are required to be followed and specific documentation needs to be kept to support such a claim.
2. Section 56 Authorisation (formerly known as VAT 13B)
A qualifying business that holds a valid Section 56 authorisation is entitled to receive certain goods and services from Irish suppliers with a zero-rate of VAT applying as well as importing goods free from VAT. This scheme can be a significant cash-flow benefit to authorised businesses as it removes the requirement for suppliers to charge VAT on qualifying supplies in the first instance and eliminates the necessity for a subsequent reclaim of this VAT on the business’s periodic VAT return.
If you are a VAT registered business supplying goods to other EU countries (intra-community supplies), exporting goods to countries outside the EU or making supplies of certain contract work and these supplies account for over 75% of your total turnover you may apply to Revenue to obtain an authorisation.
VAT Groups can also avail of the scheme where the group as a whole qualifies.
3. VAT Groups
VAT grouping can simplify the administrative aspects of VAT between associated companies, by treating these companies as a single entity for VAT purposes.
Once VAT grouped, one company, known as the remitter, files a single VAT return per period for the entire group and accounts for any VAT due to Revenue. In addition, VAT does not need to be charged or invoices raised on supplies between grouped entities, with the exception of property transactions.
While there can be significant benefits to forming a VAT group, business should always carry out an analysis before making an application, to understand the impact on VAT recovery and cash-flows as well as considering the fact that all group members will be jointly and severally liable for the other group members VAT liabilities.
4. Reclaims of Foreign VAT
Irish businesses may incur VAT in other EU countries. Typical examples include VAT on hotel accommodation, attending trade shows or conferences or on costs relating to immovable property located in the other EU country. Equally, foreign traders, not registered for VAT in Ireland, may incur Irish VAT on costs incurred in Ireland.
A refund of foreign VAT incurred by Irish and EU traders can be made through the Electronic VAT Refund (EVR) procedure, by submitting a claim to your local tax authority. The claim being made is still subject to the VAT deductibility rules in the jurisdiction in which the VAT was incurred. To illustrate, an Irish VAT registered business that has incurred French VAT that is recoverable under French VAT law, may submit an EVR claim to Irish Revenue. Similarly, a French VAT registered business that has incurred Irish VAT that is recoverable under Irish law, may submit an EVR claim to the French tax authority.
For businesses established outside the EU, not registered for VAT in Ireland, but which incur Irish VAT, the process is slightly different and claims may be made by submitting a Form VAT 60OEC along with supporting documentation to Irish Revenue and claims made are also subject to satisfying certain conditions. These latter claims are known as Thirteenth Directive claims.
5. VAT Recovery Methodology
Determining an appropriate VAT recovery methodology is essential for business which are engaged in VATable, exempt and outside the scope activities. The methodology used will determine the percentage of VAT deductible on costs used both for vatable activity and non-deductible activities. These costs are referred to as dual-use inputs. Dual-use inputs are costs that are not directly and exclusively attributable to one specific type of activity and may include expenses such as light and heat, advertising or audit/tax fees to name but a few.
In our experience, business can often find it difficult to determine the methodology which is most accurate and relevant to their business activities. The most common methodology used is the turnover method, however, other methods are permitted where they more correctly reflect the use to which the relevant costs are put. Reviewing the methodology used and then ensuring that the correct percentage rate is calculated is recommended to ensure that businesses are recovering the correct amount of VAT on these costs.
6. Cash Receipts Basis of Accounting for VAT
Generally, VAT registered businesses account for VAT on sales on the invoice basis, meaning that the VAT invoiced by the business is reported in the periodic VAT return in which the sales invoice is issued regardless of whether the customer has yet paid for the supply.
VAT registered businesses whose turnover is not likely to exceed €2 million in any continuous 12 month period or, if greater than 90% of their supplies are made to non-VAT registered persons, mainly private individuals, they may account for VAT on a moneys received basis. As a result, these suppliers enjoy the cash flow benefit of not paying sales VAT over to Revenue until such a time as they have been paid, the VAT due, by their customers.
7. Monthly VAT Returns.
In general, the filing frequency of Irish VAT returns is bi-monthly. However, depending on the VAT liability position, Revenue may allow businesses to file returns and pay the VAT due on a four-monthly or six-monthly basis.
On the other hand, businesses that are in a constant refund position may apply to Revenue to have their VAT filing frequency changed to a monthly return and while this will result in a greater administrative burden of filing 12 VAT returns per annum, there is a cash flow benefit of receiving VAT refunds earlier.
A significant opportunity can exist for businesses in respect of staff canteens and the costs related to same. Businesses that operate a staff canteen, charge staff for supplies (fully or on a subsidised basis) and which themselves own and collect the till receipts should account for the output VAT to Revenue but are also entitled to deduct the VAT incurred by them on the underlying costs. A review of your canteen operations may result in an opportunity to make a claim for the VAT incurred on these underlying costs.
Our Indirect Tax Team has extensive experience assisting clients in identifying whether they qualify for the above reliefs, completing the application forms where required and assisting clients when communicating with Irish Revenue. We would be delighted to assist you in exploring any of the above to determine whether an opportunity might exist for your business.