Dominic O’Shaughnessy addresses the issues that engineers encounter with VAT invoicing, including valid VAT invoices, Relevant Contracts Tax, disbursements and recharges
Civil

 

Author: Dominic O’Shaughnessy, chartered engineer CEng MIEI, chartered tax adviser CTA AITI, chartered tax consultant in William Fry Tax/Taxand Ireland

The purpose of this article is to address the day-to-day issues and complications that professional service providers (PSPs) such as engineers, can encounter with VAT invoicing, including:

  • What information to include on a valid VAT invoice;
  • Whether Relevant Contracts Tax (RCT) applies; and
  • The different VAT treatments applying to disbursements and recharges.

With regard to requirements to qualify as a valid VAT invoice, common mistakes made by PSPs that render such invoices invalid include: the incorrect customer address; the incorrect application of the reverse charge; the omission of VAT registration number of the PSP; and the incorrect treatment of disbursements and outlay.

The standard VAT invoice issued by a PSP to a taxable client, both of whom are established for VAT purposes in Ireland and the service is in respect of immovable property in Ireland, must show the following items:

Table 1:

Item VAT Invoice Requirement Items
Date of issue of the invoice
Sequential number, based on one or more series, which uniquely identifies the invoice
The full name, address and the VAT registration number of the person who supplied the services to which the invoice relates
The full name and address of the person to whom the services were supplied
The extent and nature of the services rendered
The date on which the services were supplied or, in the case of early payment prior to the completion of the supply, the date on which the payment on account was made, in so far as that date differs from the date of issue of the invoice
In respect of the services supplied:

  • specify the unit price exclusive of VAT;
  • specify any discounts or price reductions not included in the unit price; and
  • specify the consideration exclusive of VAT
Specify the VAT payable

The requirements outlined in Table 1 can vary depending upon the ‘place of supply’ rules, as discussed below.

Place of supply rules


The ‘place of supply’ rules determine what VAT treatment should apply to the supply. Some of the main ‘place of supply’ rules relevant to the supply of services by PSPs relate to: the standard supply of services in Ireland; services connected with immovable property; and the general rules.

1. The standard supply of services in Ireland

The place of supply for services, supplied by a VAT-registered PSP to a customer registered for VAT in Ireland, is Ireland. Local Irish VAT is chargeable on that service at 23%. VAT Invoice Requirement Items Nos 1-8 (outlined in Table 1) should be included to qualify as a valid VAT invoice.

2. Services connected with immovable property

Immovable property is defined in Revenue Guidance as “land and any buildings or fixtures attached to the land, including tenements, hereditaments, house buildings, walls, fences, other permanent structures or fixtures such as pipeline systems for gas, water, sewage etc, land covered by water, and any estate in, or over, land.”

Where the service relates to pre-construction, actual construction or post-construction services such as engineering, architecture, surveying, site supervision or any other services where the supplier has a specific on-site function directly concerning a specific immovable property, the place of supply for VAT purposes is where that immovable property is located.

Suppliers of services connected with immovable property located in Ireland are subject to VAT in Ireland regardless of the customer’s status. VAT Invoice Requirement Items Nos 1-8 (outlined in Table 1) should be included to qualify as a valid VAT invoice. Suppliers of services connected with immovable property located in another EU Member State must register and account for local VAT in the EU Member State where those services are directly connected with immovable property in that Member State.

3. General Rules

Where the service does not relate to a specific immovable property and the advice is of a generic nature, such as the drafting of plans and generic designs that may be used universally and not directly in connection with a specific immovable property, then the place of supply reverts back to the general rules. Under the general rules, there are two scenarios: business supplier to business customer and business supplier to private individual.

      a) Business supplier to business customer

The place of supply for services supplied to business customers, is where the business customer is established, i.e. the reverse charge shall apply. The business customer shall self account for the VAT on the reverse charge basis and claim a simultaneous input VAT credit for the output VAT on that supply, rendering it VAT neutral. A valid VAT invoice should include: VAT Invoice Requirement Items Nos 1-7 (outlined in Table 1); no reference to a VAT charge; the narrative VAT reverse charge applies in relation to the services provided; and the VAT registration number of the customer with the EU Member State’s prefix.

      b) Business supplier to private individual

  • Where services are supplied to private individuals established in Ireland or another EU Member State, the service will be liable to VAT where the supplier is established and the supplier shall charge VAT at the local rate. VAT Invoice Requirement Items Nos.1-8 (outlined in Table 1) should be included to qualify as a valid VAT invoice where the supplier is VAT registered in Ireland.
  • Where services are supplied to private individuals established outside of the EU, then the place of supply shall be where the private individual is established, has a permanent address or usually resides. As such, the supply should fall outside the scope of VAT altogether.

There are some exceptions to these rules such as those pertaining to ‘use and enjoyment provisions’ which are outside the scope of this article. VAT advice should be sought if venturing outside of the scope of the above main rules.

VAT and Relevant Contracts Tax and recharging costs


RCT applies to those engaged in actual construction operations as a principal contractor or subcontractor. If a service includes an element of fieldwork and design services, and the fieldwork represents a significant part of the contract, then RCT may apply to the full contract. This applies, for example, to site investigation and landscaping contracts where the supply is considered an integral part of, or preparatory to, construction. In this instance the supplier shall be a subcontractor for the purposes of RCT.

For VAT invoicing purposes, a subcontractor should:

  • IncludeVAT Invoice Requirement Items Nos.1-7 (outlined in Table 1);
  • Not include VAT on the invoice; and
  • Include the narrative ‘VAT on this supply to be accounted for by the principal contractor’.

With regard to recharging costs/expenses, we regularly encounter mistakes on VAT invoices in the VAT treatment of disbursements and expenses.

  • Disbursements

Disbursements are payments made by a PSP on behalf of a client, for goods or services used by the client, where the cost is passed on to the client. In collecting the disbursement from the client, the PSP is merely being reimbursed for the cost incurred. The cost is not directly incurred in providing a service to a client, but a cost of the client which was paid on the client’s behalf. The recharge of a disbursement should not include VAT, as the PSP does not add any value to the service.

  • Expenses (VATable outlay)

Recharges of expenses are costs that a PSP incurs in supplying goods or services to a client. It is up to the PSP whether or not to itemise costs such as postage and printing on invoices. If shown separately on the invoice, they are known as recharges or VATable outlay, upon which VAT should be charged – irrespective of whether VAT was paid on the cost or not.

Examples of such recharges include a bank-transfer fee in transferring money from a business account to a client’s account. The bank’s fee would be exempt from VAT, but in recharging the fee, VAT must be charged by the PSP. This is because it forms part of the VATable service provided in the course of running the supplier’s business.

Conclusion


In order for your client to avail of VAT recovery on their costs, they must be in receipt of valid VAT invoices before submitting a claim to the Revenue Commissioners. The submission of valid VAT invoices by a PSP is therefore important from your client’s perspective.

Should you have any doubt as to the correct application of the place of supply rules or whether your service relates directly to immovable property, which may have an impact on information contained on a valid VAT invoice, then you should seek professional taxation advice.

Dominic O’Shaughnessy is a chartered engineer CEng MIEI and chartered tax adviser CTA AITI. He previously worked as engineering director in a multi-disciplinary consultancy. He currently acts as chartered tax consultant in William Fry Tax/Taxand Ireland. William Fry Tax specialises in providing practical and concise taxation advice to the corporate and construction sectors in general. William Fry Tax is, exclusively, Taxand Ireland. With more than 400 tax partners and over 2,000 advisers in nearly 50 countries, Taxand is the world’s largest independent organisation of tax advisers to multinational businesses.

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  Author: Dominic O’Shaughnessy, chartered engineer CEng MIEI, chartered tax adviser CTA AITI, chartered tax consultant in William Fry Tax/Taxand Ireland The purpose of this article is to address the day-to-day issues and complications that professional service providers (PSPs) such as engineers, can encounter with VAT invoicing, including: What information to include...