A practical guide to VAT for the engineering sector
29 August 2017
In theory, VAT should be quite simple. It is a tax on spending, with businesses acting as collection agents for the Revenue Commissioners. In practice, however, it is a quite complicated tax governed by legislation containing more exceptions than standard rules.
All businesses are aware how much VAT can impact on the bottom line. Unfortunately, VAT issues can arise in relation to a wide range of scenarios, for both large and small businesses. The following are examples of VAT questions which are often asked by those operating within the engineering sector:
- Am I obliged to VAT register in Ireland? The starting point is typically to identify if an engineer is an employee, in which case no VAT is chargeable on the engineer’s salary. In the case of a sole trader or corporate entity etc, engineering services provided in Ireland will generally trigger a VAT registration where turnover becomes likely to exceed €37,500 in any 12-month period. Also, engineers should be aware that it may be possible to VAT register “early” (i.e. below the turnover threshold) and this can allow for VAT recovery on associated business costs.
- Am I applying the correct VAT rate to my turnover and income? The standard VAT rate (currently 23%) is the default VAT rate in Ireland but it may be appropriate to charge 13.5% VAT (e.g. where the services being carried out involve physical work) or even not to charge VAT at all (e.g. supplies to certain non-Irish customers, and certain services that are subject to Relevant Contracts Tax).
- Am I recovering the correct amount of VAT? Certain expenditure is not deductible and therefore needs to be identified and excluded when preparing VAT returns e.g. petrol, most accommodation, entertainment etc.
- Could I have VAT obligations outside Ireland? There are specific VAT rules to determine where engineering services are regarded as taking place. This can range from the country where the engineer’s customer is located (e.g. where general consultancy services are being provided to a business) to the country where the subject matter of the engineering services is located (e.g. if the engineering services comprise physical work in respect of land and buildings).
- How do I deal with the purchase of goods or services from outside Ireland? Businesses operating in Ireland are required to record most purchases from abroad in their Irish VAT returns, although typically this can be done in a VAT cash-flow neutral manner. Separately, if foreign VAT is incurred on purchases, care is needed to see if and how this may be recovered.
- What is the best way to deal with any VAT errors identified? Depending on the nature of the errors and amounts involved, it may be possible to simply amend a subsequent VAT return to correct the underpayment, without the requirement to notify Revenue.
- What happens in a Revenue audit and what should I do if I am selected for an audit?
- Are there opportunities to make VAT savings or VAT cash-flow savings?
- What is the VAT treatment in respect of acquiring a premises or another business and what issues arise on disposal of a premises/business?
VAT rules and regulations
There is no doubt that it is difficult to keep up to date with all the necessary VAT rules and regulations. Keeping up with changes in how businesses operate and the impact this may have on the VAT position can also represent a challenge. For example, engineers involved in designing or selling downloadable content online to consumers may need to grapple with foreign VAT rules.
Like most businesses, those operating within the engineering sector can expect to encounter a Revenue audit at some point and the Revenue Commissioners are applying increasingly sophisticated measures in their approach to Revenue audits. This Revenue activity is likely to increase. Ensuring compliance with VAT obligations should therefore always be high on the list for those responsible within the business. The VAT man is never far away!
Chartered Accountants Ireland has recently published a new book (A Practical Guide to VAT). As the name suggests, the book aims to simplify VAT. It covers a wide range of practical VAT issues which Irish businesses encounter every day. The book has been written by VAT specialists working within KPMG, which has the largest VAT advisory and compliance team in Ireland.
For those who want to understand the interaction of Irish VAT law and the EU Directives on which our law is based, there is a chapter dealing with this subject. Readers may be interested to know how extensively EU legislation and case-law can impact in practice on the VAT treatment applied here in Ireland.
The book deals with topics in a non-technical manner highlighting areas where businesses frequently make mistakes and opportunities where savings can be made. It has been written for those who don’t work full-time in VAT roles but want a better understanding of VAT in Ireland and the issues which may impact on their business.
For those interested in VAT and who want to learn more on the subject, the book contains a little something for everyone.
Win a copy of A Practical Guide to VAT
For your chance to win a copy of A Practical Guide to VAT, email your answer to the following question to email@example.com by Tuesday, 12 September 2017:
What is the standard VAT rate in Ireland?