Caitriona Fitzpatrick: How to keep your business VAT compliant and the Revenue happy
VAT 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.
This article outlines some common VAT issues which arise for taxpayers.
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. Revenue have recently stated that VAT refunds will not be issued where these statistical returns remain outstanding.
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.
In addition, from 1 January 2014 an adjustment must be made to VAT deducted by a taxpayer, where the taxpayer has not paid the supplier for the related goods or services within 3 taxable periods following the end of the period in which the deduction was made. The amount of VAT related to the unpaid consideration must be repaid to Revenue in the third taxable period. A re-adjustment may be made if the consideration is subsequently paid in full or in part.
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.