Friday 19 January 2018

Complicated system leads to SMEs overpaying their VAT

Sarah McCabe

Sarah McCabe

IRISH businesses are overpaying thousands of euro in VAT due to a lack of familiarity with the complexities of Ireland's VAT regime, according to new research.

The rules surrounding VAT, the sales tax that is charged on most goods and services bought in Ireland, have long been criticised for being too complicated. The country has one of the most complex VAT systems in Europe, with five VAT rates and two VAT schemes.

Now a study by business software provider Sage suggests that only half of business are confident that they are processing VAT correctly.

The research says that small businesses are particularly prone to error, because many file their returns without external help. Some 5pc of the small businesses surveyed processed their VAT returns manually, while a 10pc used a basic excel spreadsheet, leaving more room for error.

"Businesses that don't understand the VAT system are really putting themselves at a competitive disadvantage" said Sage VAT education manager Miriam Berney. "Despite being around for years the ever changing nature of VAT has put many business owners off from trying to fully understanding what can be refunded and what scheme is best for them. A low-cost investment in technology could prevent a business from over-paying thousands in tax".

Nearly one in three of the companies surveyed did not know how to account for VAT when trading abroad. This is particularly significant given recent scrutiny of EU VAT exemptions.

When businesses trade within the EU, it is generally the receiver who pays the VAT. However, to avoid paying twice the seller must have proof that the receiver is a VAT-registered trader. Fraud is rife, often involving a "missing trader", where a seller collects VAT from receivers and then disappear without passing the money on to the authorities.

The UK is thought to be the biggest loser to this type of criminal activity. An estimated 10pc of all UK exports are thought to be incorrectly classified in an effort to avail of VAT exemptions.

"VAT fraud in Europe costs literally billions if not trillions and action has been awaited for quite a long time now, and we have got that particular one over the line," said Finance Minister Michael Noonan earlier this year.

He was part of a group of EU leaders who met earlier this summer to set out a comprehensive plan for dealing with EU VAT evasion. Their proposals included a quick reaction mechanism that will allow governments to rapidly recoup any VAT due, as well as setting out a maximum of one-year jail time in case of major fraud attack.

Irish Independent

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