VAT

The EU-UK Trade and Cooperation Agreement, now in place, means change. It will require adapting to new trading arrangements, rules and regulations. This information for cross-border SMEs in Ireland and Northern Ireland will outline  key areas of change in VAT for various trade routes and includes some useful links.

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What is vat?

VAT known as ‘value-added tax’ is a percentage-based tax on products/services with the premise being, ‘consumers pay a tax on the products they buy based on the value of the product’. As a result, this tax is paid by the customer.

why do we pay VAt?

VAT is accumulated by businesses for the government. Thus, VAT provides a consistent and extremely valued source of revenue-raising for governments around the world.

What is the difference between Tax and VAT?

A tax in general terms is a monetary charge placed on individuals, consumers and businesses by governments globally.

This can be split into 2 types: direct and indirect.

Direct Tax

direct tax is paid by a person/business directly to the government. This is based on income, wealth or profits.

Typical examples: income tax, inheritance tax, corporation tax and national insurance.

Indirect Tax

An indirect tax is applied to a good or service at the point of sale, therefore increasing the price. This tax is then collected by businesses and transferred to governments.

Typical examples: VAT (value-added tax).

What is the difference between zero-rated VAT and VAT exempt?

Zero-rated refers to goods/services that are still VAT-taxable however, the current rate of VAT you must charge your customers stands at 0%.

It is crucial to note that, these goods/services are still recorded in your VAT accounts and you must report them on your VAT Return.

VAT exempt refers to certain goods/services that are not subject to VAT charges.

What goods/services are VAT Exempt?

The below items are not subject to VAT charges, they are exempt .

In Northern Ireland, goods and services which are currently VAT exempt  are as follows:

• Insurance, finance and credit.

• Education and training.

• Fundraising events by charities.

• Subscriptions to membership organisations.

• Selling, leasing and letting of commercial land and buildings – this exemption can be waived.

In Ireland, goods and services which are currently VAT exempt  are as follows:

• Financial services.

• Medical services.

• Educational services.

• Live theatrical and musical performances (except those where food or drink is served during all or part of the performance).


What goods/services are zero-rated?


In Northern Ireland Ireland ‘zero-rated’ refers to goods/services that are still VAT-taxable however, the current rate of VAT you must charge your customers stands at 0%.

It is crucial to note that, these goods/services are still recorded in your VAT accounts and you must report them on your VAT Return.

In Northern Ireland, goods and services which are currently zero-rated  are as follows:

• Books and newspapers

• Children’s clothes and shoes

• Motorcycle helmets

• Most goods you export from England, Wales and Scotland (GB) to a country outside the UK

• Mot goods you export from Northern Ireland to a country out the EU and the UK 

• Goods you supply from Northern Ireland to a VAT registered EU business – you can check if the VAT number is valid. 






In Ireland, goods and services which are currently zero-rated are as follows:

• Exports.

• Disability aids such as wheelchairs, crutches and hearing aids.

• Intra-Community supplies of goods to VAT-registered persons in other EU member states.

• Certain food and drink: tea, coffee, milk, bread.

• Certain oral medicine for humans and animals.

• Certain books and booklets. 

• Certain animal feeding stuffs, certain fertilizers, seeds and plants used to produce food.

• Clothing and footwear appropriate to children under 11 years of age.

• Supplies to VAT-registered persons authorised by Revenue under the zero-rating scheme for qualifying business.



What are the penalties for not registering for VAT?

In NI, the penalties are calculated as a percentage of the VAT that is due to be paid. This is from the date when you should have registered for VAT, to the date when we either received your notification, or became fully aware that you were required to be registered.

The rate of penalty is then determined by how late you were in registering:

  • Not more than 9 months late = 5% penalty rate
  • More than 9 months but less than 18 months late = 10% penalty rate
  • More than 18 months = 15% penalty rate
  • There is an additional minimum penalty of £50.
  • For more information, click here.

In Ireland, penalties can be agreed either between you and Revenue or it can be decided by the courts.

Regardless, the below illustrates the penalties for 2 main VAT issues:

What are the VAT rates?

In Northern Ireland, there are 3  different tax rates:

  • Standard rate 20% (most goods/services)
  • Reduced rate 5% (certain goods/services: home energy)
  • Zero rate 0% (food/children’s clothes).


For more specific enquiries, click  here.

In Irelandthere are 5 different tax rates:

  • Standard rate 23% (most goods/services)
  • Reduced rate 13.5% (certain goods/services, to find the list, click  here)
  • Second reduced rate 9% (specific goods/services can be found  here).


In Ireland: as long as you are an ‘ accountable person’ you can register your business for VAT.


On a global scale, you can find the differing rates of VAT  here

This will allow you to see which countries charge VAT and which do not.

How do I register for VAT?

Northern Ireland

In Northern Ireland, once your annual taxable turnover exceeds the ‘threshold’ of £85,000 you must register for VAT.

To register for VAT in NI, click  here.

Ireland

In Ireland, the thresholds differ considerably, however generally speaking the principal thresholds are: 

  • €37,500 for services only.
  • €75,000 for goods.
  • €75,000 for goods and services (providing 90%  of this turnover is from supply of goods.)


To apply for VAT registration in Ireland, click  here and you can find more info  here for specific cases.

In Ireland: as long as you are an ‘ accountable person’ you can register your business for VAT.

Globally

Globally, VAT thresholds will vary throughout countries, therefore it is worth noting you should investigate these on the basis of your country of interest.

Click below to find a list of EU VAT registration thresholds from  Avalara and  Europa.

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