When to register for VAT and the implications of €2m turnover
Many businesses have a 31 December year end. When starting in business you may not have registered for VAT. However, knowing when you MUST register is something to be very aware of.
Below is a short summary of VAT registration for business owners to familiarise themselves with. It is only a summary of points to assist with understanding your obligation as a business owner. Always discuss your business needs with a professional in relation to taxes and ensure you understand how taxes will impact your business.
Per Revenue; you MUST register if you are likely to exceed the relevant VAT thresholds in the year. If it is clear you will breach the thresholds, then as soon as you are aware this will happen, you should register. If you aren’t reviewing your monthly numbers to know where your business is at this time of year, you may miss the cut-off for registering for VAT.
WHEN TO REGISTER?
To simplify the rules, if you are providing services, the VAT threshold is €37,500 and for providing goods the threshold is €75,000.
Rather than complicating the issue too much – please review the attached link if you have any queries, contact your professional advisor also to discuss this.
HOW TO REGISTER?
If you are trading, you should have registered for taxes using a TR1 or TR2 form (depending on the format of your business – companies TR2 form). If you are using Revenue Online Service (ROS), you can add a new tax registration to your business taxes. See Revenue link for more information
If you have not registered for taxes, you should do so as soon as you commence trading.
RECEIPTS BASIS ADVANTAGE
VAT Registration can take up to ten weeks for Revenue to process. They may or may not have questions during the process. If you know you are going to hit the thresholds during your financial year, register early. Get your VAT number.
If you have business expenses that have VAT included, once registered, these can be reclaimed in your VAT returns. When paying VAT on sales, you may have an option of the ‘cash receipts basis’ or ‘invoice basis’.
As you raise invoices when you are registered for VAT, you will charge your customers VAT. If you register for a cash receipts basis of VAT returns, you will PAY VAT to revenue once your business has received payment from customers. Once a threshold of €2m sales is breached, a business can not use the cash receipts basis and must register for invoice basis, which will mean the company pay VAT to Revenue as they raise invoices (unless they use the pro-forma method of raising invoices).
Rather than get into technical issues at this stage, the main point to understand and focus on is to review your numbers throughout the year and ensure you know if you will breach the VAT thresholds. Project forward and look at your sales pipeline and the value of sales that will arise in the coming months to do this exercise.
Every business will have a different focus, there may be commercial reasons for you to register for VAT early. If you’re unsure about the impact of VAT on your business, please discuss this with a qualified individual.
Some anomaly’s arise in relation to VAT rates being used, whether you trade within Ireland only, the EU or outside the EU. These issues can be addressed with Revenue assistance or your accountant or tax advisor. Be sure to keep the lines of communication open with advisors and get all the information you need to ensure you are accounting for VAT correctly.
Have a lovely week and hopefully wind down to the Christmas break.
Wendy[16 December 2019]
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Wendy has an accountancy practice that looks after small and medium size business. Everything from setting up your company to bookkeeping, payroll, year end accounts work and advice.