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News VAT

  Taxation

Artists Exemption (Income Tax and VAT Implications)

Background - Income Tax Income earned by writers, composers, visual artists and sculptors from the publication, production or sale of their works is exempt from income tax in Ireland in certain circumstances. For the year 2015 and subsequent years the maximum amount of income which is exempt is €50,000 per annum. The exemption applies to certain artistic works which are original and creative and generally recognised as having cultural or artistic merit. Earnings derived from such works are exempt from income tax from the year in which the application was made. The exemption does not apply to PRSI and USC. In addition to income from the sale of works, the following payments also qualify as exempt income, subject to the overall maximum relief figure: 
  • Arts Council Bursaries when paid directly to individuals by the Arts Council. 
  • Residencies when paid directly to the individual by the Arts Council for the purposes of producing a qualifying work. (Income from residencies which relate to teaching art or facilitating other individuals to create works of art or similar type practices do not qualify for exemption.) 
  • Cnuas payments under the Aosdana Scheme.
  • Payments from the sale of qualifying works abroad, which fall within the guidelines. 
  • Advance royalties.
Advanced Royalties Where an individual receives advanced royalties, which are attributed to the subsequent publication of a book or other writing, an application must be submitted to Revenue in the tax year in which the royalties are paid, if the advance royalties are to be exempt. Confirmation from the publisher that the book will be published must accompany the application. Where an application is received in the tax year in which the advance royalty is received, but where a determination has not yet been granted, any tax liability arising on the advance royalty must be paid. If a determination is subsequently granted by Revenue, the individual’s tax liability will be reviewed, and any overpayment of tax will be repaid. Advance royalties paid before the year of the application are not exempt. How to Apply for Artists Exemption Writers, composers, visual artists and sculptors seeking Artists Exemption should submit an application form to the Revenue Commissioners together with samples of their work and any supporting documentation in the form of testimonials etc. which they consider appropriate. Practical Application If you receive income greater than €50,000 during the tax year, you will not be taxed on the first €50,000 but USC and PRSI will still apply. Anything over €50,000 will be subject to Income Tax, USC and PRSI.  An analysis will need to be carried out to determine the income that is exempt under the Artists Exemption and income that is not exempt. If you have a mixture of income that is exempt and not exempt, this will need to be separated.  Example; Artists Exempt Income of €40,000 and non-Artist Exempt income of €10,000. The Artists exempt income is exempt from Income Tax but it is still subject to USC and PRSI. The non-Artist Exempt income is subject to tax at the Author’s marginal income tax rate.    Background - VAT Authors are deemed to provide a good if the books are printed and a supply of a service if they are in the form of an e-book.  In cases where the Artist Tax Exemption has been granted it is important to note that this applies to income tax only. The exemption does not extend to VAT.  For example – if an author who was granted an Artist Exemption sells a book, it would not be subject to income tax provided the sales were not greater than €50,000 but it would still be VATable. Sale of books in Ireland The sale of books in Ireland would be considered a sale of a good. Therefore, if an author supplies goods and their sales of books and other printed matter are greater that the goods threshold of €75,000, they must register for VAT in Ireland. The VAT rate applicable to the sale of books in Ireland is zero. Supply of Services in Ireland If an author supplies a service in Ireland e.g. an appearance, talk, interview, reviews etc. and are paid for this service, they will have to register for VAT in Ireland if they reach the service threshold of €37,500. They would be liable to VAT at the standard rate of VAT of 23% on any income earned from the services. VAT on e-books All digitised publications regardless of their VAT rate when printed (e.g. a book liable at zero rate) are treated as a supply of services rather than goods and are classified at the Standard Rate i.e. 23%. Place of Supply for Sales Outside of Ireland If Authors sell work to private customers (B2C) outside of Ireland then they apply VAT as normal until they reach a certain threshold. Each EU country has a different sales threshold. Once the threshold has been reached, VAT is charged in the country to which they sell e.g. France’s threshold is €35,000. Therefore, if the author supplies goods to France and their sales are below €35,000, they can continue to apply Irish VAT as normal but once they reach sales of €35,000 in France, they will be required to register for VAT in France. From July 2021, B2C sellers dispatching their goods from a single country will no longer be required to register for foreign VAT and complete multiple VAT filings in countries where they are selling. Instead, they may opt to simply complete and file a new OSS filing alongside their regular domestic VAT return that will list all their EU sales. The seller then remits the VAT due to their home VAT authority, which then forwards the taxes to the appropriate countries. This effectively removes the distance selling provisions.  If they sell to a VAT registered company (B2B) in another EU state, the supply can be zero rated and Irish VAT does not apply. Any sales made to countries outside of the EU, whether dispatched from Ireland or sold from within the non-EU country, is outside the scope of VAT. This means that there is no need to charge VAT, Irish or other, on any sales made to or taking place outside of the EU. VAT on Royalties VAT on Royalties received from Ireland, is applied at the standard rate of 23%. No Irish VAT applies if the royalties are received from outside Ireland.  Supply of both Goods and Services If an author has income from both the supply of goods and the supply of services (e.g. an appearance), it is important to understand when the author will be required to register for VAT in Ireland. This is because there are two different thresholds in respect of both goods and services. In general, authors whose total turnover from the supply of goods and services does not exceed the goods threshold of €75,000, are not accountable unless they elect to register for VAT. For the provision to apply, at least 90% of that turnover must be derived from the supply of taxable goods. Example 1: If an author has total turnover of €76,000 from the supply of both goods and services, and if €68,400 of those sales were derived from the supply of goods, the author would be required to register for VAT in Ireland. (i.e. €68,400/€76,000 = 90%).  Example 2: If the author had a total turnover of €76,000 and the supply of goods did not exceed €68,400, they would not have to register for VAT, but they can elect to. However, if the services provided reach €37,500, they would have to register for VAT To learn more and to discuss your situation in detail, please contact Brendan Murphy here
https://www.robertsnathan.com/member/brendan-murphy/ or Amy Hartnett 021-4217940 who would both be happy to hear from you.
October 6, 2021
  VAT

Debt Warehousing

Overview Revenue recently issued new guidance surrounding the debt warehousing of VAT, PAYE and Income Tax liabilities arising during a specified period of time and also the recovery of any overpayment of amounts received under the Temporary Wage Subsidy Scheme and Employee Wage Subsidy Scheme. We have set out a summary of the updated guidance below.  Details of the Scheme VAT and PAYE All VAT and PAYE liabilities arising during the pandemic can automatically be warehoused up until 31 December 2021 without the application of interest for businesses dealt with in the Personal and Business Division of Revenue. Businesses dealt with by the Large Corporates and Medium Enterprises Divisions of Revenue would need to apply to Revenue for inclusion in the scheme due to a reduction in trade.  There are 3 distinct periods outlined in the scheme;
  1. Period 1 - COVID-19 restricted trading phase
This period begins since the company first experienced cash flow trading difficulties due to the pandemic. For VAT this can apply as early as 1 January 2020 and for PAYE this can apply as early as 1 February 2020. This period ends on 31 December 2021.  Relevant tax debts incurred during this period can be warehoused. Relevant debts include the VAT and payroll liabilities arising when the business was restricted by the Covid pandemic (i.e. either stopped or significantly reduced).  During this period the interest rate being applied to unpaid liabilities is 0%. 
  • Period 2 – Zero interest period
This period runs from 1 January 2022 to 31 December 2022. During this period, the Interest rate being applied to unpaid liabilities is 0%.
  • Period 3 – Reduced interest period
This period begins in January 2023 and ends when the liabilities are paid. Interest at a rate of 3% is applied during this time.  Anyone availing of the debt warehousing scheme should contact Revenue with a repayment plan for warehoused debt before 31 December 2022. The repayment plan will be mutually agreed between Revenue and the taxpayer.  Returns should continue to be filed during this period. Income Tax Income Tax payments which fell due on 31 October 2020 and those falling due on 31 October 2021, subject to certain criteria, can avail of the debt warehousing scheme. The Income Tax liabilities affected are the 2019 Income Tax year balancing payment, Preliminary Tax and balancing payment for the 2020 Income Tax year and Preliminary Tax for 2021 Income Tax Year.  A declaration must be made to Revenue at the time of filing the return that total income for 2020 and 2021, as applicable, is expected to be at least 25% less than total income for 2019. The Income Tax Warehousing scheme contains 3 distinct periods, as follows;
  • Period 1 - COVID-19 restricted trading phase
This period runs from 31 October 2020 for paper returns or 10 December 2020 returns filed on ROS (in relation to their 2019 income tax returns) until 31 December 2021. This also applies for 2020 income tax returns that are due for filing on 31 October 2021 for paper returns and 17 November 2021 for returns filed on ROS.
  • Period 2 - Zero interest period
This period runs from 1 January 2022 to 31 December 2022. During this period, the Interest rate being applied to unpaid liabilities is 0%.
  • Period 3 - Reduced interest period
This period begins in January 2023 and ends when the liabilities are paid. Interest at a rate of 3% is applied during this time.  Anyone availing of the debt warehousing scheme should contact Revenue with a repayment plan for warehoused debt before 31 December 2022. The repayment plan will be mutually agreed between Revenue and the taxpayer. Income Tax Returns should still be filed before the filing deadlines of 31 October 2021 for paper returns or 17 November 2021 for returns filed on ROS. TWSS and EWSS The TWSS/EWSS warehouse scheme is available to employers who are obliged to refund amounts which are deemed to be overpayments of TWSS/EWSS following a reconciliation process undertaken by Revenue, and who are unable to refund these amounts because of the impact of COVID-19. The warehousing scheme for TWSS and EWSS is the same as the warehousing scheme put in place for PAYE & VAT. One of the most important aspects of the scheme for businesses is to ensure all tax returns are kept up to date while availing of the scheme. It is also important to monitor the interest free period as a payment arrangement would need to be put in place with Revenue in advance of the end of Period 2. Roberts Nathan tax team can help with all compliance requirements and liaising with Revenue while our corporate finance team can assist on cash flow management in order to assist on putting a payment schedule in place.
July 23, 2021
  Business Advice

UK Businesses – Do you have the correct Irish VAT number?

Check your VAT number VIES VAT number validation
No, invalid VAT number for cross border transactions within the EU
Since June 2019, companies registering for VAT have had to specify whether they wish for a “domestic only” or “intra-EU” VAT registration. The domestic only registration has helped speed up registration process for business seeking to register for VAT however, we have seen a number of instances where businesses are unaware of the need to include an intra-EU registration within their application. In particular we have noted many UK businesses applying for Irish VAT numbers on the basis of being a non-resident company with operations in Ireland and obtaining an IE VAT reg.  If the company is importing goods into Ireland for domestic only supply, then the domestic VAT registration is sufficient and they are charged Irish VAT at the point of importation of the goods into the EU.  Thus the domestic VAT registration applies only if the company is importing goods into Ireland, storing and distributing them here and not further distributing outside of Ireland. However if your company is looking to use Ireland as a new trading base in dealing with EU customers this will not be an effective VAT number for EU wide trading. So check your VAT number.  If you get the above message on the VIES system then it is only a domestic VAT registration. This will cause issues if you are bringing goods into Ireland and then intending to export them to another EU country as you will need to apply for an intra-EU VAT number.  It will be the exact same number but will need to be validated as otherwise your customers will get the above notice when the VAT number is checked for EU trading.  This causes an issue for your EU customers as you will not have issued a valid VAT invoice. We have helped a number of clients with this by amending their VAT registration and getting the option for intra-EU VAT registration. This requires additional information for Revenue which we can assist with. If you would like to explore further options around your business, please contact Brendan Murphy who would be very pleased to assist you. Brendan Murphy:
brendan.murphy@robertsnathan.com
March 31, 2021
  Taxation

Potential VAT and Customs Duty implications of trade with the UK post-Brexit

If you trade with the United Kingdom post-Brexit, the relevant rules of trade will likely change. It is important to consider and plan for the VAT and Customs implications on your business arising from the various methods by which the UK can leave the EU. Customs duties It is likely that customs duties will become a reality for those trading and importing from the United Kingdom. The UK intends to negotiate a free trade agreement with the EU, but this is unlikely in the two-year negotiation period after Article 50 was triggered and would hopefully be underway in the transition period after the UK leaves the EU and which is currently likely to be 31 October 2019. Certain imports into Ireland will be particularly affected, such as the agricultural and food sectors, where duties tend to be much higher e.g. Cheddar cheese 55%.Beef 40%. Planning consideration would need to be given to available customs reliefs, to cut such costs. VAT and Customs implications There will likely be significant VAT considerations which must not be overlooked in the event that the UK become a third country for trading purposes to the EU 27 block. The implementation of VAT at point of entry for goods from the UK means that Irish businesses will have to bear the cash flow cost of VAT on goods coming into Ireland. While import VAT is recoverable, there could be a significant cash flow burden as these amounts will need to be funded to have goods released into circulation. Contracts should be reviewed to assess their impact from a customs perspective, and to determine which party to the contract is responsible for fulfilling customs obligations. This would include the payment of applicable customs duty and import VAT. Do you foresee your business or supply chain interacting with the UK post Brexit? If yes, please contact us to discuss Tax planning.
September 27, 2019
  News

VAT Compensation Scheme for Charities

The Revenue Commissioners have introduced a VAT Compensation Scheme for Charities, to reduce the VAT burden and to partially compensate charities for VAT incurred in the day-to-day running of the charitable activities. To be eligible for the scheme the charity must: 1. Hold a charitable tax exemption from the Revenue Commissioners (CHY number), and 2. Be registered with the Charities Regulatory Authority (CRA). Calculate VAT Repayment VAT reclaims made under the scheme can be submitted through Revenue Online Services (ROS) on an annual basis, before 30th June of the preceding year. For example, a VAT reclaim for 1st January – 31st December 2018 should be made before 30th June 2019.

The amount of VAT compensated is determined by the following formula:

A x B/C

A = Total VAT paid on qualifying expenditure B = Total qualifying income C = Total income

Please note the following; - Qualifying expenditure includes expenses incurred solely for the charitable purpose. - Qualifying income is the total income excluding publicly funded income (such as Government grants, EU grants etc.). Revenue has advised that the minimum VAT reclaim amount is €500 and claims for less than this amount will not be accepted.

The Scheme’s Annual Cap The Revenue Commissioners have also advised that there is a €5 million cap on the scheme, which is to be reviewed after the first three years, this cap may result in the VAT repayment to charities being lower than the calculated amount. Other Considerations for Charities Availing of the Scheme Charities should be aware that in order to receive the VAT refund they are obliged to: - Keep evidence of their invoices/receipts for a period of 6 years. - Have tax clearance issued by the Revenue Commissioners. - Provide the Revenue Commissioners with the most recent set of audited Financial Statements, if requested. Finally, it is important to note that the scheme works on the cash receipts basis, i.e. you can only make a reclaim for costs that have been paid (not just invoiced expenses). Example A charity has the following sources of income and expenditure for the year ended 31st December 2018:   The charity would be entitled to a VAT reclaim under the new scheme as follows: A x B/C A = €9,000 (i.e. the VAT on the expenses incurred for the charitable purpose only) B = €190,000 (i.e. total income less government grants) C = €200,000 (i.e. total income including government grants) €9,000 x €190,000/€200,000 = €8,550 The charity is entitled to make a VAT reclaim under the scheme for €8,550. This claim must be made by 30th June 2019. If you’d like to know more on how this scheme can work for your charity, please do not hesitate to contact us and one of our tax experts will be happy to help!
January 3, 2019
  News

VAT Invoicing

With Halloween just around the corner, the most frightening thought to small businesses and sole traders is the upcoming VAT return. VAT invoices, rates and credits – it’s the stuff of a true nightmare realm.

So what exactly is VAT? What needs to be included in a valid VAT invoice? And what is the difference between zero-rated and VAT exempt?

 

Value Added Tax (VAT)

Value Added Tax (VAT) is a European tax on consumer spending. You are required register for VAT if you have sales of goods exceeding €75,000 or sales of services of €37,500.

The rates of VAT applicable in Ireland are:

Rate Example
Zero-Rated Exports, children’s clothing and footwear and certain food and drinks
4.8% Supply of livestock.
9% Restaurants and catering, and certain tourism supplies.
13.5% Cleaning, maintenance and certain fuels.
23% Standard rate which applies to any taxable supply not covered by an above rate.

It could be said that Revenue employs business owners and sole traders like unpaid tax-collectors through the use of VAT returns. Depending on your circumstances Revenue may require you to make bi-monthly, tri-annual, bi-annual or annual VAT returns.

The idea behind VAT is that only the final customer actually pays it. To enable this suppliers receive input and output VAT credits. Suppliers must declare the amount of VAT they collected on sales (output credit) on their VAT return, however if they have paid VAT on business related purchases they are entitled to claim an input credit for that amount. The net effect of this means they will either have:

  1. VAT Payment - The amount of VAT you collected on sales is greater than the amount of VAT spent on business related purchases.
  2. VAT Refund - The amount of VAT you collected on sales is less than the amount of VAT spent on business related purchases.
 

VAT Invoices

Issuing incorrect VAT invoices can be a costly error, legislation provides for fines of €4,000 payable per incorrect invoice. The following information must be shown on a VAT invoice for it to be deemed valid:

  • The date of issue of the invoice;
  • A sequential number that uniquely identifies the invoices;
  • The supplier’s full name, address and VAT registration number; and
  • The purchaser’s full name and address.

In the case of a “reverse charge” supply of goods or services to a VAT registered customer in another EU Member State the following information is also required:

  • The customer’s VAT number;
  • An indication that the “reverse charge” applies;
  • The quantity/volume of goods;
  • The date the goods or services were supplied;
  • The unit price exclusive of VAT (including any discounts or price reductions);
  • A description of the goods or services;
  • The consideration exclusive or VAT;
  • The rate(s) of VAT; and
  • The amount of VAT (at each rate if more than one applies).
 

Zero-Rated versus VAT Exempt

While it is a common mistake to think that zero-rated and VAT exempt are one-in-the-same, there is one significant difference, which has seen many individuals incorrectly over-claiming VAT credits.

Zero-rated VAT means that a supplier is required to charge VAT on sales at 0%. Therefore because the supplier is charging VAT on sales they are entitled to claim VAT on their purchases, even though they do not generate any actually VAT on sales.

VAT exempt on the other hand means the supplier is not required to charge VAT at any rate on sales, and thus is not eligible to reclaim the VAT on their purchases.

Ensuring that you and your company are VAT compliant can alleviate the fear of filing VAT returns. So this Halloween don’t let the thought of VAT send shivers down your spine. If you need any help or advice in relation to your VAT return please don’t hesitate to contact a member of our team, here,  who will be happy to help.

 

Images: Shutterstock

October 28, 2016
  Business Advice

How Managing Your VAT Can Assist With Cashflow

It may seem an unlikely method of cashflow management; however how you manage your VAT liabilities could assist your monthly cashflow.  During recent recessionary years small business owners have paid significant attention to managing their cashflow.  It is important that the business survival techniques developed during the recent years continue to be implemented as businesses begin to grow and expand in the recovering economy. We have reviewed how effective management of your VAT can assist your cashflow on an ongoing basis.  

1. Paying VAT by Direct Debit

If you are registered for VAT you can avail of the direct debit scheme, on the basis that your bi-monthly VAT liabilities do not exceed €50,000 (€300,000 on an annual basis). The benefit of paying by direct debit is that it allows you to spread the cost of your VAT liability throughout the year, rather than having to source finance to cover fluctuations on VAT liabilities on a bi-monthly basis. In addition, when paying by direct debit you will no longer be required to prepare and submit bi-monthly VAT 3 returns, as the Revenue Commissioners will only require you submit an annual VAT return. If paying your VAT by direct debit you will be required to estimate the projected liability for the 12 months ahead with such an estimate divided by twelve to provide you with your monthly payments. It is important that you ensure the direct debits are sufficient to cover the annual liability as if the direct debit payments amount to less than 80% of your actual liability interest charges will be applicable and will be backdated to the midpoint of the year. In order to avoid interest charges you should review your VAT position on a regular basis to ensure your direct debits will be sufficient to cover your liability at the year end.  If not, you should increase your direct debits to cover any shortfall.  

2.  Cash Receipts Basis of Accounting for VAT

When returning VAT under the invoice basis you become liable for VAT on the raising and issuing of an invoice to a customer. However, under the cash receipts basis VAT is not required to be returned to the Revenue Commissioners until such time as you are paid by the customer, which can have a significant positive impact on your cashflow. Taking an example of an invoice which is raised on 31st October with a credit period of thirty days provided.  In this example VAT would become payable under both the invoice and cash receipts basis as follows:  
Invoice Raised Funds  Received Returned in VAT 3 Period VAT Payment Due by
Invoice Basis 31st October 30th November Sept/Oct VAT 3 19th November
Cash Receipts Basis 31st October 30th November Nov/Dec VAT3 19th January
  You will note from the above that under the invoice basis you will be required to pay your VAT liability to the Revenue Commissioners before you have even received payment from your customer (i.e. VAT payment due by 19th November with payment received from your customer on 30th November). However, under the cash receipts basis your liability would not be due for payment until 19th January, which is after you have received payment from your customer.  

3.  Qualifying for Cash Receipts Basis of Accounting for VAT

In order to qualify for cash receipts basis of accounting for VAT one of the following criteria must be met:
  • Turnover must not exceed €2,000,000
  • At least 90% of your customers are not registered for VAT or not entitled to claim a full deduction of VAT (e.g. shops, restaurant, public houses and similar business providing goods or services to the general public).
 

4.  Managing Cashflow through Invoice Basis of Accounting for VAT

If you do not qualify for cash receipts basis, you can still effectively manage your cashflow by managing the dates on which you issue invoices. Taking the above example, if the invoice was issued on 1st November instead of 31st October then the VAT would be required to be returned in your November/December VAT 3, which would not become payable until 19th January.  In this instance, payment should be received from the customer by 1st December, thus ensuring you are in receipt of payment before the VAT is payable to the Revenue Commissioners. If it is possible to issue an invoice one day later it can have a positive impact on your cashflow!  However, be mindful not to push the issuing of invoices out too far as invoices must be issued within 15 days of the end of the month in which the goods or services are supplied.  

5.  Reduced Filing of VAT Returns

Most businesses, when first established, will be required to return their VAT on a bi-monthly basis. However, you can apply to the Revenue Commissioners to reduce the frequency of your VAT returns in the following circumstances:
  • Businesses whose total annual VAT payment is less than €3,000 are eligible to file and pay VAT Returns on a six monthly basis.
  • Businesses whose total annual VAT payment is between €3,001 and €14,401 are eligible to file and pay VAT Returns on a four monthly basis.
By reducing the frequency of returning your VAT you can reduce administrative costs, along with the number of payments required to be made to the Revenue Commissioners throughout the year.  

Cash is King

  If your business has survived the recent recession you will understand that businesses do not fail because they don’t have profits, they fail because they don’t have cash. We have assisted many of our clients in the last number of years in managing their cashflow which has supported in the survival of their business. As mentioned at the outset, it is important that business owners continue to use the skills and techniques which they have implemented in recent years, as such skills will be vital to their businesses future growth.   If you have any queries on the above or would like to discuss other cash management techniques, please do not hesitate to contact a member of our team.   Images:
Shutterstock
April 2, 2015