What is VAT? Our Guide to Value Added Tax in Ireland and the EU

Value added tax

Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.

Many people are familiar with VAT through the everyday purchases we make. We pay VAT on everything from groceries to the purchasing of goods and even shipping and travel costs. However, when it comes to VAT for your small business, it can be more daunting.

Here’s everything you need to know about paying VAT for small businesses.

VAT Rules in Ireland

The rules for VAT in each European country can vary, the same way VAT can be different from business to business.

What is VAT?

Value Added Tax (VAT) is a general tax placed on almost all goods and services that people consume. The principal way VAT works is that people pay tax on the goods or services they purchase, based on the value of the product. VAT is charged at a percentage, so the more expensive the product, the higher the charge will be.

What are the current rules and rates

As a business owner, it is your responsibility to sort small business VAT by registering with local authorities once you reach the threshold. The current rates for VAT in Ireland are:

Standard rate: All goods and services that do not fall into the reduced rate category are charged at 23%.

Reduced rate: This rate covers tourism-related activities including restaurants, hotels, cinemas, and hairdressing. It also covers building services and photography and is charged at 13.5%.

Special rate: This rate is usually for newspapers and sporting facilities. It also covers e-books and e-newspapers and is charged at 9%.

Livestock rate: The livestock rate is specifically for agriculture and includes livestock (except for chickens), greyhounds and horses for hire and is charged at 4.8%.

Zero rate: This covers exports, tea, coffee, milk, bread, books, children’s clothes and children’s shoes, oral medicine for humans and animals and is charged at 0%.

Exempt: There are no VAT charges for certain financial, medical or educational providers.

For those providing goods and services online, it can be helpful to use an online platform that takes care of your accounting needs. Square Online is a great place to start as it enables you to start selling quickly online and with no monthly fees.

What’s more, Square’s POS integration means you can sync your inventory for advanced stock management, leaving you with less to worry about.

Thresholds and responsibilities: what you need to know

Small business owners only need to begin paying tax when they reach the annual threshold. For Ireland, the following thresholds apply:

  • €37,500 for businesses supplying services only.
  • €35,000 for mail order or distance sales into the state.
  • €41,000 for people making acquisitions from other European Union Member States.
  • €75,000 for people supplying goods.
  • €75,000 for people supplying both goods and services where 90% or more of the turnover is from the supplies of goods.

Who should register for VAT and how?

Any business must register for VAT if you are an accountable person. An accountable person is a taxable person who meets the following criteria:

  • Supplies taxable goods or services in the state.
  • Is registered or required to register for VAT.

For those who supply goods and services in the category that are not charged, they do not need to register for VAT. However, if you sell goods and services that are exempt, you may still need to register for VAT. It’s best to check with local authorities if in doubt.

VAT registration for small businesses is relatively easy. All you need to do is head online and fill out one of the following two forms:

  • The TR1 registration form for sole traders, individuals, trusts and partnerships.
  • The TR2 registration form for limited companies.

VAT changes for cross-EU border commerce

On June 28th, 2021, the European Commission announced new eCommerce taxation rules. They also introduced new rules for online shopping which came into effect on July 1st. The new rules are designed to simplify cross-border charges and ensure greater transparency for EU cross borders.

These rules apply to:`

  • online sellers
  • online marketplaces and platforms
  • individual consumers i.e., customers shopping online
  • postal operators and couriers involved in online deliveries
  • customs and tax administrations applying the tax regimes for online purchases

The changes include:

  • VAT is charged on all goods entering/imported into the EU from non-EU countries, despite their value.
  • All eCommerce sellers based within or outside the EU/EEA, selling directly to consumers or via online marketplaces, need to have an EU VAT registration and pay VAT for all of their EU sales.

These changes mean that eCommerce VAT will now be featured on all pricing for goods and services, instead of being handled during shipping with customs authorities or courier services.

One of the reasons behind this move was to reduce the amount of eCommerce VAT fraud that takes place, while improving the consumer experience.

VAT changes between UK and IE

Since Brexit, there have been a number of changes in the way the UK and Ireland do business. The transition period for Brexit was officially February 1st 2020 until December 31st 2020. During this transition period, the way tax was paid remained the same, however these changes have now been implemented.

After Brexit, it is the small business providers responsibility to submit the following:

  • VAT Information Exchange System
  • Intrastat
  • Mini one-stop shop

Since Brexit, the Northern Ireland Protocol indicates that Northern Ireland will maintain the same relationship with the EU on VAT rules for goods, including on goods moving to, from and within Northern Ireland. In addition, Northern Ireland is, and will remain, part of the UK’s VAT system.

However, under the obligations in the Protocol, import VAT will be due on goods that enter Northern Ireland from Great Britain (England, Scotland and Wales). Similarly, this will also apply to goods entering Great Britain from Northern Ireland.

Submitting your VAT return

VAT returns are relatively simple to submit online when the time comes. In order to do this though, there are some things you need to have in place first. In order to be set up to submit your test return for your small business, you should:

  • Apply for your ROS Access Number (RAN)
  • Apply for your Digital Certificate
  • Download and Save your Digital Certificate

Once you’ve done this and the time comes to submit your tax return, you can visit the ROS website. You will need the above certificate to be able to access this. Once in, simply follow the below navigation:

  • My Services
  • VAT Return
  • VAT 3
  • Select the relevant tax period.

Figuring out VAT for your business doesn’t need to be daunting. By utilising online tools available to manage the sales of your goods and services, as well as staying on top of tax returns, the process can be made a lot easier to digest so you can focus on what you do best, making your small business a success.