The questions of when to register for VAT, why you should register, and what it entails are asked by most business people at some point. Some of the questions are straight forward to answer. For example, you must register for VAT once your business reaches a certain turnover. But the reality is more nuanced.
The threshold figures for compulsory VAT registration are, by their very nature, arbitrary. They cannot take into account the uniqueness, objectives or full trading position of your business. Once you have reached the threshold, the decision is taken out of your hands but are there benefits to registering for VAT before this?
Let’s look at the thresholds first. You must register for VAT in the following circumstances:
- Your annual turnover is more than €37,500 in a business where you supply services
- Your annual turnover is more than €75,000 in a business where you supply goods
What Happens When You Register For Vat?
When you register for VAT you can start claiming back the VAT you currently pay for goods and services in your business. So, if you buy a piece of machinery that costs €1,000, you can claim back the 23% VAT in that cost. In many cases this can represent a significant saving to your business.
On the flip side you have to start charging for VAT. For some businesses this will have a negligible effect, but for others it is significant.
You will fall into the first category if your customers are primarily other VAT registered businesses. You will have to add 23% onto your bills to them, but they can claim that back, so in reality don’t pay any more than before.
If your customers are not VAT registered, on the other hand, they cannot claim back the extra 23%. This means you have to get them to pay more, or you have to absorb the cost, or a combination of the two. This represents a challenge to many businesses, so must be carefully considered.
The only other thing to consider when becoming VAT registered is the increased administration that is required to prepare and submit your returns. You either have to find the time to do this yourself, or take into account the additional cost of getting an accountant to do it for you.
When Should You Voluntarily Register For VAT?
Given this information, when does it make sense to register for VAT, even when your business is not legally required to do so?
Generally, if your customers are VAT registered businesses, and you make a large number of purchases where you are charged VAT, it makes sense to register. You should be able to reduce your costs even when the additional administration is taken into account.
The answer is not as easy to come to if your customers are mostly non-VAT registered. In this circumstance it is best to look at your finances and business position in order to work out what is best. The team at Gilroy Gannon can help you with this.
What Do I Have To Do Once I Register?
Once you are VAT registered you or your accountant will need to submit regular returns. If you are a new business you must file every two months until the Revenue determines your annual VAT liability. After that the frequency requirement can change.
This means submitting returns once every six months or once every four months, but most businesses stay with once every two months. The law regarding this is all about your annual VAT liability.
- If your VAT liability is €14,401 a year or more, you have to submit bi-monthly returns
- If your VAT liability is between €3,001 and €14,400 a year, you have to submit returns every four months
- If your VAT liability is less than €3,001 a year, you have to submit returns every six months
However many businesses find it is easier to submit every two months, regardless of their liability. Doing this helps you to manage the liability easier.
VAT returns have to be submitted online. Once VAT registered you must also file an annual return of trading details. This summarises your businesses net sales, net purchases and expenses for the year.
Finally, you have to make sure you file your VAT return on time once you are registered. This means the 19th of the month immediately following the VAT period. If you don’t do this you can get a penalty.