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What is a VIES Return?

Over the past year, I have been getting questions from clients about VIES. Typically, the client has received a letter from Revenue advising them that they should be submitting a VIES Return. But the clients typically don’t know what VIES is and have no idea how to make a VIES return.

At this stage, I have significant experience with VIES. Having worked with larger companies in the past I was very familiar with filing VIES returns. More recently, a lot of my current SME clients have asked for help with the VIES filing.

What is VIES

VIES is an abbreviation for VAT information Exchange System. It is an EU system and applies to any business that sells to other EU states.

Where a supplier sells goods or services to another EU country they can apply the zero rate to the supply of goods or service. In order to ensure that this zero rating is not abused the supplier must make reports showing the VAT number of the customer and the value of supplies.

This information is shared between EU tax authorities and the relevant authorities can make checks to ensure the zero rate was correctly applied.

What to do if you are selling to a customer in another EU State

If you sell to a VAT Registered customer in another EU state, you do not have to charge VAT if certain conditions are met.

Verify that your Intra EU EU Customer is VAT Registered

An intra EU sale is a sale from one EU country to a customer in another EU Country so its within the EU.

Where you are selling to a customer in another EU State, you must first verify if that customer is VAT registered.

To do that you go to a website and enter the customers VAT number. The website is this one http://ec.europa.eu/taxation_customs/vies/.

You enter the customer VAT number and country and your own VAT number and country.

You will receive a message to let you know if the customer VAT number is valid or not. If it is valid, the message will include a reference number which you should keep as proof that you performed the check.

Once you have confirmed that the customer’s VAT number is valid, you can apply zero rate VAT to the customer.

Other Conditions

There are some conditions for this to be applied correctly.
• Your invoice should include the customers VAT number and your own VAT number.
• Your invoice should state that reverse charge VAT is being applied.

Showing EU Sales on your VAT3

When completing your VAT3 return, there are some question to be answered.

These ask if you have sales of goods to other EU countries or sales of services to other EU countries or purchases of goods from other EU countries or purchases of supplies from other EU countries.

If you answered yes to the questions about sales of goods or supplies then you have to file a VIES return.

Typically, if you get the letter from Revenue asking you to submit a VIES return, it means that you ticked the box saying that you had sales of goods or services to other EU Countries but you haven’t submitted a VIES return.

How to file a VIES Return

The easiest way to file a VIES return is using ROS.

Firstly gather a list of your sales to customers in other EU countries.

Identify the VAT number for each country and the total value of Sales for each customer.

If your accounting system supports it, you should record your customers VAT number on the system to make it easier to access it. You may be able to generate a VAT report that will show you the VAT numbers and value for all sales to other EU Countries.

Then, login into ROS and select complete a return online.

From there, chose tax type as VIES and chose the appropriate period.

Smaller business file VIES less frequently.

What is on a VIES return.

The VIES return lists the VAT numbers for all of your customers in other EU countries for the period of the return and shows the value of goods or services sold to that customer in that period.

What do the Authorities do with the VIES information

This information allows the tax authorities in the other states to check that the company exists and that they were entitled to be invoiced at the zero rate.

They can also check if your customer correctly accounted for VAT on the reverse charge basis.

Using Reverse charge, the customer should include a notional sale on their VAT return creating a liability for VAT and at the same time they claim notional VAT on the purchase from you.

As the VAT on the notional sale is the same as the notional VAT on the purchase from you, they don’t actually owe any VAT. However, they are showing that they did have an intra EU purchase.

In the past, some sellers would sell VAT free to a non-business customer from another EU State but entering an incorrect VAT number. Sometimes customers would supply the VAT number of a legitimate business who did not know that their VAT number was being used in this way.  In this way the non-registered customer avoided the cost of VAT.

With VIES, the VAT authorities are able to check if the seller applied VAT correctly.

The seller should have a valid VAT number for the customer and should be able to show that they checked the validity of each VAT number. If they can’t they they will be liable for the VAT.

Conclusion

For suppliers who have complied with all the requirements, filing a VIES is pretty straightforward. You just need to make sure that you have verified the VAT numbers and can show that you did that. If you have a lot of sales to other EU businesses, it would simplify reporting if your system allows you to create the report.
If you have only a few sales, then it should be easy to pull out the customer VAT numbers and Total Values.

Over to you

If you have any comments or questions on this, feel free to let me know. The best way to do that is to send me an email.

What do you need to know about Value Added Tax (VAT)?

What do you need to know about Value Added Tax (VAT)?

Are you one of those people who doesn’t feel totally confident about VAT?

I have been qualified as an accountant for over 30 years now and my work experience includes working at Finance Director level in large multinational manufacturing plants as well as helping owner managed SME’s to manage their finances.  No matter what type of business, questions about VAT keep coming up.

In this article, I am going to give a brief overview of VAT in the Republic of Ireland – the key things that I think you need to know if you are running a business.

What is VAT?

Value Added Tax is a tax on sales.  When a business sells an item, it usually has to charge VAT on that sale.

So if you sell a widget for € 60, you will have to charge VAT at 23% (€13.80) on that sale. The invoice then will be for € 60 plus € 13.8 – a total of € 73.8

The government is using you as an agent of the government to charge and collect VAT and to pay what you have collected to government.  When you get the 73.8 only 60 is yours, the other 13.8 is held on behalf of the government.

If you bought the widget from an Irish supplier for € 40, they are likely to have charged you VAT of 23%.  The invoice to you will be for € 49.2 being €40 plus VAT of € 9.2 (23% again).

As you are a business, you can deduct the VAT you pay to your suppliers from the VAT you collect from your customers when calculating how much of the VAT collected that you have to pay to the government.  In this case you charged € 13.8 and paid € 9.2, therefore you owe the Taxman € 4.6.

Effectively what is happening what is happening is the government gets the VAT on the difference between your selling cost and your buying costs ie € 20. This is the Value Added and its why the tax is called Value Added Tax.  The amount you are paying is 23% of the Value Added – 23% of 20 is € 4.60.

It’s not always as simple as this but that the broad principle.

Consumers cannot register for VAT so they bear the full cost of any VAT on items that they purchase.  Generally speaking, they cannot reclaim the VAT that they incur.  There are some exemptions from this for medical related items.

Do you have to register for VAT?

If you are in business in Ireland, supplying goods or services, and your turnover exceeds certain limits then you will have to register for VAT.

VAT registration is obligatory when the VAT thresholds are exceeded or are likely to be exceeded in any 12 month period (except for sales to consumers in other EU States).

The principal thresholds are as follows:

  • €37,500 in the case of persons supplying services only.
  • €37,500 for persons supplying goods liable at the reduced or standard rates which they have manufactured or produced from zero rated materials.
  • €35,000 for persons making mail-order or distance sales into the State.
  • €41,000 for persons making acquisitions from other European Union Member States .
  • €75,000 for persons supplying goods.
  • €75,000 for persons supplying both goods and services where 90% or more of the turnover is derived from supplies of goods.
  • A foreign business, with no base in Ireland, supplying taxable goods or services in the State is obliged to register and account for VAT irrespective of the level of turnover.

If you are below the thresholds you may elect to register for VAT.  It may be beneficial to register if  you mainly supply goods or services to VAT registered businesses.  In that case VAT will not be a cost for them, as they can recover it, and you will be able to reclaim VAT on your business expenses.

If your customers are mainly not VAT registered (i.e. consumers or a VAT exempt business) then the VAT is not recoverable for them so its becomes a cost.  In that case, you will be better not to register for VAT until you reach the threshold.

What are the VAT rates?

There are currently 5 different VAT Rates.  These can change from time to time, so you need to be aware of any changes.  Any changes are usually announced in the Government’s annual budget.

The five rates are

  • standard rate – 23% – this is the is the standard rate of VAT and all goods and services that do not fall into the reduced rate categories are charged at this rate.
    They include alcohol, audio-visual equipment, car parts and accessories, CDs, computers, consultancy services, cosmetics, detergents, diesel, fridges, furniture and furnishings, hardware, jewellery, lawnmowers, machinery, medicines (non-oral), office equipment, pet food, petrol, paper, tobacco, toys, tools, washing machines, bottled water.
    This rate applies to most items except medical and educational
  • reduced rate – 13.5% – this rate is for items including fuel (coal, heating oil, gas), electricity, veterinary fees, building and building services, agricultural contracting services, short-term car hire, cleaning and maintenance services.
  • special reduced rate – 9% – is for tourism-related activities including restaurants, hotels, cinemas, hairdressing and newspapers.
    This rate was introduced temporarily following the Global Recession and is expected to be eliminated at some point in the future
  • livestock rate – 4.8% – is a reduced rate of VAT specifically for agriculture. It applies to livestock (excluding chickens), greyhounds and the hire of horses.
  • zero rate – includes all exports, tea, coffee, milk, bread, books, children’s clothes and shoes, oral medicine for humans and animals, vegetable seeds and fruit trees, fertilisers, large animal feed, disability aids such as wheelchairs, crutches and hearing aids.
  • Exempt – You do not have to pay any VAT on financial, medical or educational services. You may also not pay VAT for live theatrical and musical performances (except those where food or drink is served during all or part of the performance).

Revenue have a good search facility for VAT rates on their website – here . You simply enter the name of the product or service and the correct VAT rate will be presented to you.

Difference between Exempt and Zero Rate VAT

If a business person supplies taxable goods or services, including zero-rated ones, they can claim VAT back from the government on their taxable business purchases.  However, if someone only supplies exempt goods or services, they cannot reclaim VAT.

Can I claim VAT back on my expenses?

If you are VAT registered, then you can claim back VAT incurred on most of your business expenses.  If you are VAT exempt, you cannot reclaim VAT.

You cannot claim VAT on the following, even when the goods and services in question are acquired or used for the purposes of a taxable business:

  • expenditure incurred by you on food or drink, or other personal services for yourself, your agents or employees, except to the extent, if any, that such expenditure is incurred in relation to a supply of services in respect of which you are accountable for tax.
    For example, if you are putting on a Christmas Party for staff, you cannot reclaim the VAT on that as its for personal consumption. However, if you are a caterer, provided catering services to a Customers Staff Christmas Party, you can reclaim the VAT that you incur.  You will have to charge VAT on the service and the customer will not be able to reclaim that VAT.
  • expenditure incurred on accommodation other than qualifying accommodation (typically conferences) in connection with attendance at a qualifying conference as defined in the legislation
  • expenditure incurred by you on food or drink, or accommodation or other entertainment services, where such expenditure forms all or part of the cost of providing an advertising service in respect of which tax is due and payable by you
  • entertainment expenses incurred by you person, your agents or employees
  • the purchase, hiring, intra-Community acquisition or importation of passenger motor vehicles other than certain qualifying motor vehicles (details from Revenue Website) and other than motor vehicles held as stock-in-trade, or for the purposes of the sale of those motor vehicles by a financial institution in the context of a hire-purchase agreement, or for the purpose of a business of the hiring of motor vehicles, or for use in a driving school business.
  • the purchase, intra-Community acquisition or importation of petrol otherwise than as stock-in-trade
  • contract work involving the handing over of goods when such goods are themselves not deductible

You can only claim back VAT where the supplier supplies a proper VAT invoice which includes their VAT number and details of the VAT rates and amount.  The full requirements for invoicing are provided on the Revenue Website

VAT on Petrol and Diesel

  • VAT registered traders are not entitled to recover VAT incurred on the purchase of petrol.
  • VAT is fully recoverable on diesel by VAT registered traders if the vehicle is used 100% for business. The 100% condition is important.

What reports do I have to file?

VAT3

You have to periodically file a VAT return, called a VAT 3, showing how much VAT was charged or collected in the VAT period and you have to pay that money to the government.  Most small businesses file the VAT return every 4 months – Jan-Apr, May-Aug, Sep-Oct.  Bigger business file every two months. Some businesses file every 6 months.

When you register for VAT, the revenue decide whether you should be filing on a two/four/six month basis and let you know.

RTD Form

There is another annual form that has to be filed.  This is the Return of Trading Details and it summarises,  by each of the different VAT rates, the sales and purchases of the business.
The VAT 3 just shows the VAT amounts.  The RTD shows the sales and purchases amount and the related VAT rates. It is used to reconcile sales and purchases in the annual accounts with the VAT returns made during the year.
In recent years, Revenue have been enforcing the filing of RTDs more strictly.  If you are due a tax refund, they will withhold payment of the refund if an RTD has not been filed.

Cash v Invoice Basis

When reporting for VAT, small businesses have two options available to them:

  • invoice basis for accounting
  • cash (or money received) basis of accounting.

Under the invoice basis for accounting, a trader accounts for VAT when they issue the invoice to the customer. This is irrelevant of whether they receive payment from the customer at this time or not.

The cash basis is also known as the receipts basis or money received basis of accounting. Under this option, a trader accounts for VAT when payment is actually received from the customer.

This option gives small business some relief for a situation where they could incur cash flow problems if they had to pay over VAT before they have collected it themselves.

What I have international sales or purchases?

If you are exporting outside of the EU, then the zero rate for exports applies.

If you are selling into the EU, then you charge VAT if your customer is not VAT registered in their own country. If they are VAT Registered, you can charge zero VAT only if they give you their VAT number and you can verify that VAT number using an online EU portal for VAT verification.  You must keep a record of the Verification step – the system will supply you with a reference number.

When you are submitting your VAT 3, you have to report purchases from within the EU by using what is called the reverse charge method.  This shows a notional VAT on sales of the amount that would have been on the purchase if VAT had been charged.  You will also show a deduction of the same VAT amount as if VAT had been charged.  The net position is nil – the notional vat on sale is offset by the notional VAT on purchases.  The transaction is being recorded for statistical purposes only.

If you have distance or internet/mail order sales, then you need to pay particular attention to the VAT situation.

Conclusion

This article aims to give you an overview.  Without knowing your specific circumstances, it cannot be comprehensive.

I would advise you to discuss your business – the type of products or services provided, the type and location of customers, your level of turnover etc – with your accountant to ensure that you are applying VAT properly.  This should be done firstly when the business is starting but you should also review it regularly as your business may change or the VAT rules may change.

The Revenue website has a lot of information about VAT.  The Local Enterprise Offices also will be able to provide information.  It’s usually better to have a thorough discussion with your accountant at the start.

I hope this article was of benefit to you.  If you have further questions, feel free to contact me at jim (at) accountsplus (dot) ie.