Just over VAT threshold for last year

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fizzy

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I started trading this year as part of a VAT registered partnership.
Prior to this, both partners were sole traders for several years and not VAT registered.

It has now come to light that my partner's total turnover for 2010 was a few hundred over the 37500 VAT threshold for services. This only happened in the last days of the year when the last invoice was issued and even going by the turnover to the end of November, this was not to be expected.

There was no sole trader activity in 2011 - everything was done through the VAT registered partnership.
So, is it OK to have gone slightly over the VAT threshold right at the end of 2010 in these circumstances? Should my partner put an explanation in the expression of doubt box on his tax return to cover himself?
 
Hi fizzy,

Income Tax isn't VAT.
If he wasn't VAT registered and he didn't charge VAT there may not have been a major infraction.

He should ring the Revenue Commissioners VAT section before putting anything to paper or on ROS to be certain.
He should have all data to hand and explain the oversight, asking for written confirmation of what corrective measures he should take, if any.

That way he'll know the correct thing to do according to the Revenue Commissioners and have a record of the advice.
Unlike private professionals, you are not assigned a personal case officer - the file tells the tale.

Thus it is important to have documents and notes on file to guide the next person.
Don't be afraid to ring them - I've found they are very pro-active and helpful.


ONQ.
 
onq said:
He should ring the Revenue Commissioners VAT section before putting anything to paper or on ROS to be certain, explaining the oversight and askign for written confirmation of what corrective measures he should take, if any.
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Sorry this is crazy advice. He might as well write to them asking for a VAT bill. He needs professional advice on how to handle this. There may well be no problem with exceeding the VAT threshold so marginally, but if he approaches Revenue without having his homework done, and encounters the wrong sort of by-the-book Revenue official he could end up with a VAT liability that may well have been legitimately avoided had he got proper independent assistance.
 
There are two separate things going on here - (a) whether an infraction has been committed and (b) how to make a VAT Return - I commented on the former.
If you approach the Revenue Commissioners from the point of view of someone needing advice I doubt you will do yourself or your company any harm.

You are free at any time to take professional advice should matters not go as well as expected.
I am not an expert in VAT and tax matters as might be inferred from above.


ONQ.
 
onq said:
If you approach them from a point of view of someone needing advice I doubt you will do yourself or your company any harm.

I've just filed my own Income Tax return for the first time and they couldn't have been more helpful.

You are free at any time to take professional advice should matters not go as well as expected.
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But if the OP innocently misrepresents their own position to Revenue, without fully understanding the issues involved, this may well prejudice any contrary argument they may later wish to make on foot of professional advice.

The analogy of your own Income Tax return is hardly comparable, as income tax and VAT are entirely different taxes and operate in totally different ways. In most cases, it would be difficult to mistakenly generate an additional tax liability of €6500 (the amount at stake here if the OP is a 21% taxpayer) on foot of an income tax return. Yet a basic error of interpretation could in this case yield such a liability in VAT.

The implications of getting an unexpected €6,500 VAT bill may well be serious enough to close a fledgling business.

There is simply too much at stake here for the OP to approach this issue carelessly - unless €6,500 is small beer to them (which I doubt).
 
onq said:
I am not an expert in VAT and tax matters as might be inferred from above.
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Exactly, which is why advice shouldn't be bandied about.

In complete agreement with T.McGibney - go seek professional advice before making any call to revenue in this matter.
 
Guys.....:)

The VAT threshold is the amount net of VAT ie €37500 multiplied by the relevant VAT rate applicable.

So if the relevant vat rate is 13.5% it is €42562 of turnover before you have to register and if it is 21% it is €45375 of turnover before you need to register.

So if it is a few hundred euro over 37.5k you are not over the limit.

Kind Regards

capnhand
 
Sorry, no apparent mention of that on page 21 of 2008 VAT Guide

It does include the following mention of the long-standing 'VAT borne on purchases' concession but that does not amount to a grossing up of turnover to include notional VAT.

2.3 How is the threshold determined?
For the purposes only of deciding if a person is obliged to register for VAT, the actual turnover may be
reduced by an amount equivalent to the VAT borne on purchases of stock for re-sale. For example, a
trader whose annual purchases of stock for re-sale are, say, c60,000 [c49,587 plus c10,413 VAT at 21%]
and whose actual turnover is, say, c80,000 inclusive of VAT, is not obliged to register.This is because the
traders turnover, after deduction of the c10,413 VAT charged to him or her on purchases of stock, is
below the registration limit of c75,000.
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Hi

"An accountable person established in the State is not required to register for VAT if his or her turnover does not reach the appropriate threshold above."

As you will all no doubt agree, VAT is not turnover.

So if an accountable person with say €40,000 turnover, registers for VAT, their turnover will fall to €35242 (if 13.5%) or €33,057 (if 21%). Thus they are not obliged to register because their turnover is below the threshold.

Kind Regards


capnhand
 
Also read the 2nd line of chapter 8.1, at # 4

​
The "12 monthly" thresholds of €37,500 (services) and €75,000 (supply of goods) should be treated as referring to the notional "tax exclusive" element of a traders turnover.
 
The trader is obliged to register within 30 days of realising he is likely to exceed the threshold. From the original post this would have been in December 2010, as he says
even going by the turnover to the end of November, this was not to be expected.
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If he had then registered for Vat in December, registration would have been effective from the start of the next two month period, ie Jan to Feb 2011. But there was no trading in this period.
 
T McGibney said:
Sorry this is crazy advice. He might as well write to them asking for a VAT bill. He needs professional advice on how to handle this. There may well be no problem with exceeding the VAT threshold so marginally, but if he approaches Revenue without having his homework done, and encounters the wrong sort of by-the-book Revenue official he could end up with a VAT liability that may well have been legitimately avoided had he got proper independent assistance.
Click to expand...

Absolutely agree with this.

Also, in my opinion, Revenue are not your 'friends'. If they see an opportunity where they can fine you, they will take it.
Just look at what they publish on their own site:
http://www.revenue.ie/en/about/foi/s16/collection/debt-management/cdefguide.pdf

Recently, they are very strict with all this. They don't mind putting viable companies out of business.

If it were me in the above situation, I would rather issue refunds or discounts to the customer(s) that pushed you over the VAT threshold, than risk going to Revenue about it.
 
capnhand said:
Hi

"An accountable person established in the State is not required to register for VAT if his or her turnover does not reach the appropriate threshold above."

As you will all no doubt agree, VAT is not turnover.

So if an accountable person with say €40,000 turnover, registers for VAT, their turnover will fall to €35242 (if 13.5%) or €33,057 (if 21%). Thus they are not obliged to register because their turnover is below the threshold.
Click to expand...

But if the OP contends that their takings include an element of VAT, the Revenue may/will then contend that the VAT should therefore be remitted to Revenue?
 
Thanks for all the replies. The possibility of having to pay 6500 would be catastrophic. I thought the worst case would be that he might just need to pay VAT on the last 2010 invoice that put him over the limit?

In terms of professional advice, would it be an accountant or tax consultant I would need? My concern is that finding someone good willing to deal with such a small query before the 15 Nov deadline could be nigh impossible! :(

I was really hoping that this was OK. As Gervan said there, I was hoping that because it was only the last invoice issued on 31 Dec 2010 that crossed the threshold, and that it had not looked likely that the threshold would be reached at end of Nov 2010, that this would be seen as OK in view of the fact that he did not trade as a sole trader at all in 2011.

T McGibney, sorry I don't understand what you meant here:
But if the OP contends that their takings include an element of VAT, the Revenue may/will then contend that the VAT should therefore be remitted to Revenue?
Click to expand...
 
T McGibney said:
If you argue to Revenue that your takings include VAT, they may/will demand that you pay this VAT to Revenue.
Click to expand...

Thanks for clarifying - none of his invoices have VAT on them as he was not VAT registered, so there would be no VAT in the takings.

Informal advice he got today was to issue a credit note for the last 2010 invoice?

I know it would be bad if he had kept trading as a sole trader in 2011 without charging VAT, but I had hoped the fact that he ceased trading just after crossing the threshold (and switched to a VAT registered partnership) would make the situation OK.
 
fizzy said:
Thanks for clarifying - none of his invoices have VAT on them as he was not VAT registered, so there would be no VAT in the takings.
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Indeed, but some other posters were suggesting a course of action where he could claim that his invoices included VAT and that this would pull him under the threshold. I'm sceptical of that advice, on the grounds I outlined earlier.

fizzy said:
Informal advice he got today was to issue a credit note for the last 2010 invoice?

I know it would be bad if he had kept trading as a sole trader in 2011 without charging VAT, but I had hoped the fact that he ceased trading just after crossing the threshold (and switched to a VAT registered partnership) would make the situation OK.
Click to expand...

That's one way of doing it, if it reflects the reality of the transaction. If its merely a pretence, forget it.

Maybe the 'VAT borne on purchases' concession mentioned above might otherwise pull his turnover below the threshold?
 
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