Do small businesses have to pay VAT?

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Question?

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If a business turns over less than €75,000 it does not have to register for VAT. Does this mean that it does not have to charge VAT on its products sold to consumers? (I know that it will not be able to reclaim VAT from products purchased).

-Thanks, sorry if this question is somewhere else, I can't find it.
 
The €75,000 threshold is for the supply of goods.

If you are supplying services, you must register for VAT if your turnover excees €37,500.
 
Thanks so much! It seems strange that you can get away without having to charge any VAT at all. If the business was registered but was making less than €75,000 (doesn't supply a service), would they then have to charge VAT?
 
yes---it might suit them to register even if below the threshold if their customers are VAT registered
 
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I think an illustration might help you to understand the situation:

(I am assuming you are going to have to pay VAT on the inputs for whatever it is you are selling to the retailers?)

IF NON-REGISTERED:

Lets say your materials cost you €50 + VAT (which is €60.50).

You work your magic and sell to your customer for €100 (no VAT if you aren't VAT registered).

Your margin is €39.50, since you can't reclaim the VAT on your inputs.


IF REGISTERED:

You can reclaim the €10.50 of VAT on your materials, so the cost of your inputs is €50.

You sell for €100 + VAT (€21), so that's €121.

However, if your customers are VAT registered, as most retailers / businesses are, then they will reclaim the €21 of VAT, so the cost to them is still €100.

Your margin is now €50 from the same transaction at the same prices.

This doesn't include the VAT you can claim on other inputs such as phone, diesel, equipment etc... if you are registered. So whereas you might think not "having to charge VAT" sounds great, it may well be to your financial benefit to be registered, if your sales are mainly to other businesses for whom the VAT isn't a cost.

The drawback is that you have to file VAT returns, and hand over the VAT you are collecting for the exchequer.
 
VAT for service then?

(Question? - sorry to hijack your thread)

Mandelbrot what is the situation then with a small business supplying a service?

If one charges VAT for supplying service, but realises then that they are unlikely to come close to a turnover of over €37,500 for that financial year (given the times we are in) does one just stop charging VAT or continue and simply reclaim all VAT at end of the year?

Many thanks,

m.sunny
 
Thank you very much Mandelbrot, that was very clear and thanks to everyone.
Is there a government source for all this information? I can't seem to find one.
 
m.sunny said:
(Question? - sorry to hijack your thread)

Mandelbrot what is the situation then with a small business supplying a service?

If one charges VAT for supplying service, but realises then that they are unlikely to come close to a turnover of over €37,500 for that financial year (given the times we are in) does one just stop charging VAT or continue and simply reclaim all VAT at end of the year?

Many thanks,

m.sunny
Click to expand...

If you charge VAT then you are obliged to remit it to Revenue (this applies even if you aren't actually VAT registered). The fact that you realise at some stage that you need not have registered due to low turnover is neither here nor there; since you have added VAT onto the cost of your service, it is not your money to reclaim. If anything, if you shouldn't have been charging them VAT, it is the customers who should get the VAT back (this is a concept known as unjust enrichment).

In the case you've described you can simply cease your registration for VAT from a particular date, on the basis that your turnover will not exceed the threshold. You will not charge / reclaim any VAT from that date on.

However, if you have claimed VAT back on purchase of equipment etc. you will be required to repay a portion of this VAT, as you are no longer going to be using these inputs for a VATable business...

Clear as mud...?! :)
 
mandelbrot said:
If you charge VAT then you are obliged to remit it to Revenue (this applies even if you aren't actually VAT registered). The fact that you realise at some stage that you need not have registered due to low turnover is neither here nor there; since you have added VAT onto the cost of your service, it is not your money to reclaim. If anything, if you shouldn't have been charging them VAT, it is the customers who should get the VAT back (this is a concept known as unjust enrichment).

In the case you've described you can simply cease your registration for VAT from a particular date, on the basis that your turnover will not exceed the threshold. You will not charge / reclaim any VAT from that date on.

However, if you have claimed VAT back on purchase of equipment etc. you will be required to repay a portion of this VAT, as you are no longer going to be using these inputs for a VATable business...

Clear as mud...?! :)
Click to expand...

So do I have to charge VAT and pay it to revenue, though I'm not registered?

Also, WindUp, those links don't drect me to what you were specicifally talking about..
 
Question? said:
So do I have to charge VAT and pay it to revenue, though I'm not registered?

Also, WindUp, those links don't drect me to what you were specicifally talking about..
Click to expand...

No, you don't have to charge VAT unless you are 1) registered, or 2) over the threshold.

However IF you do charge VAT to customers, then regardless of your turnover or whether or not you're registered, you owe the VAT to the exchequer.
 
mandelbrot said:
No, you don't have to charge VAT unless you are 1) registered, or 2) over the threshold.
Click to expand...

Wouldn't that mean I'd be able to sell goods cheaper than bigger shops?

mandelbrot said:
However IF you do charge VAT to customers, then regardless of your turnover or whether or not you're registered, you owe the VAT to the exchequer.
Click to expand...

And why would you charge VAT if not registered? Couldn't you just charge things the same price as places who do charge VAT and have a higher profit margin?

Also, do you have a link to the actual government document that says this? I just need to be absolutely sure, thanks for the help by the way. I just have so often heard that it's illegal to sell goods and not pay VAT.
 
Question? said:
Wouldn't that mean I'd be able to sell goods cheaper than bigger shops?

Couldn't you just charge things the same price as places who do charge VAT and have a higher profit margin?
Click to expand...

But would you have a higher margin though?

If you go back to my original example in reply to the OP above. Say you sell at €121 as a non VAT registered trader. Your Gross margin may be higher than a registered trader (€60.50 vs €50).

If you're renting premises, and this is a major overhead for most retailers, chances are there will be VAT on the rent - if you aren't VAT registered then this VAT is an additional cost to you.

Ditto the VAT on the cost of equipment, fixtures & fittings, diesel, light & heat, and any other overheads you incur...

All of this extra VAT eats into that extra margin.

Question? said:
And why would you charge VAT if not registered?
Click to expand...

Out of ignorance, or fraudulently i.e. with the intention of not handing the extra money over to Revenue.

Question? said:
Also, do you have a link to the actual government document that says this? I just need to be absolutely sure, thanks for the help by the way. I just have so often heard that it's illegal to sell goods and not pay VAT.
Click to expand...

I'm not sure I know what you want this document to say? If you are below the prescribed turnover limits then you are not obliged to charge VAT, and you may not reclaim any.

Read the VAT guide, already been linked to, and speak to an accountant.
 
mandelbrot said:
I think an illustration might help you to understand the situation:

(I am assuming you are going to have to pay VAT on the inputs for whatever it is you are selling to the retailers?)

IF NON-REGISTERED:

Lets say your materials cost you €50 + VAT (which is €60.50).

You work your magic and sell to your customer for €100 (no VAT if you aren't VAT registered).

Your margin is €39.50, since you can't reclaim the VAT on your inputs.


IF REGISTERED:

You can reclaim the €10.50 of VAT on your materials, so the cost of your inputs is €50.

You sell for €100 + VAT (€21), so that's €121.

However, if your customers are VAT registered, as most retailers / businesses are, then they will reclaim the €21 of VAT, so the cost to them is still €100.

Your margin is now €50 from the same transaction at the same prices.

This doesn't include the VAT you can claim on other inputs such as phone, diesel, equipment etc... if you are registered. So whereas you might think not "having to charge VAT" sounds great, it may well be to your financial benefit to be registered, if your sales are mainly to other businesses for whom the VAT isn't a cost.

The drawback is that you have to file VAT returns, and hand over the VAT you are collecting for the exchequer.
Click to expand...

Hi mandelbrot,

Your example uses a supplier (non-registered) supplying to a customer (registered).

What if you are supplying to end consumers directly. Is the situation different?

i.e. I am a start-up supplying goods, but am not yet registered for VAT.
I am buying from a wholesaler (in Ireland) and supplying directly to end consumers online. Would it be beneficial to register for VAT in this case?
 
One other consideration is that of perception.

If you're not registered for VAT, then the customer can rightly assume that your turnover is less than 75,000 for goods and 37,500 for services - and they may view you as a small operator and prefer to deal with someone larger. Having a VAT registration implies that your turnover exceeds the above figures.
 
If you are registered for VAT, it seems to me you should be charging VAT on all your taxable supplies - so yes, you need to pass onwards that VAT. You should also be claiming VAT on the expenses relating to those supplies.
 
gavney1 said:
Hi mandelbrot,

Your example uses a supplier (non-registered) supplying to a customer (registered).

What if you are supplying to end consumers directly. Is the situation different?
Click to expand...

Yes, to develop the example used above. If your customer is not VAT registered, i.e. a consumer, then they don't care whether you are vat registered or not a charge of €121 inc VAT is more expensive for them than a charge of €100 without VAT. (that is aside from Lobby's point about perception)

gavney1 said:
i.e. I am a start-up supplying goods, but am not yet registered for VAT.
I am buying from a wholesaler (in Ireland) and supplying directly to end consumers online. Would it be beneficial to register for VAT in this case?
Click to expand...

Probably
 
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