VAT registration is one of those topics that trips up a lot of Irish tradespeople, either because they register when they do not need to or because they delay when they should have registered already.
Here is a clear breakdown of what you need to know.
When Are You Required to Register?
If your turnover from services exceeds €37,500 in a twelve-month period, you are legally required to register for VAT. For the supply of goods, the threshold is €75,000.
If you are approaching or exceeding this threshold and have not registered, do it immediately. Operating above the threshold without being VAT registered is a compliance breach that Revenue takes seriously.
Can You Register Voluntarily Below the Threshold?
Yes. You can register for VAT voluntarily even if your turnover is below the threshold. There are situations where this makes sense.
If most of your customers are VAT-registered businesses, they can reclaim the VAT you charge. Being VAT registered does not make you more expensive to them in real terms. And being registered allows you to reclaim VAT on your own business purchases, which can be a meaningful saving if you spend significantly on materials and equipment.
If most of your customers are private individuals, registering voluntarily makes you more expensive to them because they cannot reclaim the VAT. In this case, staying below the threshold is usually better for as long as you can legally do so.
What Rate of VAT Applies?
The standard rate of VAT in Ireland is 23 percent. However, most trade services, specifically labour on construction, renovation, repair, and maintenance work, qualify for the reduced rate of 13.5 percent.
This includes painting, plastering, plumbing, electrical work, roofing, gardening, and most other trade services carried out on property. Materials supplied as part of the job are also typically charged at 13.5 percent when they are part of a supply and fit service.
Check with your accountant to confirm the correct rate for your specific services, as there are some categories where the standard rate applies.
What Does VAT Registration Involve?
Once registered, you must:
- Charge VAT at the correct rate on all your invoices
- File VAT returns, typically every two months, through ROS
- Pay over the VAT you have collected, minus the VAT you have reclaimed on business purchases
- Keep records of all VAT transactions
The net cost of VAT is the difference between what you collect from customers and what you reclaim on purchases. For many trades where materials are a significant part of the cost, the reclaim can be substantial.
Common Mistakes to Avoid
Charging VAT before you are registered. You cannot charge VAT until Revenue has issued you a VAT registration number. Doing so before registration is a compliance issue.
Not registering when you hit the threshold. Revenue monitors turnover through income tax returns. If you exceed the threshold and have not registered, they will find out.
Getting the rate wrong. Charging 23 percent when 13.5 percent applies means you are overcharging customers. Charging 13.5 percent when 23 percent applies means you are underpaying Revenue.
If you are unsure about any aspect of VAT registration, speak to an accountant before you make decisions. Getting it right from the start is significantly easier than correcting mistakes later.
Written by Maebh Collins
ACA qualified, Dundalk-based. I build websites and write SEO content for trade businesses across Ireland and the UK. If you have questions, get in touch.