The Vat Practice, Cork. Ireland

BUDGET Special: What the change in the VAT rate means for businesses

Nick Ryan — Wed, 07 Dec 2011 16:07:20 +0000

The budget brought very little in changes to VAT that offered positives for growth and stability. Apart from the telegraphed increase in the standard rate to 23% with effect from 1 January 2012 only a number of minor measures were announced, perhaps the Finance Bill will have more…. reduced rate for construction services for redevelopment of commercial properties, zero rate for construction services to NPMO’s? Wishful thinking?
The minor changes are as follows:
VAT rate of district heating reduced to 13.5%
9% rate to be widened to include admissions to historic houses and gardens and admissions to “open farms”
Indication has been given that unregistered farmers will be allowed to claim a refund of VAT on the purchase of wind turbines from 1 January 2012.
Consultation process to commence in early 2012 on VRT and motor tax in order to consider how to improve revenues in both
The increase in the standard rate of VAT had been signalled and businesses will need to consider the impact of this change for the supplies they both make and receive. There will be implications for businesses operating under both the invoice basis and the cash received basis.
For businesses supplying goods/services on the invoice basis the key issue for the business is to ensure the correct VAT rate is applied, this would be the rate in force at the time the VAT invoice is issued. Consideration here should be given to businesses who issue a pro forma invoice and where payment is received after the new higher rate is in place. This could result in a business having a shortfall in the amount of VAT due and thereby needing to collect the shortfall amount as a secondary payment, think of the additional time cost and potential client relationship issues that could be involved here.Care should also be taken in issuing credit notes and ensuring the correct rate is applied.
Businesses operating on a cash receipts basis should apply the VAT rate applicable at the time a payment is received with similar care required when dealing with both advance payments and credit notes.
The rate change does not end there, for businesses it also requires an administrative cost in reviewing their VAT compliance function to ensure the rate change is applied to all products etc. it covers. Invoicing and accounting systems need to be changed to reflect the change as do cash registers and EPOS systems. It is imperative that the current rate is retained within the systems used to ensure businesses can manage credit notes and those transactions that may still be taxable at the current rate i.e. ongoing contracts entered into.
Invoicing templates and support documents will also need to be revised to provide for the new rate.
Overall the change in the rate for the Government provides them with the revenues they have estimated but for businesses it provides for both an additional eye to VAT and the administrative cost for their business.
If you have any questions on this or require assistance in implementing the rate change then please contact me.

Revenue’s eBrief No 70/11 highlights the VAT anomalies and pitfalls that face cash businesses

Nick Ryan — Wed, 07 Dec 2011 15:20:53 +0000

When I read this eBrief, released on 14 November, I was once again struck by the pedantic approach taken by Revenue in determining rates of VAT. Here we are informed that bread is not bread when applying the zero rate. We have to consider firstly is the bread product a purist bread product and secondly, just to be on the safe side, does the bread pass the 2% ingredients test.
The eBrief clarifies that some breads which might be considered by many to be varietal and/or a healthier option do not qualify for the zero rate but are subject to the reduced rate of 13.5%. These include breads such as garlic, onion or seed variants i.e. fennel. Why is that? Surely bread is bread is bread? No say Revenue, onion bread is not bread as it includes onions!
For the test we have to consider the ingredients and where the sugar, bread improver and fat individually exceed 2% of the weight of the total ingredients then that bread does not qualify as a zero rated product.
This small matter of bread further emphasises the difficulties that face both producers and cash businesses. Just consider the ingredient test above and where a producer inadvertantly makes bread with a 2.2% fat content though classifies the bread as zero rated. For them they have a VAT error in applying the incorrect rate, this under accounting of VAT can be sought form their customers but for the cash business, if they get the rate wrong, then this under declaration of VAT is an additional cost to them and an impact on their turnover. We will not consider the potential knock on effect of additional costs incurred by the business in rectifying matters.
As you can see this eBrief emphasises one of the key areas in VAT that can cause problems for both the producer/supplier and the cash business being that of the rate of VAT for products. Apply the wrong rate and this could lead to significant error and not just in monetary terms.
The accounting of VAT is another key area which encompasses the use of correct VAT rates. Over recent months our assistance has been sought in assessing cash businesses potential for error in their VAT accounting and compliance functions. Key identifiers have been the use of weighted margins/mark ups in order to determine the VAT due on the total takings, at times these margins have been based on historical and not reflective of current trading positions.
Use of cash registers and EPOS systems were also found t be at fault as the systems had not been updated to reflect VA rates for product lines. The application of green taxes such as the plastic bag levy were found to be misunderstood as were the application of VAT for vouchers, multi buys and promotional sales.
Managing the VAT function is essential for all businesses if that business is to minimise the potential for error and the associated costs incurred in correction of the error. For cash businesses getting it wrong can provide for a much greater impact on their business and therefore the extra effort can often provide for that greater reward.
These are just some of the issues that require regular consideration for both cash businesses and their product suppliers.
For more information on VAT and cash businesses or to discuss a particualar query then please contact me.

Global VAT news December 2011

Nick Ryan — Wed, 07 Dec 2011 14:19:27 +0000

There is a lot to cover in this issue with news of increases in VAT rates across the EU. Here is a summary of some of the key changes:
EU VAT reform plans to be published in December 2011: following the EU VAT green paper on VAT reform it is envisaged that the White paper outlining the proposal is for reform is to be issued this month. The key proposals cover:
• A move towards a single, harmonised EU VAT rate across all 27 Member States.
• A uniformed and consistent set of rules covering VAT registration and VAT returns in all territories.
• Standard VAT invoice format and reporting requirements.
France: plans were announced to increase the reduced rate from 5.5% to 7% from January 2012 for a range of goods including restaurants, books, public transport and repairs to residential property. Consideration is also been given to an increase in the current higher rate of 19.6%.
Italy to consider a further increase in its standard rate from 21% to 23% with an implementation date of September 2012 expected. There will then be a further rise to 23.5% in January 2014.
Lithuania also propose a increase in its standard rate to 23% in 2012.
Portugal announce increase VAT on restaurant meals from 10% to 23% in 2012.
Belgium increase VAT rates for legal services and television services to 21%.
India likely to miss the planned deadline of April 2012 for the implementation of unified GST system to replace VAT and other taxes.
China publishes details of the Shanghai 2012 pilot for the consolidation of VAT and Business tax.
For more information on these changes then please contact us.

Client care VAT reviews: Is the time right for your clients to take the next step in cost reduction?

Nick Ryan — Wed, 07 Dec 2011 12:22:49 +0000

No business wants to incur a cost to highlight a problem that could trigger a bigger cost BUT neither does a business want to lose the opportunity of reducing its costs and perhaps improving its bottom line profit.
Most businesses assume an audit is a “catches all” tool that ticks all the boxes and it is difficult for accountants to persuade them otherwise.
Our client care reviews can operate as an integral part of the audit approach and provide for that added value of comfort, an opportunity to identify potential savings for the client both retrospectively and for the future.
Why complete the review?
A key objective for all businesses is cost reduction in order to maximise profit yet recent surveys have identified that less than 20% of businesses consider VAT, a key component cost for most businesses, as part of the overall objectives in formulating a Strategy and have performance measures and goals set for the management and control of VAT.
The surveys also show that those businesses that do manage their VAT still experience a potential error count of circa 10% of their VAT throughput even with managed controls in place. Therefore a business with a €5m turnover and €450k VAT throughput has a potential VAT error, excluding penalties and interest, of €45k per annum. If this goes unchecked and is identified by Revenue then this could result in a six figure cost including penalties and interest to the business, excluding the additional costs in managing the process.
Just consider what the possible impact to a business would be were that business does not fall into the 20% category, potentially crippling.
Interestingly, the majority of errors identified can be caused by the simplest of mistakes within the management and control process.
Key objectives of the review:
• To identify opportunities which can improve the management processes for VAT
• To highlight areas of concern and shortfalls together with the remedies required to correct them.
• To develop the business’ focus to become VAT efficient.
• To reduce a business’ overall cost and level of risk thereby enhancing their bottom line profit.
Benefits for your client:
The review can provide a business with the kick start required to formulate and implement a clear VAT strategy to support its overall strategy and meet its targets.
By doing so, a business, through the implementation of a clear VAT strategy together with performance goals on the management of VAT can:
• Improve cash flow.
• Reduce costs.
• Improve business processes.
• Enhance bottom line profit.
Why use the VAT Practice
We are an independent practice providing a range of boutique VAT services. Our focus for these reviews is to assist businesses in developing a focused approach to VAT and in ensuring VAT becomes a business “deliverable”. A secondary aim is assist a business in strengthening their VAT management controls and improving performance in the management and control of VAT. The reviews are not there to identify specific errors requiring disclosure. We have 20 years experience in advising businesses on Irish, UK and international VAT issues. We offer a competitive and value driven fee structure together with a business driven service focusing on a timely completion of the Clinic and submission of our Findings report.
What actions should you take now?
When looking at your business you should consider the following questions:
Does your business have a VAT deliverable as part of its strategy? Are their identifiable performance goals for the management and control of VAT by your business? How confident are you that your business is VAT compliant and efficient?
If the answer to the above questions is largely “No” or “Not sure” then.. Contact us on to discuss how we can help you and let the review be your first step.

VAT and the end of the year agenda

Nick Ryan — Wed, 07 Dec 2011 11:43:47 +0000

The tax tsunami rolls on for businesses and accountants alike. Having just got over the income tax return deadline, faced the budget and the changes required from it businesses now have to look to the end of the year and what this can bring for their business. Often it is said that the end of the year is a good opportunity to reflect on the past and consider what can be done better in the future, to create your “wish” lists to provide for a better 2012. From a VAT perspective the end of the year signals for a number of businesses the need to consider their VAT accounting systems to ensure both that retrospective compliance was efficient and to carry out various exercises to determine VAT compliance for the future year.
For businesses involved in the property sector or with property interests then there may be a requirement to complete a capital goods scheme review to ensure VAT recoveries on property is in order. Holiday investments may also need to review to ensure the scheme is working and all tax liabilities are met; consideration as to the next year is useful to determine any potential pitfalls that could arise.
For tour operators, travel agents and other businesses falling within TAMS like conference organisers then there is the end of year assessment to ensure the margin applied is correct. Also this assessment can be used to consider next year’s margin.
Cash businesses should be reviewing their product lines to ensure that correct VAT rates are in place, assess their mark ups and margins to ensure they reflect the current business activity and operation and, overview their accounting systems i.e. cash registers and EPOS system to ensure compliance obligations can be met and risk of error is reduced.
Business with VAT exempt activities should take a look at their dual use method to ensure firstly does it reflect the activities of the business and thereby provide for the accurate recovery of VAT incurred on dual use costs. Secondly they should examine their attribution of VAT bearing costs to ensure it is correct and the recovery of VAT is maximised.
With cost reduction a key mantra for all businesses getting the VAT right is a key prerequisite in fulfilling this mantra.
For assistance in undertaking any of the above or, if you have concerns about management of the VAT compliance function then please contact us.

Global VAT News, September 2011

Nick Ryan — Thu, 29 Sep 2011 06:15:47 +0000

The current global issue of austerity has resulted in VAT rises being announced throughout the world. Here are some of the changes:
- EU has supported Hungary’s 2% increase in the higher rate to 27%.
- Italy has increased its higher rate by 1% as part of its austerity package.
- Greece, under its austerity measures, has shifted the VAT liability of supplies of food and soft drinks (including water) to the higher rate of 23% with effect from 1 September 2011.
- Portugal is to consider a further increase of 2% of its higher rate to 23%.

Other news includes;
- UK HMRC has announced its consultation process to implement an EU VAT cost sharing exemption which would follow similar lines as VAT group registration.
- Germany: the Tax Court has ruled that 13th Directive claims can be rejected by the German tax authorities were they are incomplete.
- India has announced that the GST rate will be between 16 and 20% when GST is implemented in the next financial year.
- China has announced its proposal to tax the turnover of online retail traders.
- USA, California is following similar lines by proposing to apply sales tax to out of state online retailers.

Revenue News – September 2011

Nick Ryan — Wed, 28 Sep 2011 17:11:51 +0000

Revenue has released two e-briefs recently that are of interest.
E-brief 50/2011: VAT treatment of admission fees to Historic Houses and Gardens and certain other admissions to, and rights over, property. This appears on the surface to be of little importance though it is the consideration of a number of European Court of Justice decisions as to what constitutes a letting. In essence we have a renewed position of the license vs. Lease position that was in place prior to the introduction of the new rules for VAT on property and which was somehow lost on their introduction. Admission fees charged for entry to Historic Houses and Gardens and certain other admissions to, and rights over, property are treated for VAT purposes as exempt lettings. These changes are to be effective from 1 January 2012, planning opportunities anyone?

Also released is E-brief 49/2011: VAT – Admissions to cultural, artistic, sporting, scientific, educational, entertainment, or similar events. This briefing confirms the changes that came into effect from 1 January 2011 by which admission charges are taxable where the event actually takes place.

Revenue continue to target cash businesses

Nick Ryan — Wed, 28 Sep 2011 15:47:35 +0000

It is as we expected, when tax yields are down where, from a Revenue perspective, is the most logical sector to target to gain quick revenue wins and increase the tax yield are the sectors where cash is king. Retailers, restaurants, cafe’s and any other cash trader remains the primary focus.
Over the past months we have seen a number of exploratory moves by Revenue including approaches in the food sector, as to the VAT treatment of smoothies and within the retail sector, over the application of cash tills for accounting and, particularly within the corner shop/confectioner area, a focus on both hot and cold food and the margins and mark ups applied.
I recall from my time with HM Revenue & Customs those days of sitting above confectioners’ premises and carrying out the product line mark ups to calculate an overall retail mark up in order to assess whether the VAT being accounted for was credible. Also, inspections on cafes, restaurants and take away outlets brought with them the misery of testing the margins applied, looking at wastage and portion sizes all driven by my departments view that any margin or mark up stated by the proprietor was likely to be over-stated and a source of quick win assessments. Nothing has changed and the Revenue here apply the same engrained approach.
So what can businesses do? Here are some questions they should ask themselves about their VAT accounting. If the answer given is a negative or has a degree of uncertainty, if it brings with it a recognition that the position is based on a historical view then further consideration is required.
- Does my till system meet with current Revenue reporting and accounting requirements?
- If I use an average weighted mark up to calculate the amount of VAT on sales due, when was this last reviewed?
- Has my business changed in the last three to four years?
- Are my products the same as when I reviewed the position last?
- What are my leading lines now as to the last review?
- Are my prices the same?
- Do the margins I apply to the products sold support the turnover of the business?
- Have I applied the correct rate of VAT to each product?
- Is the wastage figure applied reasonable?
- Have I applied the VAT rules for my business sector correctly?
- Have I dealt with multi buys, discounts, offers etc. correctly?
- Am I reclaiming all the VAT I am entitled to?

These are just some of the questions that should be asked on a regular basis to ensure that the business is demonstrating that they are accounting for, and managing, their VAT affairs to the best of their ability and thereby endeavouring to account for VAT correctly.

As I said where these questions result in a “No” answer or an element of doubt then the business needs to take the necessary actions to address these concerns and potential errors.

We at the VAT Practice can assist a business both initially in the identification of the level of risk and assess their current VAT reporting and accounting status. We can carry out product line reviews and assess weighted mark ups and margins to determine their credibility in line with the VAT reported. Where issues are identified we can work with the business in resolving these and in developing VAT reporting and accounting systems that enable to manage their VAT affairs and reduce the potential for error.

Please contact us for more information on how we can assist.

Earn CPD points before the year end: Sign up for a VAT Work Shop

Nick Ryan — Wed, 28 Sep 2011 15:35:15 +0000

We are considering holding VAT training workshops in late November/ early December as follows:
VAT Workshop for Accountants, Book keepers and Financial controllers: Key VAT issues
This workshop will focus on providing a refresher for accountants on key VAT issues. Topics to be covered will include:
- VAT and property – current issues
- Crossborder supplies of goods and services, inc the rise of e-trading, the VAT package and the reverse charge procedure
- Revenue audits and aspect reviews
- A topical issue, for instance – food and catering services
The workshop will encompass walk through examples for each topic.
VAT Basics for accounting and tax juniors/trainees
This workshop will cover the basics of VAT including:
- VAT registration
- Place of supply rules
- VAT reporting requirements
- What to look for when carrying out an audit
The aim of both workshops will be to include working scenarios for discussional purposes and we would like to run the session as a workshop thereby allowing for greater participation and open discussion. For these purposes we would restrict the group size to a maximum of forty per session.
In order to do arrange these we would need an expression of interest to include location. The four locations we are considering are Dublin, Cork, Limerick and Waterford though these are not set in stone and where a viable number of interested parties are identified for a different location then we will be happy to accommodate them.
Attendance offer – for each company attending we are pleased to offer a free trial of our VAT Assure quick query resolution service and include a free no obligation one hour consultation on one client to assess VAT issues etc.
To notify us of your interest please email Annette at: info@thevatpractice.ie confirming the workshop(s) you are interested in, preferred venue and persons likely to attend.
We look forward to hearing from you.

When is an Export not an Export: VAT is the question!

Nick Ryan — Tue, 27 Sep 2011 14:48:00 +0000

For VAT purposes the Revenue consider an exporter to be a person that supplies goods to another person and where the goods are directly dispatched to a destination outside of the European Union. In this instance the zero rate of VAT applies to the supply of the product. Simple enough?
Surely it can’t be that hard for a business to know whether they are an exporter or not. Well from recent experiences it is and the scenario below should help you in seeing where the problems lie.

Five businessmen meet at a networking event:
Bus 1: What do you do?
Bus 2: I’m an exporter, I sell used car parts to wholesale businesses in Africa.
Bus 1: I’m also an exporter, I sell a range of beauty therapy products through my online store to customers in Europe.
Bus 3: (overhearing the conversation) You both exporters? Me too, I sell used electronic equipment and games both via online auctions to customers mainly in the EU and also by container to the African markets.
Bus 4: No kidding you all exporters. I export bespoke iron furniture to customers around the world. Some customers are great as they reduce my costs by taking delivery of my product at my factory.
Bus 5: I don’t believe this, you all exporters, I am too. I provide technical desk support services to a number of clients in the Middle East in managing their IT functions.
Trade stand representative: You sure you guys are all exporters?

Can you all see why the Trade stand representative is worried? For VAT purposes, only one of these businessmen is a 100% exporter and two have aspects of their business activities that would qualify them as exporters. The others are not exporters at all. For the e-trader they have significant issues were they to apply the VAT export status to their supplies.

In essence these five businessmen between them are:
 Exporting goods.
 Operating under distance selling arrangements.
 Falling within the VAT Package for supplies of services.
 Providing supplies of goods within the State.
If they are driven to believe they are all exporters then there is a significant range of VAT errors occurring both in liability to VAT and in the reporting of VAT. Now do the math.
In the current climate the use of the word “export” has widened in our search to find signals of recovery and economic hope. The problem is that, in the current climate, a number of businesses have been loosely labelled “exporters” and, as such, have applied the VAT definition to their activities when they clearly are not. The ramifications of this can be pretty damaging as many businesses in the belief that they are exporters have taken that classification and applied it in order to determine their VAT status.

So what happens when the maths do not add up?

We at the VAT Practice can provide businesses with the immediate assistance they need to redress matters. Where problems are identified then provide a solution that provides for the best result and minimises any cost to the business in correcting matters. Also we can assist the business in putting the VAT reporting and compliance systems in place that get the VAT liability right and provide for better security and minimise the potential for ongoing risk.
For those involved in distance sales there is a need to constantly monitor sales in order to determine whether other jurisdiction VAT registrations are required and, then manage these other jurisdiction VAT registrations for future sales. We can assist here from the provision of tailored support tools for monitoring sales per territory to the cost efficient management of that VAT registration.
For more information on this or to discuss a particular concern then please contact us.