MONEY Guide to VAT for business owners

Ten reasons to fear VAT


Money matters
Brid Conroy

If you hear rustling in the night and a strange face appears up against your window, be scared. It’s probably the VAT Man.
As a trainee accountant working in London, a visit from the so-called VAT Man, truly was a frightening experience. Every expense item, every sale made was scrutinised. One small mistake could cost the company a fortune. Setting up the right systems and getting it right from the beginning will keep that bogey man from your door. Here are a few things you should be aware of.
1. If your sales go over €37,500 for services or €75,000 for goods, you are obliged to register for VAT. Even if you don’t register, you will be expected to pay the VAT from that date onwards to the Revenue, even if you didn’t charge for VAT.
2. You may be liable for VAT on lodgements to your bank even if it is not a business sale.
3. You must have proper records to account for every sale you make and every payment you receive.
4. If you charge VAT at 9 or 13.5 per cent and it should have been at 21 per cent, you will still have to pay the Revenue the 21 per cent.
5. If you accounted for the wrong VAT and it is discovered by the infamous VAT Man, in line with the four-year rule, he may decide that you must have been making the same mistake for the previous four years as well, and you’ll will end up with a bill for four times that amount.
6. Whatever you may owe Revenue for mistakes, they can then add penalties and a lot of interest for the time you had the money instead of them.
7. VAT cannot be claimed on petrol, eating out, buying a sandwich on the go or staying in a hotel, even if you are out on a genuine business adventure.
8. VAT on personal expenses is not allowed to be claimed under any circumstances.
9. If you are claiming VAT on an expense item, you should have the VAT number of that supplier on your files and have a proper VAT receipt with that number quoted on it, also in your files.
10. Not lodging cash to the bank does not preclude you from owing the VAT on this money. Revenue can look at what you have been buying and claiming VAT on and do their own calculations of what your sales should be.
Ultimately, the power of the Revenue when it comes to VAT should not be underestimated. Do not assume ‘ah sure it will be grand’. It won’t.

Track your VAT
It’s not all doom and gloom though. There are a number of things you can do to ensure you get it right.
I’ve mentioned before TAS Books Basics is a free download available from Sage.ie. This records everything you buy and sell, the dates and method of payment and will produce the VAT return for you every second month.
Otherwise, rely on good old-fashioned bookkeeping, which is just as effective.
Just make sure you list everything in the books and that you cross check all items to your bank statements.
Put yourself in the Revenue’s shoes and ask yourself ‘What would you check if you were them?’ Ooch.

BRID CONROY FCCA is a Chartered Certified Accountant with a practice in Louisburgh. She works on improving personal finances and the profitability of small and medium-sized businesses. To contact Brid, call 098 66870 or theoldschool@iolfree.ie.