Simple VAT question for new business

J

jpogorman

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Hello,

I am setting up a small business that I expect will take 6 months to setup before I can sell to the public. Initially, I am thinking of registering a business name and trading as a sole trader.

I need to purchase about €3,000 worth of equipment now in order to start the setup of the business. My question resolves around saving the VAT on the equipment. Can I purchase the equipment now with the cost inclusive of VAT and say eight months later claim for it? Or would I have to register for VAT now before I buy the equipment.

I would like to keep costs such as accountant/solicitor low initially until I actually start selling.

Thanks,
JP
 
It may or may not be worth registering for VAT to save c. €600 on the cost of your equipment. This will depend on your own specific circumstances. You may save more money if it is possible for you to (legally) postpone registering until some time after you start trading. You will only be able to determine whether this is feasible by getting relevant professional advice.
 
By the same token, an acquaintance of mine set up a company several years ago, he spent approx 13K then and had no revenue. He filed an annual return to this effect last year and wants to retain the company to carry the losses forward. He also wants to make a claim for the VAT suffered initially, I told him I don't think he can do this as the company was not then (and still is not) registered for tax of any kind. I also have my doubts as to whether he can claim the losses forward (and at current tax rates - is it worth keeping the company open?)
Any thoughts?
 
By the way, with regard to the title of this thread, there is rarely if ever such a thing as a "simple VAT question for (a) new business".
 
Glenbhoy said:
By the same token, an acquaintance of mine set up a company several years ago, he spent approx 13K then and had no revenue. He filed an annual return to this effect last year and wants to retain the company to carry the losses forward. He also wants to make a claim for the VAT suffered initially, I told him I don't think he can do this as the company was not then (and still is not) registered for tax of any kind. I also have my doubts as to whether he can claim the losses forward (and at current tax rates - is it worth keeping the company open?)
Any thoughts?
Click to expand...

Impossible to tell, on the basis of the limited information given. The company will only be able to claim losses forward if it recommences trade at some stage in the future - whether there are technically any losses to claim in the first instance is open to question, given that the company previously failed to generate any revenue from trading, which would indicate that it was not actually trading, and not in a position to accumulate "trading losses"

It is highly unlikely that it is worth this person's time keeping this company open for this purpose.
 
Thanks Ubiquitous,
Do you think the guy will be able to reclaim the input vat even though it was incurred:
1) Prior to tax registration
2) 2 years ago
3) Questionable whether the company ever traded.
My own feeling is that he can't, but he claims to have talked to someone else who reckons he can reclaim it.
 
In a word, No. I'm surprised that he (or for that matter, anyone else) thinks otherwise. If his understanding of basic issues in other compliance areas (eg company law) are as shaky as his knowledge of VAT, then is very foolish to be a company director. He urgently needs proper professional advice. Otherwise God only knows what damage he could be unwittingly doing to himself.
 
Yes, it is possible to backdate the registration date for VAT to the date trading activity commenced. I have done this for my small company although saying that, I did seek professional advise from a number of sources and all confirmed this was possible so I then contacted the revenue and they amended the date of registration for VAT for my company. They subsequently issued a new certificate of VAT registration reflecting this.

The Revenue will sometimes agree unoffically to backdate registration in individual cases. However if the result of the backdating is to generate a big VAT saving for you, the Revenue would be within their rights to recoup this sum plus interest and penalties at any time in the future.
 
Thanks for the advice.

Just regarding registering for VAT. If I register now and do not earn anything for say eight months, what do I have to supply the revenue commissioners. Do I have to file nil returns every month? Or do I just have to file returns in October 2007? I would prefer as little overhead with dealing with accountants and revenue for the first year to year and a half but still have the benefits of being about to claim the VAT on my equipment at a later date.

Cheers,
JP
 
If you register for VAT you will have to submit your VAT returns on a bi-monthly basis. Once you have registered Revenue will send you out the relevant VAT3 form (green in colour). VAT returns on due by the 19th day following the bi-monthly period in question. If you have no sales in the first eight months but have purchases you can reclaim the VAT suffered. Revenue will refund the VAT paid directly to your bank account as soon as you file your return.
 
It is also possible to register with the revenue for you tp submit annual VAT returns but you should firstly consult your accountant on this.
If you do opt for the bi-monthly returns, it is very handy to submit it online with the Revenue Online Service www.ros.ie so no harm to register with them as a first step.
 
Of course if you register for VAT then you have to charge VAT. So you will have to take this into account when doing up pricing. Not sure what the business is but your customers may expect to get a VAT receipt.

On the other hand if you don't register for VAT until you are required to (40K euro I think) then you will have to modify your prices to refect 21 or 13.5% vat...or deicde to take a "hit" on the vat from your profits and only make a small increase.

Might be big shock to customers to have a 21% price increase.
 
gallantman said:
On the other hand if you don't register for VAT until you are required to (40K euro I think)
Click to expand...

Am I to understand that I won't have to pay any VAT to Revenue up to the limit that I am required to reqister? Or will I have to back pay once I get up to that limit?
 
Please clarify with your accountant but in our case we did not reach 40K until about two years into business. At that stage our accountant informed us that we had to register.

We then had to pay VAT from that date forward. We did not have to back pay VAT nor could we claim VAT on equipment we had bought before that date.

Our problem then was that we could not afford to increase our prices immediately by 21% and instead made some increases e.g. 10% but had to take a hit on our profits for whatever the VAT balance was due.

VAT is easy to manage if you have a good software package - e.g. QuickBook.
 
If your turnover exceeds, or is likely to exceed €51,000 (for persons supplying goods) you are obliged to register for VAT.

See this link

[broken link removed]
 
VAT is easy to manage if you have a good software package - e.g. QuickBook.[/quote]

Quickbooks is an American accounting software package, so might not be the best software package to use for VAT record keeping. They don't have VAT in America, they have sales tax. Sage Line 50 would be a better software package to use. It is geared for the Irish market.
 
If my understanding is correct; Since my capital startup costs are fairly low I would be better off paying the initial VAT on my equipment and then only registering for VAT when I reach the limit. Since I would not have to pay VAT on my initial sales up to the VAT limit it would give me flexibility to either price very competitively or have better initial margins.

See, this is simple! ;) Only joking!
 
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