# Just over VAT threshold for last year



## fizzy (1 Nov 2011)

I started trading this year as part of a VAT registered partnership.
Prior to this, both partners were sole traders for several years and not VAT registered.

It has now come to light that my partner's total turnover for 2010 was a few hundred over the 37500 VAT threshold for services. This only happened in the last days of the year when the last invoice was issued and even going by the turnover to the end of November, this was not to be expected.

There was no sole trader activity in 2011 - everything was done through the VAT registered partnership. 
So, is it OK to have gone slightly over the VAT threshold right at the end of 2010 in these circumstances? Should my partner put an explanation in the expression of doubt box on his tax return to cover himself?


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## onq (2 Nov 2011)

Hi fizzy,

Income Tax isn't VAT.
If he wasn't VAT registered and he didn't charge VAT there may not have been a major infraction.

He should ring the Revenue Commissioners VAT section before putting anything to paper or on ROS to be certain.
He should have all data to hand and explain the oversight, asking for written confirmation of what corrective measures he should take, if any.

That way he'll know the correct thing to do according to the Revenue Commissioners and have a record of the advice.
Unlike private professionals, you are not assigned a personal case officer - the file tells the tale.

Thus it is important to have documents and notes on file to guide the next person.
Don't be afraid to ring them - I've found they are very pro-active and helpful.


ONQ.


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## T McGibney (2 Nov 2011)

onq said:


> He should ring the Revenue Commissioners VAT section before putting anything to paper or on ROS to be certain, explaining the oversight and askign for written confirmation of what corrective measures he should take, if any.



Sorry this is crazy advice. He might as well write to them asking for a VAT bill.   He needs professional advice on how to handle this. There may well be no problem with exceeding the VAT threshold so marginally, but if he approaches Revenue without having his homework done, and encounters the wrong sort of by-the-book Revenue official he could end up with a VAT liability that may well have been legitimately avoided had he got proper independent assistance.


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## onq (2 Nov 2011)

There are two separate things going on here - (a) whether an infraction has been committed and (b) how to make a VAT Return - I commented on the former.
If you approach the Revenue Commissioners from the point of view of someone needing advice I doubt you will do yourself or your company any harm.

You are free at any time to take professional advice should matters not go as well as expected.
I am not an expert in VAT and tax matters as might be inferred from above.


ONQ.


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## T McGibney (2 Nov 2011)

onq said:


> If you approach them from a point of view of someone needing advice I doubt you will do yourself or your company any harm.
> 
> I've just filed my own Income Tax return for the first time and they couldn't have been more helpful.
> 
> You are free at any time to take professional advice should matters not go as well as expected.



But if the OP innocently misrepresents their own position to Revenue, without fully understanding the issues involved, this may well prejudice any contrary argument they may later wish to make on foot of professional advice. 

The analogy of your own Income Tax return is hardly comparable, as income tax and VAT are entirely different taxes and operate in totally different ways. In most cases, it would be difficult to mistakenly generate an additional tax liability of €6500 (the amount at stake here if the OP is a 21% taxpayer) on foot of an income tax return. Yet a basic error of interpretation could in this case yield such a liability in VAT.

The implications of getting an unexpected €6,500 VAT bill may well be serious enough to close a fledgling business. 

There is simply too much at stake here for the OP to approach this issue carelessly - unless €6,500 is small beer to them (which I doubt).


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## kennyb3 (2 Nov 2011)

onq said:


> I am not an expert in VAT and tax matters as might be inferred from above.


 
Exactly, which is why advice shouldn't be bandied about.

In complete agreement with T.McGibney - go seek professional advice before making any call to revenue in this matter.


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## capnhand (2 Nov 2011)

Guys.....

The VAT threshold is the amount net of VAT ie €37500 multiplied by the relevant VAT rate applicable. 

So if the relevant vat rate is 13.5% it is €42562  of turnover before you have to register and if it is 21% it is €45375 of turnover before you need to register. 

So if it is a few hundred euro over 37.5k you are not over the limit.

Kind Regards

capnhand


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## T McGibney (2 Nov 2011)

capnhand said:


> Guys.....
> 
> The VAT threshold is the amount net of VAT ie €37500 multiplied by the relevant VAT rate applicable.



First I've heard of this. Have you a source to confirm?


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## kennyb3 (2 Nov 2011)

He is right, pg 21 of vat guide 2008.


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## T McGibney (2 Nov 2011)

Sorry, no apparent mention of that on page 21 of 2008 VAT Guide

It does include the following mention of the long-standing 'VAT borne on purchases' concession but that does not amount to a grossing up of turnover to include notional VAT.



> 2.3     How is the threshold determined?
> For the purposes only of deciding if a person is obliged to register for VAT, the actual turnover may be
> reduced by an amount equivalent to the VAT borne on purchases of stock for re-sale. For example, a
> trader whose annual purchases of stock for re-sale are, say, c60,000 [c49,587 plus c10,413 VAT at 21%]
> ...


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## capnhand (2 Nov 2011)

Hi

"An accountable person established in the State is not required to register for VAT if his or her *turnover* does not reach the appropriate threshold above."

As you will all no doubt agree, VAT is not turnover. 

So if an accountable person with say €40,000 turnover, registers for VAT, their turnover will fall to €35242 (if 13.5%) or €33,057 (if 21%). Thus they are not obliged to register because their turnover is below the threshold.

Kind Regards


capnhand


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## kennyb3 (2 Nov 2011)

Also read the 2nd line of chapter 8.1, at # 4

​The "12 monthly" thresholds of €37,500 (services) and €75,000 (supply of goods) should be treated as referring to the *notional "tax exclusive" element of a traders turnover*.


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## Gervan (2 Nov 2011)

The trader is obliged to register within 30 days of realising he is likely to exceed the threshold. From the original post this would have been in December 2010, as he says 





> even going by the turnover to the end of November, this was not to be expected.


If he had then registered for Vat in December, registration would have been effective from the start of the next two month period, ie Jan to Feb 2011. But there was no trading in this period.


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## z107 (2 Nov 2011)

T McGibney said:


> Sorry this is crazy advice. He might as well write to them asking for a VAT bill.   He needs professional advice on how to handle this. There may well be no problem with exceeding the VAT threshold so marginally, but if he approaches Revenue without having his homework done, and encounters the wrong sort of by-the-book Revenue official he could end up with a VAT liability that may well have been legitimately avoided had he got proper independent assistance.



Absolutely agree with this.

Also, in my opinion, Revenue are not your 'friends'. If they see an opportunity where they can fine you, they will take it.
Just look at what they publish on their own site:
http://www.revenue.ie/en/about/foi/s16/collection/debt-management/cdefguide.pdf

Recently, they are very strict with all this. They don't mind putting viable companies out of business.

If it were me in the above situation, I would rather issue refunds or discounts to the customer(s) that pushed you over the VAT threshold, than risk going to Revenue about it.


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## T McGibney (2 Nov 2011)

capnhand said:


> Hi
> 
> "An accountable person established in the State is not required to register for VAT if his or her *turnover* does not reach the appropriate threshold above."
> 
> ...



But if the OP contends that their takings include an element of VAT, the Revenue may/will then contend that the VAT should therefore be remitted to Revenue?


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## fizzy (2 Nov 2011)

Thanks for all the replies. The possibility of having to pay 6500 would be catastrophic. I thought the worst case would be that he might just need to pay VAT on the last 2010 invoice that put him over the limit?

In terms of professional advice, would it be an accountant or tax consultant I would need? My concern is that finding someone good willing to deal with such a small query before the 15 Nov deadline could be nigh impossible! 

I was really hoping that this was OK. As Gervan said there, I was hoping that because it was only the last invoice issued on 31 Dec 2010 that crossed the threshold, and that it had not looked likely that the threshold would be reached at end of Nov 2010, that this would be seen as OK in view of the fact that he did not trade as a sole trader at all in 2011.

T McGibney, sorry I don't understand what you meant here:


> But if the OP contends that their takings include an element of VAT, the  Revenue may/will then contend that the VAT should therefore be remitted  to Revenue?


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## T McGibney (2 Nov 2011)

fizzy said:


> T McGibney, sorry I don't understand what you meant here:



If you argue to Revenue that your takings include VAT, they may/will demand that you pay this VAT to Revenue.


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## fizzy (2 Nov 2011)

T McGibney said:


> If you argue to Revenue that your takings include VAT, they may/will demand that you pay this VAT to Revenue.



Thanks for clarifying - none of his invoices have VAT on them as he was not VAT registered, so there would be no VAT in the takings.

Informal advice he got today was to issue a credit note for the last 2010 invoice?

I know it would be bad if he had kept trading as a sole trader in 2011 without charging VAT, but I had hoped the fact that he ceased trading just after crossing the threshold (and switched to a VAT registered partnership) would make the situation OK.


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## T McGibney (2 Nov 2011)

fizzy said:


> Thanks for clarifying - none of his invoices have VAT on them as he was not VAT registered, so there would be no VAT in the takings.



Indeed, but some other posters were suggesting a course of action where he could claim that his invoices included VAT and that this would pull him under the threshold. I'm sceptical of that advice, on the grounds I outlined earlier.



fizzy said:


> Informal advice he got today was to issue a credit note for the last 2010 invoice?
> 
> I know it would be bad if he had kept trading as a sole trader in 2011  without charging VAT, but I had hoped the fact that he ceased trading  just after crossing the threshold (and switched to a VAT registered  partnership) would make the situation OK.



That's one way of doing it, if it reflects the reality of the transaction. If its merely a pretence, forget it.

Maybe the 'VAT borne on purchases' concession mentioned above might otherwise pull his turnover below the threshold?


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## fizzy (2 Nov 2011)

T McGibney said:


> Maybe the 'VAT borne on purchases' concession mentioned above might otherwise pull his turnover below the threshold?



Alas no - next to no expenses with VAT on them.


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## onq (2 Nov 2011)

Given the comments above in relation to VAT-inclusive and VAT -exclusive amounts I don't see that a chat on the phone with the Revenue would do any harm.
The reaction of some posters to even a suggestion that they talk to the Revenue puts the Revenue in such a bad light.
My experience of dealing with them in this current crisis, is that they are tough but fair, and customer orientated.

As I said, the OP can get clarity on the principle of VAT registration.
This doesn't mean you have to make a return or show them your books, as some of the replies would seem to assume.
The OP can then take professional advice - and remember, the Revenue are a State Agency, no crooks - and "its good to talk".


ONQ.


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## z107 (2 Nov 2011)

onq said:


> Given the comments above in relation to VAT-inclusive and VAT -exclusive amounts I don't see that a chat on the phone with the Revenue would do any harm.
> The reaction of some posters to even a suggestion that they talk to the Revenue puts the Revenue in such a bad light.
> My experience of dealing with them in this current crisis, is that they are tough but fair, and customer orientated.
> 
> ...



'Customer' orientated? How can you suggest this when the documents on their own website say different? They are not exactly keeping it a secret what their priorities are.
http://www.revenue.ie/en/business/running/tax-payment-difficulties.html

If you have to 'talk', get someone experienced with the Revenue to do the 'talking'. Even better, get everything in writing.


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## onq (2 Nov 2011)

> Revenue also acknowledges that in the current economic slowdown some  businesses and taxpayers are currently experiencing difficulties in  meeting their tax payment obligations even where they are fully  committed to so doing and in more favourable economic and financial  circumstances did precisely that.


Their agenda cannot change, they collect tax for the state.
They acknowledge the ongoing doldrums we are all in these days.

After the next budget they may be seeking to collect more tax for the state.
They seem to know the plea most people will put before the Courts seeking clemency.


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## z107 (2 Nov 2011)

onq said:


> Their agenda cannot change, they collect tax for the state.
> They acknowledge the ongoing doldrums we are all in these days.
> 
> After the next budget they may be seeking to collect more tax for the state.
> They seem to know the plea most people will put before the Courts seeking clemency.



How they go about collecting these taxes and imposing fines etc., is what I'm referring to. There used to be some discretion involved, for example, if a company was viable, but had a once off late payment, maybe Revenue might waive the fine. Especially if imposing a fine would put the company (and jobs) at risk.

From my own experience, and from other business owners I've spoken with who have dealt with the Revenue recently, I can say that Revenue is no longer taking any prisoners.

Advising the OP on this thread to directly approach the Revenue with this, is just asking for a fine and penalties.


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## onq (2 Nov 2011)

I guess that's the OP's decision.

Personally I'd make the call, but that was my decision and I'm glad I did.


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## z107 (2 Nov 2011)

ONQ - after a few more Budgets, you may look at the Revenue in a different light. As the country's financial situation worsens, this is only going one way.

For me, I'm not going to be a victim if I can help it.


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## onq (2 Nov 2011)

I totally agree.

Equally, if the tax and VAT are supposed to be paid that's the position.

Reduced though my circumstances have been recently, I made a tax payment this year for 2009, the last year for which we had a tax liability.


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## jem (3 Nov 2011)

onq said:


> I guess that's the OP's decision.
> 
> Personally I'd make the call, but that was my decision and I'm glad I did.



I wouldn't under any circumstances take this advise.
Talk to your accountant.
Tommy is 100% right.


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