# Invoicing a VAT exempt client



## Whatif

Dear All
I have set up a NewCo., registered with CRO, Vat etc etc.  One of my main clients is a VAT exempt society (not-for-profit).  My accountant says if I send an invoice to such a client I will have to reduce my normal fee, include an appropriate VAT charge and pass this on to the Revenue so, in effect, I have to absorb the VAT cost and if I do any work for VAT exempt bodies my fee will always have to deduct 21% (or whatever it is?).  This sounds quiet strange to me - anybody got any experience or advice on this one??

Whatif


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## MOB

There is no reason that you should 'absorb' the non-recoverable VAT cost of a VAT-exempt client. This client has to pay for electricity, phone, heating oil etc. and the VAT is duly paid but irrecoverable.  There is no reason your services should be any different except if you choose to do so as a concession.


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## gillarosa

Hi Whatif,

You simply exclude the VAT element from their invoice, therefore if your fee is for example €500 the invoice is €500 showing 0 VAT, or, in its the case that your fees are generally quoted VAT inclusive the charge would be €413.22. If you are billing from an Accounts package make sure 2 rate VAT is one of the options you can choose.

Regards,
M


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## Whatif

Thanks for that - simply leaving VAT off of the invoice seemed the most logical thing to do but apparently that's not allowed.  If you are registered for VAT then every invoice you send out must include the VAT element regardless of the VAT status of who you are invoicing.  Furthermore the VAT exempt body must then pay the VAT to the Revenue - this seems bizarre - what then is the meaning of VAT exempt if as a VAT exempt body you are obliged to pay VAT - doesn't make much sense to me??!

whatif


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## mo3art

The way I normally work it, is that I get a copy of the VAT Exemption Cert from the particular body.
I then invoice for the charge with a 0% VAT charge.  When it comes to the end of the year, I then pass the invoice to my accountant along with copy of the VAT exempt cert and he takes it from there.....


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## Newby

Whatif said:


> what then is the meaning of VAT exempt if as a VAT exempt body you are obliged to pay VAT



If you are a VAT exempt body it means that you do not charge VAT on your goods/services. It also means that you are not entitled to recover your VAT costs on any purchases. 

Generally speaking when a VAT registered business incurs VAT they do not mind as they  can reclaim it from the Revenue. As VAT exempt business cannot claim any VAT back, VAT represents a real cost to them. 

Example1, VAT registered business (Busco1) charges €100 plus VAT (21%) to another VAT reg'd business (Busco2).

Busco 1 charges €121 to Busco2. Busco2 claims €21 off Revenue. Net cost to Busco2 €100.

Example2, VAT registered business (Busco1) charges €100 plus VAT (21%) to another VAT exempt business (Busco2).

Busco 1 (still has to charge VAT) charges €121 quid to Busco2. Busco2 cannot claim tax back from Revenue and therefore net cost to Busco2 is €121.


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## Whatif

Thanks Newby, but from your example, what is the benefit of being VAT exempt??!  If you buy a computer you have to pay the VAT and you can't claim it back; if soemone sends you an invoice that includes VAT you end up paying more than the girl next door becuase the girl next door can claim the VAT back - where is the gain from being VAT exempt??

whatif


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## extopia

Your not-for-profit client probably didn't choose not to register for VAT - it's just that they are not permitted to register, presumably because they are not supplying a chargeable service.

If you're registered for VAT, you still must add VAT to your invoices to this client.

The only customers who would be exempt from VAT would be VAT-registered entities in another EU member state, or certain Irish-registered bodies whose output is primarily exported.


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## Newby

As you point out there is no real gain - it is just the VAT status of a company. If you wanted to look for a gain then I guess it is that your services are cheaper than someone who wouldn't be VAT exempt. 

In the examples

Example 1 - Busco2 adds €100 to the cost of the services it receives and charges VAT to another company.  Busco 3 bills €200 ((€121 - €21) + €100) plus €42  VAT to final customer (unregistered customer). Final cost to consumer €242. 

From example2, Busco2 would not have to charge on VAT on its services to another company so it would charge €221 to its customers being €121 plus €100 and no VAT charge as it is exempt.


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## extopia

That clears it up, then!


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## JoeB

hmmmm... I sell goods and normally charge VAT. However in one case a company was VAT exempt and I was allowed to sell them goods at 0% VAT. I sought clarification from Revenue which was problematic but in the end I got the answers I needed...

Quote from Revenue response.
However where a customer has a valid 13B certificate and supplies you with a copy of this certificate for your records you may zero-rate supplies of goods or services to that customer. 
There are a number of goods which are excluded from this facility. 
 These are:-
(a) Supply & hire of motor vehicles & petrol
(b) Services consisting of the provision of food & drink,accomodation entertainment & other personal services.
End Revenue quote

When doing your year end Return of Trading Details there is a 0% VAT exempt rate which is different from zero rated goods, i.e. food. So basically some companies are permitted to buy all products (beside exceptions above) at 0% VAT, I presume this also applies to electricity and other expenses.

Cheers
Joe


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## MOB

A person (or company) in a VAT-exempt situation does not charge VAT on what he supplies.  He is not entitled to an input credit on VAT incurred.

A person engaged in a Zero-rated business charges 0% VAT on what he supplies and is entitled to an input credit on VAT incurred.  As such a person would otherwise be in a position of getting constant VAT refunds, the Revenue issue a certificate to allow suppliers zero-rate supplies to this person.


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## martinep

*Re: Invoicing a non-Vat registered client*

I have 2 clients I would like your wisdom on please:
1. is a university and is not vat-registered. I don't know if they are vat-exempt or just not registered - if there is a difference? I invoiced them the full amount of fees and did not add vat but I havetreated it as including vat when I did my vat submission for the cycle and can't afford to gibe money away if I didn't have to.
I have read this forum and it seems that I do not have to charge them Vat without an impact on my fees. Is that the case?

2. I run a members only association for people wanting to get together over a common interest (virtual worlds) and only charge subs. I'm vat-registered and a member company just signed up from the US. Are they vat-exempt by virtue of being outside the EU?
The vat advice line is not very clear on these issues.

Really need your advice. Thx


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## extopia

You really need to see you accountant.

Generally you can only charge VAT within the EU so AFAIK the US client does not have to pay VAT, assuming the service is "exported" (i.e. not consumed within the EU).


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## Newby

*Re: Invoicing a non-Vat registered client*



martinep said:


> Really need your advice. Thx


I think you hit the nail on the head. You need advice not general guidance. I would recommend that you seek an accountant and ask them about these clients. A lot depends on your specific circumstances.


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## martinep

What is the difference between vat-exempt and non vat registered - is there anyone here who is or deals with UK universities and knows if they are vat-exempt and if so what that means to me? On the matter of the US company member of the association, the value/ services is not consumed within the EU so I guess they are vat-exempt. I'd appreciate some pointers from those who are or deal with trade assocaitions as they would have experience of this.
Thx


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