Small business registering for VAT to reclaim VAT on expenditure?

Brendan Burgess

Brendan Burgess

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A friend of mine has asked me this.

He earns his living by doing contracts for a day or two here and there. He sends his clients invoices for the days worked.

All his clients are companies who are registered for VAT.

Now he has been asked to undertake a project where his fee will be about €20k.
He will have to hire other contractors to help out and they will all be Vat registered.

So his expenditure will come to €10k + €2,100 VAT.

I have given him the following advice:
1) Registering for VAT will not cost his clients anything. As they are registered for VAT, they don't care whether they get invoices for €1,000 or €1,000 + VAT.
2) He will be able to reclaim the VAT on any expenditure he incurs.

Questions
How long does VAT registration take. He wants to start this project immediately. Can he register for VAT today and start work?

Is there any reason why Revenue would refuse him VAT registration.

The client whom he will be charging the €20k is based in France. Presumably that is irrelevant?

They will supply him with their VAT registered number and he will then issue an invoice with no VAT on it.

If it turns out that they are not registered for VAT, then he will charge them an additional €4,200 which they will refuse to pay. As they have contracted to pay €20,000, he would have to reduce the invoice to €16,500 + VAT.

Any other considerations?

Brendan
 
Should he not be already VAT-registered, Brendan? If he's really earning a living from this work it must be very modest if he's billing less than €37.5k per annum.

What is the nature of his activity?

VAT registration is notoriously slow and usually takes 6-8 weeks. Revenue are apparently petrified of carousel and other VAT frauds and do thorough vetting on all applications.
 
Thanks Tommy

His business would best be described as marketing services and promotion.

He has started very recently and so his income would be a lot less than €37,500

So say he starts this project today 2 August.
He gets bills from sub contractors on 25 August for €5,000 + VAT
He gets a VAT number on 25th Sept. Is it effective from that date, or is it backdated?

Is the VAT paid before 25th Sept wasted?
Can he ask his suppliers to hold off invoicing him until 26th Sept?

Brendan
 
Brendan Burgess said:
Thanks Tommy

His business would best be described as marketing services and promotion.

He has started very recently and so his income would be a lot less than €37,500

So say he starts this project today 2 August.
He gets bills from sub contractors on 25 August for €5,000 + VAT
He gets a VAT number on 25th Sept. Is it effective from that date, or is it backdated?

Is the VAT paid before 25th Sept wasted?
Can he ask his suppliers to hold off invoicing him until 26th Sept?

Brendan
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Hi Brendan
He needs proper professional advice. If his turnover at any point has been or is likely to exceed €37.5k since the day he commenced trading, he is obliged to register from that point.

His VAT number is effective from the date he selects as date of registration.

I'd be concerned that the French company may not understand the ins and outs of all this, and if they are obliged to verify his VAT status before his number comes through he could experience problems with them.

He may or may not be able to make arrangements with key suppliers over the timing of invoices but this is all very murky and dependent on outside variables to the point that it difficult to comment meaningfully here.
 
Last edited:
Agreed and I have told him that he needs to pay for professional advice.

T McGibney said:
His VAT number is effective from the date he selects as date of registration.
Click to expand...

That's great. So he can set today as his date of registration and then charge VAT from today and claim VAT from today.

Brendan
 
Brendan Burgess said:
Agreed and I have told him that he needs to pay for professional advice.



That's great. So he can set today as his date of registration and then charge VAT from today and claim VAT from today.

Brendan
Click to expand...
Again Brendan I'd prefer if he got his own advice before he acts on anything said here. VAT is the most complex, the most dangerous, and the most misunderstood of all taxes and Revenue have extensive powers that may impact heavily on his plans should they opt to exercise them.
 
Hi Brendan, I registered somebody lately and was told it would take over 6 weeks before they would get a vat number. I phoned revenue and asked could we just assume vat number would be same as company number and start charging from date of registration. I was told they could not charge vat until they were given vat number but could reclaim vat on any expenses from date they registered so for about 8 weeks they could reclaim vat on expenses but did not have to charge any.
Also what is the nature of the service would reverse charge vat apply for contracts?
 
Autofill said:
I was told they could not charge vat until they were given vat number but could reclaim vat on any expenses from date they registered so for about 8 weeks they could reclaim vat on expenses but did not have to charge any.
Click to expand...

Autofill

That is very helpful.

It's a pity that Revenue has not written this down clearly anywhere.

Brendan
 
>> The client whom he will be charging the €20k is based in France.

> His business would best be described as marketing services and promotion.

Slightly old thread and you may know all this already....but just in case

Something to bear in mind in relation to VAT for services, it's a bit more complicated as ]the VAT maybe liable where the service occurs - ec.europa.eu/taxation_customs/business/vat/eu-vat-rules-topic/where-tax_en#supply_services
Or to put it another way, if the he was sending goods to France and both companies are VAT registered then the VAT could be removed at source (as the goods are for export & intra-EU).

However for services, the VAT may have to be paid in Ireland rather than removed at source - in which case it may be possible for the French company to claim the tax back but I'm guessing it's bit difficult. I know in the case of importing goods to Ireland from the EU where the VAT was paid in the origin country that you can claim it back via EVR but I believe it is a painful process.
More about EVR - revenue.ie/en/online-services/services/claims-and-refunds/apply-for-an-electronic-vat-refund.aspx
 
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