VAT Query.....

I have a query, i am responsible for book-keeping, vat and paye/prsi returns where I work. We do a lot of work for insurance companies where we work on there behalf and therefore invoices for those jobs are not vat applicable. My query is this....

Our accountant now advises that if (for example) we do 10,000 euros worth of work for insurance companies and 5,000 euros worth is not vat applicable that we can only claim back 50% of VAT on our purchase invoices when making the VAT return... Is this correct. When I calculate our vat return on sage it simply deducts the vat on purchases from the vat on sales and we pay the difference....

Please advise, my boss is freaking out that we owe thousands to the Revenue and I would like clarification myself.

Thanks

Pam

Your accountant is correct. Insurance services is a VAT exempt activity ( not a 0% VAT activity which would be different )

Say, for example you have a life insurance broker who is also an auctioneer. They must be registered for VAT for the auctioneering business ( once over the registration threshold ) and charge 21.5% VAT on the auctioneering services. However they will have costs which may be shared by both the life insurance business and the auctioneering such as phone, light & heat, computer costs etc.

One cannot claim the VAT on all the office costs where part of those resources are used on a VAT exempt activity. Usually one would attempt to ascertain an equitable apportionment of the VAT to the separate sides of the business and then only claim that percentage of the VAT which relates to the VATable business.

If one has an accounting package then this needs to be set up to reflect the necessity to apportion the costs. Most off the shelf packages are not really set up for this but a call to Sage help might be the best thing.

If in doubt as to what apportionment to use one could ask Revenue for a ruling. Bear in mind that asking now may result in an audit of past returns. Of course, if an incorrect procedure has been adopted anyway in the past resulting in loss of VAT to Revenue then a self-correction would be the cheapest way out as it would carry less penalties and interest.

lipbalmpam said:

I have a query, i am responsible for book-keeping, vat and paye/prsi returns where I work. We do a lot of work for insurance companies where we work on there behalf and therefore invoices for those jobs are not vat applicable. My query is this....

Our accountant now advises that if (for example) we do 10,000 euros worth of work for insurance companies and 5,000 euros worth is not vat applicable that we can only claim back 50% of VAT on our purchase invoices when making the VAT return... Is this correct. When I calculate our vat return on sage it simply deducts the vat on purchases from the vat on sales and we pay the difference....

Please advise, my boss is freaking out that we owe thousands to the Revenue and I would like clarification myself.

Thanks

Pam

Click to expand...

Your post is unclear to me.
You are a company and you provide a product/service to insurance companies ?
You are not actually involved in the insurance sector ?

Graham07 - thanks for your reply.

Patftrears - We provide a service to the insurance company where we are employed by them as an independent company but in some cases we act on behalf of the insurance company in settling claims - in which case we don't charge vat to the insurance company when invoicing them.