Value Added Tax Calculation of VAT Liability VAT charged on Sales less VAT incurred on Purchases If VAT on Sales exceeds VAT on Purchases then the VAT registered trader has a VAT liability payable to Revenue If VAT on Purchases exceeds VAT on Sales then the VAT registered trader is entitled to a refund of VAT

Value Added Tax Calculation of VAT Liability – Taxable Amount Taxable amount is amount on which VAT must be charged by the business Sales price May include customs and excise duties, commissions, costs and charges but not VAT

Value Added Tax Calculation of VAT Liability – Taxable Amount Open market value used as taxable amount when there is a non-monetary consideration Open market value may be applied by Revenue when supply is between connected persons Taxable amount is the cost of the good in a self-supply

Value Added Tax Calculation of VAT Liability – Method of Accounting for Output VAT (VAT on Sales) Generally, there are six VAT periods in the year January/February, March/April, May/June, July/August, September/October, November/December Two methods for accounting for Output VAT (VAT on Sales)

Value Added Tax Calculation of VAT Liability – Method of Accounting for Output VAT Invoice Basis Most common basis Account for VAT when invoice is issued, based on VAT invoice date Date payment received from customer is irrelevant under this basis Cannot delay accounting for VAT by delaying issue of invoice

Value Added Tax Calculation of VAT Liability – Method of Accounting for Output VAT Cash Receipts Basis – Only allowed when Trader has turnover below €1.25 million in a 12 month period (increased to €2 million on 1 May 2014), or Trader derives 90% or more of turnover from sales to unregistered persons Can only account for VAT on cash receipts basis by application to Revenue and with their approval

Value Added Tax Calculation of VAT Liability – Method of Accounting for Output VAT Cash Receipts Basis VAT rate to be applied is the VAT rate in effect on date of invoice, not when payment was received Transactions between connected persons are excluded from the cash receipts basis Transactions in respect of land and buildings are excluded from the cash receipts basis

Value Added Tax Calculation of VAT Liability – Method of Accounting for Output VAT Bad debts Under the invoice basis, the VAT registered person may have to claim an input credit for amounts of VAT charged but never received Under the cash receipts basis, the VAT registered person will never account for the bad debt