12.2 Persons who may opt for moneys received basis
The persons who may opt to account for VAT in this way are:
• VAT-registered persons whose supplies of goods or services are almost exclusively (at least 90%) made to unregistered persons or to persons who are not entitled to claim a full deduction of the tax chargeable on the supply to them. This option would apply in practice mainly to retail outlets, pub-lic houses, restaurants, hairdressers and any similar type of business, but could include consultants doing work for exempt bodies or the State, or
• VAT-registered persons whose annual turnover does not exceed or is not likely to exceed c1,000,000.
It should be noted that the use of this basis of accounting in no way removes from a VAT-registered person his or her obligations as regards the issue of invoices, credit notes and other documents, the maintenance of records, lodgement of returns etc.
12.3 Excluded transactions
Transactions between connected persons are excluded from the moneys received basis of accounting.
VAT on any transactions between such persons should be accounted for by reference to the normal invoice/sales basis.VAT due on certain transactions e.g. where the consideration does not consist whol-ly of money, certain property transactions and construction services provided by a sub-contractor to a principal contractor etc. is also excluded from the moneys received basis of accounting.
12.4 Procedure
Any VAT-registered person who is eligible to use this basis of accounting may apply in writing to the relevant Revenue District for authority to do so giving certain details (please refer to VAT Information Leaflet ‘Moneys Received basis of Accounting’). Persons may not change from the invoice/sales basis of accounting to the moneys received basis, or vice versa, without such authority.
Persons who are applying for VAT registration for the first time, and find that they are eligible for this basis of accounting should indicate in the appropriate box on the application form (TR1 or TR2) whether or not they wish to use the moneys received basis.
12.5 VAT liability on moneys received
A trader who has been authorized to account on the moneys received basis is liable for VAT at the rate applicable at the time the goods or services are supplied and not at the rate applicable when payment is received.
Moneys received by a VAT-registered person include any sums:
• lodged or credited to the person’s account in a bank, building society or other financial concern, received by another person e.g. a solicitor on the trader’s behalf, or
• deducted as Professional Services Witholding Tax by an accountable person, or deducted as Relevant Contract Tax by a principal contractor or sub-contractor, or
• paid to Revenue by a third party to the person’s account in accordance with Revenue’s power of attachment.
A VAT-registered person is also deemed to have received money if liability in respect of a business transaction is settled by setting off against it a credit due in respect of some other transaction. Care must be taken when money is received through an agent that any amount withheld by the agent to cover fees, expenses etc. is included in the taxable amount. The date of the offset is deemed to be the date of receipt.
12.6 Withholding Tax – Professional Services (PSWT)
Income Tax withheld from payments for professional services is deemed, for VAT purposes, to be part of the consideration received by the trader. If, for example, c200 of an amount due to a solicitor is with-held for Income Tax from a gross fee of c1,210 [c1,000 + c210 VAT] and the amount paid is c1,010 [c200 (20% of the amount net of VAT) withheld for Income Tax], the solicitor is deemed for VAT purpos-es to have received c1,210 and must, therefore, account for VAT on the full c1,210.
12.7 Withholding tax – Relevant Contract Tax (RCT)
Until 31 August 2008 Income Tax withheld from payments to sub-contractors is deemed to be part of the consideration received by the sub-contractor on which he/she must account for VAT. If, for exam-ple, c397 of an amount due to a sub-contractor is withheld because of Income Tax from c1,135 [c1,000 + c135 VAT] and the amount actually paid is c738 [c397 (35% of the gross amount) withheld for Income Tax] the sub-contractor is deemed for VAT purposes to have received c1,135 and must, there-fore, account for VAT on the full amount of c1,135.
With effect from 1 September 2008 VAT on construction services supplied by a sub-contractor should be accounted for on a reverse charge basis by the principal contractor. The sub-contractor will be paid only
12.8 Credit card transactions
As indicated in paragraph 9.5, in the case of credit card transactions the taxable amount is the total amount actually charged to the customer by the supplier. Amounts withheld by credit card companies from their settlements with suppliers are part of the supplier’s taxable amount. This applies also where a trader accounts for VAT on the moneys received basis.
12.9 Changing from invoice/sales basis to moneys received basis
Where a VAT-registered person already accounting for VAT on the invoice basis obtains permission to change to the moneys received basis, that trader is liable for VAT on any moneys received on and after the approved date of the change, excluding any payments on which VAT has already been accounted for in respect of goods and services supplied while accounting on the invoice basis.
12.10 Changing from moneys received basis to invoice/sales basis
Where a VAT-registered person already accounting for VAT on the moneys received basis changes to the invoice basis, or ceases to be a taxable person, liability for VAT on outstanding debtors at the time of the change must be paid.
The adjustment for the VAT due is made by reference to the VAT due on outstanding debtors.
The adjustment is based on the amount due to the taxable person in respect of taxable supplies at the date of cessation (i.e. the outstanding debtors). The outstanding debtors should be apportioned between the VAT rates in the same ratio as that of supplies at each rate for the last 12 months that the cash basis applied (or for the period of authorisation if this is less).
12.11 Credit notes
VAT-registered persons accounting for VAT on the basis of moneys received must issue to a VAT-regis-tered customer or other person entitled to a VAT invoice, a credit note showing VAT if there is a discount or price reduction allowed subsequent to the issue of an invoice. The effect of the credit note is to reduce any VAT deduction available to the customer on the basis of the original invoice. This has no effect on the liability of the person issuing the credit note since he or she is calculating liability by ref-erence to the moneys actually received. However, where a supplier fails to issue a VAT credit note, the moneys received basis of accounting is considered not to have applied to the amount for which the credit note should have been issued.
12.12 Special schemes for estimation of sales by retailers
Some retailers who account for VAT on a cash receipts basis may encounter difficulty in determining the amounts of their sales of goods at different rates of tax. Where all sales are inclusive of tax and the retailer has no facility at check-out point for dividing the receipts from the sales of goods at the differ-ent rates of VAT, special schemes are available to assist the retailer in segregating his or her total receipts for the purpose of calculating the VAT due.
The schemes cater for different classes of retailers with small to large turnovers and relate to retail sales of goods chargeable at the zero, 13.5% and 21% VAT rates.
In order to calculate the tax due in a taxable period a retailer must know the amount of purchases at the different rates of VAT and the total retail sales for the respective period. The retailer uses this infor-mation to apportion the trading receipts to calculate the VAT due on sales.
There are three different Schemes for Retailers plus a Special Scheme for Chemists. The types of busi-ness and the appropriate and alternative Schemes are as follows:
The schemes may be used only by retailers who:
• sell goods chargeable at two or more VAT rates, and
• do not have facilities for segregating receipts at point of sale into the different rates and cannot rea-sonably be expected to do so (see paragraph 12.13), and
• sell goods in the form in which they buy them i.e. without applying any further process in their pro-duction/manufacture.
The use of schemes by retailers is not obligatory. Retailers should check and ensure that over a num-Annual Turnover (VAT-inclusive) Appropriate Scheme Alternative Scheme
Under c500,000 Scheme 1 Scheme 2, 3
c500,000 to c1,500,000 Scheme 2 Scheme 3
Over c1,500,000 Scheme 3 No alternative
The schemes may not be used in the following circumstances:
• Where a retailer uses Electronic point of sale (EPOS) equipment capable of accurately recording sales at the various applicable VAT rates.
• Where a retailer is selling second-hand goods under the Margin Scheme (see VAT Information Leaflet ‘Margin Scheme – Second-Hand Goods’).
• Where a retailer has receipts from the provision of services. Where a retailer has combined receipts from services and the sale of goods, the receipts and inputs in respect of the services should be sep-arated out. The balance of the receipts from retail sales should then be segregated between the var-ious VAT rates by using the appropriate scheme.
• Where a retailer is selling goods that the retailer has processed. For example, the purchase of mate-rials for making sandwiches where such an activity forms part of, say, a supermarket cafe business.
The purchases and receipts from such sales should be treated separately,
• Where a retailer is supplying hot take-away food. The retailer must exclude purchases of zero-rated food that are chargeable to VAT at the 13.5% rate on the onward supply. The receipts from sales of this food must also be excluded from the total receipts for the purposes of the appropriate retailers scheme,
• Where a retailer has agreed an otherwise acceptable method of segregating sales at each VAT rate with the local Revenue District.
12.13 Electronic point of sale/Scanning equipment (EPOS)
Persons whose point of sale equipment (typically by means of scanning bar codes) is capable of accu-rately recording sales at the various VAT rates should use the data produced by the system when com-pleting their VAT returns.
VAT analysis based on till readings, which require the operator of the till to identify the VAT rate appli-cable and to segregate sales into different VAT rates, is not normally acceptable. In such circumstances the traders concerned should use the appropriate Retail Scheme as set out in the VAT Information Leaflet ‘Special Schemes for Retailers’.
From 1 September 2008, there are major changes in how principal contractors and sub-contractors in the construction industry account for VAT.
13.1 Who is affected?
The new system applies to principal contractors and sub-contractors involved in construction opera-tions to which Relevant Contracts Tax (RCT) applies (but excluding haulage for hire).
RCT applies when a principal contractor is obliged to deduct tax @35% from payments to a sub-con-tractor or would have to do so but for the fact that the principal consub-con-tractor holds a Relevant Payments Card (RCT 47) for that sub-contractor. Public bodies, including local authorities, who receive construc-tion services are principal contractors for RCT purposes and the person who contracts to provide such services to a public body is regarded as a sub-contractor.