Services to Irish-based Companies

Tax Tips May 2020


Steps businesses may take to improve VAT cash flow.

  1. Deferral of VAT liability and acceleration of VAT refunds

Revenue has indicated that interest will be suspended in relation to the late payment of the January February and March April 2020 VAT. The VAT return should continue to be submitted as normal but payment can be deferred.

Furthermore, Revenue have announced that where key personnel are unavailable, best estimates can be used to populate the VAT returns and any resulting self-correction can be completed without penalty.

Now may also be an optimal time to examine the businesses Revenue record to determine if any VAT refunds are owed for prior VAT periods. Refunds, which may currently be subject to an aspect query, might also have scope to be progressed at this time.

In addition, it is worth noting that Revenue has currently suspended enforcement proceedings on past liabilities due. That said, there has been no commentary on the effect of interest accruing on any liabilities during this time.

Current tax clearance and RCT rate status should not be affected by the above as Revenue have confirmed that taxpayer’s current status will remain in place over the coming months.

  1. Bad debt relief

VAT legislation provides for a VAT refund of sales VAT paid, where a debtor becomes a bad debt. This VAT will be repayable in the VAT period that the debtor becomes a bad debt.

A review of customer listings should be undertaken and any bad debts arising may be written off. A VAT deduction for the VAT element written off may be taking during the VAT period of write off by making an adjustment to the current VAT return.

  1. Basis of accounting for VAT

Ensure the business is accounting for VAT on a cash receipts basis once certain conditions are satisfied. Under the cash receipts method of VAT accounting, VAT is due at the point of payment by your customer.

Under general VAT accounting rules VAT becomes due on issuance of a VAT invoice even where the invoice remains unpaid. The cash receipts basis may be used where either; 90% of turnover is derived from sales of goods or supplies of services to persons not registered for VAT or, gross turnover is less than €2million per annum.

If the above conditions are satisfied, Revenue should be contacted to request the change from the invoice basis of accounting for VAT to the cash receipts basis.

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