In general a VAT registered business may, as long as goods or services are used for the business, deduct:
- VAT charged, by another VAT registered business, on goods and services supplied to it. ( The business must hold a valid VAT invoice to reclaim)
- the VAT paid or payable on imports;
- The VAT chargeable in respect on goods and services acquired from other EU countries. (Reclaimed under the reverse charge method).
- VAT in the case of certain EU sale of goods;
- The “reverse charge” VAT arising for a principal contractor in relation to the acquisition of construction operations carried out by a sub-contractor that are subject to Relevant Contracts. This applies to the construction, forestry and meat processing operations.
- The “reverse charge” VAT arising on certain services that are received from abroad
Reverse charge- this simply means self-accounting for VAT. The business must account for VAT in both the VAT on Sales and VAT on Purchases (Box T1 and T2) in the VAT return.
A VAT deduction is not allowed in respect of VAT paid on expenditure on any of the following:
- Providing food or drink, accommodation (except qualifying accommodation*) or other personal services for the business, its clients, customers or employees
- Entertainment expenses incurred by the business, its customers or employees
- Petrol, except when purchased as trading stock.
- VAT incurred on purchases to be used for an exempt or non-business purpose. An example of this would be an accountancy firm purchasing a television, claiming the VAT and then one of the partners, taking the television home, which would never happen by the way!
- acquisition, hiring or leasing of motor vehicles** other than as (a) trading stock or (b) for the purpose of a business which consists in whole or in part of the hiring of motor vehicles or (c) for use in a driving school business for giving driving instruction.
*There is an entitlement to VAT recovery in relation to certain “qualifying accommodation” whilst attending a “qualifying conference” .A “qualifying conference” is defined as a conference or meeting in the course or furtherance of business that is organised to cater for 50 or more delegates at a venue designed for holding such events. The person responsible for organising the conference must issue certain details of the conference to the attendees to include the location, nature and dates of the conference, the number of delegates and the VAT details of the organiser.
** There is a partial VAT recovery entitlement in relation to certain company cars of 20% of the VAT incurred on the purchase or hire of certain company cars. The cars must be registered since 01 January 2009, meet certain emission rates and be used for at least 60% business purposes. It should be noted that there is a clawback if the car is sold within two years.
The above is a very broad guide and does not include any details regarding VAT on property or transfer of business.If you have any queries on the above or VAT in general please do not hesitate to contact any of the team here at Comerford Foley.