VAT between the UK and Ireland
As the UK and the Republic of Ireland (’Eire’, ‘ROI’) each impose VAT under the same name, and the 2 countries have other strong links, it is a common mistake to assume that there is one single VAT regime that covers both countries. This is not the case, as they are 2 separate systems within the European Union VAT Area. This post outlines the main issues as they apply to a small UK business.
‘Ireland’ in this context refers solely to the southern part of the island. It excludes Northern Ireland, which is part of the UK together with England, Scotland and Wales.
Irish VAT is sometimes referred to as CBL (Cáin Bhreisluacha), being the Irish Gaelic translation. As at 1 January 2015 the standard rate of Irish VAT is 23%, but reduced rates of 13.5%, 9%, 5% or 4.8% may apply to some supplies.
Exporting goods to Ireland
A VAT-registered UK business does not need to charge VAT on goods it is sending to Ireland, provided it keeps documentary proof of export. It must also obtain the Irish customer’s VAT registration number and show it on the invoice (including the IE prefix). All Irish VAT numbers are in the format 9999999X or 9X99999X.
For VAT purposes it is physical movement of goods that is relevant, rather than the invoicing name or address. An invoice to an Irish customer when the goods are not leaving the UK will not normally be classed as an export, and UK VAT would be chargeable. However, goods being sent to Ireland on behalf of a UK customer without an Irish VAT number are still subject to UK VAT at the usual rate (even if the customer is registered for VAT in the UK).
Even where VAT is not being charged, the net value of the sale must still be reported on the UK VAT return, in boxes 6 and 8. It should also be included on the EC Sales List, and the Intrastat return if the business is required to make one.
The UK business is able to reclaim any UK VAT on the goods which it is exporting, subject to the normal rules about reclaiming input VAT.
If the Irish customer is not registered for VAT, and the UK business is not registered for Irish VAT, then UK VAT must be charged. In this case, the sale is included in box 1 and box 6 of the UK VAT return, but not box 8. It does not get included on the EC Sales List, but is liable to be reported on Intrastat. No VAT is chargeable on goods which would normally be zero-rated or exempt when supplied in the UK (for example, books, children’s clothing and some food items).
Any compulsory extra charges for freight, shipping, postage or delivery should be charged at the same rate of VAT as the rest of the items in that shipment, being either 0% if all the conditions are met, or the usual UK rate applicable to those items if not.
Regardless of whether or not VAT was charged on the sale, if the UK business accounts for VAT on the Flat Rate Scheme, it must include the value of the export in the turnover on which the Flat Rate VAT is paid. This may mean that the business is better off not being on the Flat Rate Scheme.
Every year the UK business should check whether its level of sales to unregistered customers in Ireland requires it to register for Irish VAT under the distance selling rules. Broadly, these require a UK business to register for Irish VAT, and then charge that instead of UK VAT, if its sales of goods to customers in Ireland who are not registered for Irish VAT are over €35,000 in a calendar year. All such sales would then be outside the scope of UK VAT, but still reportable in boxes 6 and 8 of the UK VAT return. They would not get included on the EC Sales List, but are liable to be reported on Intrastat. Overseas registration is also optional at lower levels of sales, but as rates of Irish VAT are typically higher than the UK VAT equivalent, this is unlikely to be favourable.
Importing goods from Ireland
A VAT-registered UK business importing goods from Ireland should give the Irish supplier its UK VAT registration number (including the GB prefix) so that Irish VAT does not get charged. If VAT is charged, the UK business cannot reclaim it on their UK VAT return or by a direct claim to the Irish tax authorities. The best that the UK business can do in these circumstances is to confirm its VAT registration number to the Irish supplier, then ask for a full credit note and for the goods to be re-invoiced without VAT.
When a UK VAT-registered business imports goods from Ireland from an Irish VAT-registered business, the UK business should pay UK VAT on the import by including VAT in box 2 of its regular UK VAT return, at the appropriate UK VAT rate. It may then reclaim that same amount from HMRC by including it as input VAT in box 4 of the same VAT return, subject to the normal rules about recovering input tax. The reason for this apparently circular exercise is to avoid VAT distortions between buying goods in the UK and importing them from Ireland. The net value of the import should be included in boxes 7 and 9 of the UK VAT return. Imports do not get shown on EC Sales Lists, but are liable to be reported on Intrastat.
If the UK business accounts for VAT on the Flat Rate Scheme, it must still pay the full UK rate of VAT (rather than the reduced Flat Rate of VAT) on imports by including them in box 2 as above. As with other expenses under the Flat Rate Scheme, the right to reclaim that VAT in box 4 is very limited.
Special VAT rules for the movement of goods
Different rules may apply in certain less-common situations:
Supplies to privileged persons in other EC states;
Installed or assembled goods;
Goods supplied on sale or return;
Transfers of own goods between the UK and Ireland within the same legal entity;
Goods sent for testing;
Triangular business transactions;
Movements of goods for process, repair etc;
Temporary movement of goods;
Mobile phones and computer chips;
VAT on services provided in or to Ireland
UK VAT may need to be charged on services performed in Ireland or to clients based in Ireland, depending on the type of service supplied. This is a complex area, and there are specific rules for the following services:
Services relating to land or property
Services of short-term hire of means of transport
Services involving physical performance and events. For example artistic, cultural, education and training, sporting, entertainment services, exhibitions, conferences, meetings
Supplies of admission to artistic, cultural, education and training, sporting, entertainment events, exhibitions, conferences and meetings and services related to admissions
Ancillary transport, valuation of/work on goods
Restaurant and catering services
Intermediary services (generally agencies or brokers working for a commission)
Training services supplied to overseas governments
Internet and electronically supplied services
Everything else is covered by a general rule. This includes copyright, royalties, licences, other intellectual rights, advertising, consultants, engineers, lawyers, accountants, data processing, written translation, computer programming, software maintenance, web design, sound engineers and technicians, the supply of staff, banking and insurance.
Under the general rule, if the service is being supplied to a consumer (rather than a business) in Ireland, it will be subject to UK VAT. This means that UK VAT must be charged at the usual UK rate, either standard rate, reduced rate, zero-rated or exempt. The UK business will account for VAT in the usual way.
If the service under the general rule is being supplied to a business customer in Ireland, it will be within the scope of Irish VAT (UK VAT is not charged). The customer does not need to be registered for VAT for the service to qualify as being for business purposes, but some evidence of the business purpose should be obtained.
Most services are then covered by the Irish reverse-charge procedure. This means that the Irish customer has the responsibility for dealing with most of the VAT issues. If not, the UK business may need to register for VAT, and then charge and account for it, according to Irish tax law. This is beyond the scope of this post, but more detailed information can be found here.
If the reverse-charge applies, the UK business needs to:
- Include an appropriate statement on the invoice, such as “This supply is subject to the reverse charge”
- Include the net value of the service in box 6 of the UK VAT return
- From January 2010, include the service on the EC Sales List
If the UK business accounts for VAT on the Flat Rate Scheme, it does not need to pay Flat Rate VAT on the value of services which are not subject to UK VAT due to them being performed in Ireland or to a customer based in Ireland.
If the Irish customer also has a branch or premises in the UK, it is necessary to look at the whole picture to decide which location is the most direct user of the service. This should reflect commercial reality, and may be different from the contractual position. For example, if the customer has their headquarters in Dublin, and all invoices are sent there, but most contact is with their office in London, it is likely that the service will be treated as supplied in the UK and subject to UK VAT.
Services relating to land or property include estate agency, conveyancing, architects, surveying, construction, property maintenance and repair work, hotel accommodation (unless a tour operator), defined exhibition stands, and property management services. If the property is in the UK, the service is liable to UK VAT regardless of the status or location of the customer. If the property is in Ireland, the service is outside the scope of UK VAT regardless of the status or location of the customer. The service may be chargeable to Irish VAT, and the business may need to register for VAT.
With all these services, it is important to look at the precise nature of the underlying service being provided. A business cannot turn one type of service into another by simply changing the description on the invoice.
The UK business is still able to reclaim any UK VAT on expenses which it incurs in providing a service which is deemed to be outside the UK, providing that the service would be taxable if it was made in the UK, and subject to the normal rules about reclaiming input VAT.
VAT on services received from an Irish supplier
If a VAT-registered UK business receives a service from an Irish supplier (whether registered for VAT or not), and the place of the service according to the above rules is in the UK, the UK business may need to reverse-charge that service. This is a simplification measure whereby the UK business accounts for UK VAT on the service as part of its regular VAT returns, to save the Irish business from having to do so.
It is easily put into practice by the UK business working out what the UK VAT would normally be on the charge for that service, and then including it in box 1 of its VAT return. It may then reclaim that same amount by including it as input VAT in box 4 of the same VAT return, subject to the normal rules about recovering input tax. The net value of the service should be included in boxes 6 and 7 of the same UK VAT return. Where the business can reclaim all of its input VAT, there is no net cost in making the reverse-charge entries.
If the UK business accounts for VAT on the Flat Rate Scheme, it does not need to pay Flat Rate VAT on the value of the reverse-charged service, or include it on its VAT return.
The reverse-charge does not apply to services which are normally exempt or zero-rated in the UK, for example, some financial or education services.
If, exceptionally, one of the following services is charged to a UK business, but the service is effectively used and enjoyed outside the EC (for example, in Jersey), the reverse-charge does not need to be applied in the UK. The services are:
- Supplies of the letting on hire of goods (other than means of transport);
- Telecommunications services;
- Radio and television broadcasting services; or
- Electronically supplied services.
If the UK business is not registered for VAT, and the service falls under the general rule for VAT on overseas services, the value of that service will be included in the turnover of that business in determining whether it needs to register for UK VAT.
Reclaiming Irish VAT
A VAT-registered UK business which buys goods (which are not for export) or services in Ireland may be able to reclaim any Irish input VAT paid, by using a special refund scheme. This is available to a UK business which is not registered in Ireland for VAT and does not make any supplies there. The claim is made using the specified form, and sent to the appropriate tax office in Ireland together with original supporting invoices and a UK VAT66 certificate.
From January 2010, claims for refunds of Irish VAT under this scheme will need to be made online.
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