Value Added Tax (VAT) is a tax on consumer spending. It is charged when goods or services are sold to customers. In Ireland, VAT is charged at 23% of the sale price. However, certain goods and services are exempt from VAT or charge VAT at reduced rates. Knowing what is and isn’t liable for VAT is important for businesses in Ireland to ensure they are remaining compliant and not incorrectly charging or omitting VAT.
What is Value Added Tax (VAT)?
Value Added Tax (VAT) is a tax on consumption levied on the supply of goods and services. It is an indirect tax which means the VAT burden is passed on to the final consumer. VAT is charged as a percentage of the sale price of goods or services.
In Ireland, the standard rate of VAT is 23%. This means 23% of the sale price is charged to customers as VAT and remitted to the tax authorities.
VAT is collected at each stage of the supply chain. For example, when a manufacturer sells to a wholesaler, VAT is charged on the sale. The wholesaler then charges VAT on the entire sales price when selling to a retailer. Finally, the retailer charges VAT on the full sales price to the final consumer.
While VAT is passed on at each stage of production and distribution, in most cases, businesses can deduct the VAT they have been charged on their purchases. This means the real burden of VAT falls on the final consumer.
What types of goods and services are exempt from VAT in Ireland?
There are a number of categories of goods and services that are exempt from VAT in Ireland. The main categories include:
Medical and health services
Most health and medical services provided by registered healthcare professionals are VAT exempt. This includes services provided by doctors, dentists, opticians, psychologists and more. Medical goods and equipment may also be exempt if supplied as part of a medical service.
Education and training
The provision of education and vocational training is exempt from VAT in Ireland. This covers education provided at recognized schools, colleges, universities and other educational institutions. Adult education and retraining courses can also be exempt.
Insurance and financial services
The provision of insurance and financial services such as banking, loans and investments are VAT exempt. This includes services provided by insurance brokers and underwriters, mortgage brokers, financial advisors and more.
Postal services
The supply of postal services by An Post are VAT exempt in Ireland. This includes letter and parcel delivery services. However, courier services operated by private companies are liable to VAT.
Lottery services
Operators of lotteries, such as the Irish National Lottery, are exempt from charging VAT on lottery ticket sales and pay-outs to winners.
Burial and cremation services
Funeral directors provide VAT exempt services when arranging and conducting burials or cremations. They do not charge VAT on related goods such as coffins either when provided as part of the exempt funeral service.
Sporting services
The supply of certain sporting services is VAT exempt. This applies to use of sporting facilities and services provided by non-profit sports clubs. However, commercial leisure facilities are subject to VAT.
Cultural services
Cultural services such as admissions to theatre, circus or musical performances are VAT exempt in Ireland. Museums, art galleries, zoos and similar cultural venues do not charge VAT on entrance fees.
Passenger transport
Public transport services for passengers are exempt from VAT in Ireland. This covers transport via bus, rail, metro, taxi and ferry services. International passenger transport is also VAT exempt.
Other VAT exemptions in Ireland
Some other goods and services exempt from VAT in Ireland include:
– Rent on immovable property such as commercial buildings is exempt. However, hotel or holiday accommodation is taxable.
– Supplies of unused postage stamps at face value.
– Betting, pool betting and lotteries operated by charitable organizations.
– Services provided by trade unions to their members.
– Supplies made by charitable organizations in the course of providing charitable activities.
– Exports of goods outside the EU.
– Certain food and drink such as tea, coffee, milk and brown bread.
Zero-rated goods and services
In addition to VAT exemptions, some goods and services are zero-rated in Ireland. Being zero-rated is different from being exempt – while exempt supplies have no VAT applied, zero-rated supplies still go through the VAT system but the rate charged is 0%.
Examples of zero-rated supplies in Ireland include:
– Most food and drink for human consumption such as fruit, vegetables, meat, fish, eggs and more.
– Oral medicine and drugs prescribed by a doctor or dentist.
– Books and booklets including brochures, leaflets, maps and similar printed matter.
– Children’s clothing and footwear.
– Exports to non-EU countries.
Reduced VAT rates
As well as the zero and exempt rates, Ireland applies reduced VAT rates on some goods and services:
– A 13.5% VAT rate applies to supplies of livestock, greyhounds and hire of horses.
– A 9% VAT rate applies to tourism related services such as hotel accommodation, restaurant meals, cinemas, theatres, museums, leisure facilities and more.
– A 4.8% rate applies to supplies of livestock feed, fertilisers and certain agricultural services.
– A 0% rate applies to food and drink (other than alcohol) provided by catering businesses.
Services liable for VAT at 23%
Goods and services that do not fall under one of the exempt, zero or reduced rates are liable for VAT at 23%. Some examples of services charged VAT at 23% include:
– Retail sales of most goods in shops and online.
– Hotel, B&B and holiday accommodation.
– Hairdressing and beauty treatments.
– Repair and maintenance of vehicles and goods.
– Electricity and fuel supplies.
– Telecoms and electronic services.
– Photography services.
– Consulting and accountancy services.
– Legal services and court fees.
– Private medical treatments such as cosmetic surgery.
– Betting and gaming services.
Input VAT recovery
Businesses that make exempt supplies are unable to recover the VAT they incur on purchases and expenses. This contrasts with businesses making taxable supplies who can deduct input VAT subject to normal rules.
The VAT incurred by an exempt business is a real cost as they cannot reclaim the input tax. This contrasts with VAT collected on outputs which is simply passed on to tax authorities.
Businesses mixing exempt and taxable supplies can only recover input VAT in proportion to the level of taxable supplies made. Complex partial exemption calculations are required in such cases.
Exempt services and VAT registration
Making only exempt supplies does not necessarily mean a business can avoid VAT registration. Even if no output VAT is charged, businesses may be required to register for VAT due to the value of goods they buy from abroad or if annual turnover exceeds the VAT registration threshold.
The current VAT registration threshold in Ireland is €75,000 in a rolling 12 month period. Therefore, exempt businesses need to monitor revenue to determine if compulsory VAT registration is required once turnover exceeds €75,000.
Voluntary VAT registration is also an option for exempt businesses. This would allow them to reclaim VAT on certain overhead expenses which may benefit some businesses with high input costs.
Conclusion
VAT is a complex tax with various exemptions, zero ratings and reductions applying across many sectors of the Irish economy. Services exempt from VAT range from healthcare and education to sports, culture and public transport.
Knowing the VAT status of supplies is essential for businesses to remain compliant, apply VAT correctly on sales, and accurately recover input VAT. Exempt businesses face additional complexities in terms of input VAT recovery and potential VAT registration requirements. Professional advice should be sought to navigate this complex area.