A brief guide to Irish VAT rates & easier returns

Calculating, paying, and claiming VAT is a cost of doing business almost anywhere in the world. In theory, it’s a relatively simple system: a seller just adds tax to the price of a good or service, then passes that on to the government.

But knowing the right VAT rate to charge (and pay) isn’t always simple. And there’s an administrative burden for companies to file reports.

This guide starts with the basics, but then offers real solutions to companies that devote too much energy VAT.

We’ll look at the different VAT rates and exemptions in Ireland, and how these compare to the rest of the world. Then we’ll see the best way to improve your internal processes so that your VAT returns take minutes, not hours or days.

What is value added tax (VAT)?

As the name suggests, VAT is a tax on the value added to goods and services sold. It’s a consumption tax, meaning it’s paid by the consumers of specific goods and services - essentially “user pays“ (similar to road user charges).

VAT is charged at every sale where the cost of a good or service increases (where the term “value added” comes from). So VAT not only applies to end consumers, but at each stage in the production process as supplies and services are purchased.

In the European Union (including Ireland), VAT is applied only to goods and services sold or consumed within the EU. Therefore there’s no value added tax on exports outside the EU.

But goods and services are taxed when imported into the EU, even if manufactured elsewhere. This maintains a level playing field for Irish businesses.

Standard rate of VAT in Ireland

The standard Irish VAT rate is 23%. This applies to most goods and services, including consultancy, solicitor services, furniture, motor vehicles and tyres.

That’s just a short list provided by Revenue Ireland. In reality, your business purchases and sales are almost certainly subject to this standard rate, unless a reduced rate, zero rate, or exemption applies. Let’s look at these now.

Reduced VAT rates

Certain goods and services may have reduced rates or exemptions to provide consumer tax relief or encourage spending. For example, during the Covid pandemic some governments reduced VAT rates on tourism and the hospitality sector, as those industries were disproportionately hard.

As of 1 January 2024, the reduced rate in Ireland is 13.5%. Revenue Ireland provides a list of reduced-rate items, including:

• Hot take-away food, tea, and coffee

• Culture including cinemas, theatres, some musical performances, art galleries, exhibitions, and amusement parks or fairgrounds

• Catering services and restaurant supplies (but not alcohol, soft drinks, or bottle water)

• Repair services

• Hairdressing services

• Cleaning, maintenance, and some building services

• Certain fuels

• Tour guide services

The list is much longer and worth a look if you aren’t sure which VAT rate applies to you.

Countries also reduce VAT on staple goods or to encourage what are seen as healthy choices. These might include fruits and vegetables, energy in the winter, and so on. These VAT rate change decisions are as much political as they are economic, and depend largely government policies.

Ireland has a second reduced rate of 9% which at present applies to electricity and domestic gas supplies (but not vehicle fuel).

Zero rate of VAT

Some goods and services incur no VAT. But producers can still claim credit for value-added tax on their business purchases.

Goods and services with the zero rate of VAT in Ireland include:

• Exports

• Intra-community trade with VAT-registered persons in other EU member states.

• Some medicine and sanitary products (oral & non-oral medicine, medical equipment

• Certain books, e-books, newspapers, audiobooks

• Children’s clothes (under 11 years old)

• Solar panel supply and installation for schools and private homes

Again, there’s more on the list.

VAT exemptions

Some supplies of goods and services are outside of scope or exempt from VAT. These are most often “essential” goods and services deemed fundamental to society.

The clearest examples are educational, medical, and financial services, which are all VAT exempt. The longer list includes:

• Postal services

• Supply of water and electricity imports

• Healthcare including hospitals, nursing homes, dentistry, and optical services

• Social welfare supplied by NGOs

• Sporting facilities and related educational activities

• Supply of cultural services and goods

• Services for the care and educational of children or young people

• Letting property (although VAT may be applied to holiday homes and other facilities)

• Core banking services, insurance, fund management, dividends, shares and other securities

• Betting (where subject to excise duty)

• Funeral services

Unlike zero-rate goods - where the “rate” applied is simply zero - VAT exemption places you completely outside the system.

If you only trade exempted goods and services, you aren’t entitled to VAT registration. Which means you can’t claim VAT relief on your business purchases.

International VAT rates

Although the name varies, VAT is used in 175 countries. We won’t list all those rates here, but those below give you a sense of the range.

Notably, the United States doesn’t use VAT. Individual states have their own sales tax rates ranging from 2.9% to 7.25%.

Other countries’ VAT rates:

(SR = standard rate; RR = reduced rate)

• United Kingdom: 20% (SR); 5% (RR)

• Australia: 10% (SR). VAT is called Goods and Services Tax (GST).

• Brazil: 17-20% (SR varies by state); 7% (RR)

• Canada: 5% (SR)

• China: 13%, 9%, & 6% (SR); 0.5% (RR)

• India: 0.25%, 1.5%, 3%, 5%, 12%, 18%, 28% (Primary rates)

• Mexico: 16% (SR)

• New Zealand: 15% (SR). VAT is called Goods and Services Tax (GST).

• Russia: 20% (SR); 10% (RR)

• Singapore: 9% (SR). VAT is called Goods and Services Tax (GST).

• Turkey: 20% (SR); 10%, 1% (RR)

At 23%, Ireland’s VAT rate is higher than any of the other countries above.

Filing VAT returns

UnlikePAYE (income tax), VAT on transactions is collected by the seller on each purchase. Which means as a business, you need to report how much VAT you’ve collected in a given period. Irish companies do this via a VAT3 form.

VAT returns are due bi-monthly by the 19th day of the following month. In other words, you report VAT for January-February by 19 March, March-April by 19 May, and so on. Even if you haven’t traded in a given period, you still must file a return.

The upside is that you can also claim any VAT you’ve paid to suppliers. And this is where sound finance processes become particularly important.

How to easily reclaim VAT on expenses

The difference between reclaiming and failing to reclaim VAT on corporate expenses can be significant. In most cases, you’re failing to save an extra 20% on these costs.

But companies regularly do fail to reclaim the full amount of VAT. And most of the time, it’s a lack of efficient, easy-to-follow processes at fault. Employees need to keep clear records (and receipts) from their field purchases. Paid invoices need to have the VAT amount highlighted.

None of this is overly complicated, but it can cost time and energy. Especially where you’re asking your finance team to chase other team members for these documents. Without automation, it’s a lot of admin.

So how can you automate this?

Automatically capture VAT amounts

Smart spend management tools read your receipts and invoices and automatically identify the right VAT amount. Each transaction is logged in detail, and you never lose receipts or other important information.

For a field expense:

• The team member spends, then takes a photo of their receipt.

• The app reads the receipt and extracts the total amount, supplier, type of spend, and VAT amount

• You reimburse the team member right from the platform in a click

• At the end of the accounting period, you see your total expenses (by category, if you prefer), and the amount of VAT to reclaim

For invoices, it’s virtually the same:

• Any team member receives and uploads a supplier invoice

• The software reads the invoice and extracts the total amount, supplier, type of spend, and VAT amount

• A manager approves, and the finance team processes the invoice for payment

• At the end of the accounting period, you see all supplier invoices and the total amount of VAT to reclaim

Most importantly, all of this can be done in bulk, from anywhere, in moments. There’s almost no data entry or manipulation, and your bi-monthly VAT return only takes a matter of moments.

Get smart about VAT

VAT is a near-universal system that lets countries collect sales tax, with sellers handling most of the work. For the vast majority of businesses, this is mandatory. But that doesn’t mean it has to be a chore.

In fact, you can easily automate your VAT return process and ensure you claim the full amount owed.

For growing businesses, missing up to a 20% refund on expenses is a painful outcome - basically a non-starter. But equally, you shouldn’t have to dedicate major people power to this task.

Choose a good spend management tool that detects the correct VAT amount automatically and cuts down on your month-end close. Just like Spendesk.