Value-Added Tax (VAT) is a tax on consumer spending, collected by businesses at each stage of the supply chain and paid over to the Revenue Commissioners. A VAT-registered business charges VAT on its sales and can generally reclaim the VAT it pays on business purchases, so the tax ultimately falls on the final consumer. For businesses, VAT brings registration rules, record-keeping duties and regular returns that need careful management.
VAT Registration Thresholds
Since 1 January 2025, Irish businesses must register for VAT once their annual turnover exceeds, or is likely to exceed, the following thresholds:
- €42,500
for businesses supplying services.
- €85,000
for businesses supplying goods. A business supplying both goods and services is generally treated under the goods threshold where at least 90% of its turnover comes from goods.
- €41,000
for intra-EU acquisitions of goods from other EU member states.
- €10,000
EU-wide threshold for distance sales of goods and certain digital services to consumers in other EU countries.
Some businesses must register regardless of turnover, including non-established businesses making taxable supplies in Ireland and those receiving certain services from abroad. Businesses below the thresholds can also choose to register voluntarily, which allows them to reclaim VAT on their costs and can improve credibility with larger business customers.
Current VAT Rates
Ireland applies several VAT rates depending on the goods or services supplied. The rates in force from 1 July 2026 are:
- 23% standard rate:
most goods and services, including electronics, furniture, cars, alcohol, soft drinks and most professional services.
- 13.5% reduced rate:
construction, cleaning, veterinary services, short-term car hire, fuel for heating and hotel accommodation.
- 9% second reduced rate:
gas and electricity, sporting facilities and, since 1 July 2026, restaurant and catering services, hot takeaway food and hairdressing.
- 4.8% livestock rate:
certain agricultural supplies of live cattle, sheep and pigs.
- 0% zero rate:
most basic foodstuffs, children's clothing and footwear, oral medicines, books and exports of goods outside the EU.
Some activities, such as most financial services, insurance, medical care and education, are exempt from VAT. An exempt business does not charge VAT, but it also cannot reclaim the VAT it pays on its own costs.
VAT Returns and Payments
Most VAT-registered businesses file a VAT return (Form VAT3) every two months, reporting the VAT charged on sales and the VAT reclaimed on purchases, and pay the difference to Revenue. Returns are due by the 19th day of the month following the two-month period, extended to the 23rd for businesses filing and paying through ROS. Depending on the amount of VAT paid each year, Revenue may authorise a business to file less frequently. In addition, businesses file an annual Return of Trading Details, which summarises their purchases and sales for the year by VAT rate.
Accounting for VAT on a Cash Basis
Businesses with an annual turnover below €2 million, and those supplying mainly to unregistered customers, may be authorised to account for VAT on the cash receipts basis. Under this basis VAT is due when payment is received from customers rather than when the invoice is issued, which can significantly improve cash flow.
Records and Invoicing Requirements
VAT-registered businesses must issue VAT invoices containing specific information to business customers and keep full records of sales, purchases, invoices and credit notes, generally for six years. Businesses trading with other EU countries also have additional reporting obligations, such as VIES returns for supplies to VAT-registered customers in other member states.
The Cost of Late Registration
A business that fails to register when required can be assessed for the VAT it should have charged, even if it never collected that VAT from customers, along with interest and penalties of up to €4,000. Because the thresholds are based on expected turnover as well as past turnover, a growing business needs to monitor its position closely.
For further guidance and support with VAT registration and compliance, contact Setup Your Company at info@setupyourcompany.ie or call us on 01 628 3177.
