VAT has a habit of catching business owners off guard. A sale lands in your bank account and it feels like yours. Part of it is not. The VAT you add to your invoices is collected on behalf of the Revenue Commissioners, and every couple of months they expect it back. This guide explains how to account for VAT in your business in Ireland: when to register, what to charge, what you can reclaim, and how to file without the last-minute panic.
What does accounting for VAT actually mean?
Value Added Tax is a tax on the supply of goods and services, but the business making the supply is really just the collector. When you account for VAT, you track two running totals. Output VAT, recorded as T1 on the Irish VAT return, is the VAT you charge on sales. Input VAT, recorded as T2, is the VAT paid on purchases made for the business.
The maths behind every return is short: T1 minus T2. If the VAT collected on sales exceeds the VAT paid to suppliers, you owe Revenue the difference. If it goes the other way, say you bought a van or stocked up before a busy season, Revenue owes you a refund.
How much work this involves depends on three things: what you sell (taxable or exempt), who you sell to (consumers or other businesses), and where your customers are based.
Do you need to register for VAT in Ireland?
You must register for VAT once your turnover exceeds, or is likely to exceed, the registration threshold in any continuous 12-month period. Since 1 January 2025 the thresholds set by Revenue are:
|
Type of supply |
VAT registration threshold (from 1 January 2025) |
|
Services |
€42,500 |
|
Goods |
€85,000 |
Plenty of older articles still quote €37,500 and €75,000; those figures are out of date. Our guide to VAT thresholds in Ireland goes into the edge cases, including what counts as turnover in the first place.
Below the VAT threshold, registration is a choice. Some businesses elect to register for VAT early because their customers are VAT-registered anyway, or because heavy start-up costs mean reclaimable VAT on purchases. Once registered, you receive a VAT registration number that must appear on every sales invoice you issue. If you have not got that far yet, we have written a step-by-step guide to getting a VAT number in Ireland.
How do you charge VAT on your sales?
Once registered, you charge VAT on taxable supplies at the rate that applies to what you sell. Ireland has several rates, and applying the wrong one is one of the most common errors we find when reviewing books.
- 23% standard rate: most goods and services, the default if nothing else applies.
- 13.5% reduced rate: building services, certain repairs, fuel for heating, and more.
- 9% second reduced rate: newspapers, certain e-publications and sporting facilities.
- 0% zero rate: most food, children's clothing, oral medicines, exports.
The standard rate of VAT is the safe assumption, but never guess. Check the exact rate of VAT for your product or service in Revenue's VAT rates database. And learn the difference between zero-rated and exempt. Zero-rated sales are still taxable supplies, so you can reclaim VAT on related costs. If your supplies are exempt from VAT, as many financial, medical and educational services are, you generally cannot reclaim anything.
Selling abroad changes the picture again. Sales to VAT-registered businesses in other EU countries can often be zero-rated, while sales to consumers abroad follow separate place-of-supply rules. Revenue's section on goods and services to and from abroad covers the detail.
What VAT can you reclaim on purchases?
You can reclaim VAT on goods or services bought for your taxable business activities, provided you hold a valid VAT invoice from the supplier. No invoice, no reclaim. That receipt for the €1,000 laptop matters more than you think.
A few restrictions trip people up. According to Citizens Information, VAT cannot be reclaimed on costs such as food, drink, accommodation and entertainment, or on petrol for passenger cars, even when there is a genuine business purpose. Mixed-use costs, like a phone used half for work and half personally, must be apportioned. And if some of your activities are exempt, you may only recover part of your input VAT.
Capturing all of this correctly is a bookkeeping discipline, not a year-end scramble. Record the supplier's VAT number, the date, the rate and the VAT amount on every purchase. Good accounting software does the heavy lifting; our bookkeeping services exist for owners who would rather never chase a receipt again.
What records and invoices keep you compliant?
A proper VAT invoice shows your business name and VAT registration number, the customer's details, the invoice date, a description of the supply, the net amount, the VAT rate applied and the amount of VAT charged. Credit notes follow the same rules and are how you correct errors or process refunds without distorting your figures.
Revenue requires you to keep full and true records of all sales, purchases, imports and exports, generally for six years. Sounds tedious. It is, unless your system captures documents as you go, which is exactly what tools like Xero with receipt capture are for.
How do you calculate and file your VAT3 return?
The VAT3 is the periodic VAT return where you report your T1 and T2 totals. Most businesses file every two months, although Revenue assigns the frequency and may move you to four-monthly, six-monthly or annual filing based on your VAT liabilities. Returns and payments are due by the 23rd of the month after the period ends when you file and pay online.
Filing your VAT return happens through the Revenue Online Service (ROS), which also handles payments, refunds and acknowledgements. On top of the periodic returns sits the annual VAT Return of Trading Details, which summarises the year by rate. We cover that one in our guide to the VAT RTD.
Common mistakes worth avoiding:
- Mixing gross and net figures, which quietly understates or overstates the VAT due.
- Claiming VAT without a valid invoice to back it up.
- Posting transactions to the wrong VAT period.
- Misclassifying rates, especially between zero-rated and exempt supplies.
When does the reverse charge apply?
Under the reverse charge, the customer accounts for the VAT instead of the supplier. Irish businesses meet it most often when buying services from abroad, and in certain domestic sectors such as construction subcontracting. You self-account by recording the output VAT in T1 yourself, then claiming the matching input VAT in T2 if you are entitled to. For fully taxable businesses the two entries cancel out, but skipping them entirely is still an error Revenue can pick up.
FAQs about accounting for VAT in Ireland
What is the difference between T1 and T2 on the VAT return?
T1 is the VAT charged on your sales (output VAT). T2 is the deductible VAT on your purchases (input VAT). The difference between them is the amount you pay Revenue or the refund you claim.
Is VAT recorded as an expense in my accounts?
Not if you are VAT-registered. VAT flows through a control account on the balance sheet rather than the profit and loss. It only becomes a cost when you cannot recover it, for example on blocked items or where your business is not registered.
Do I always have to charge VAT once I am registered?
No. It depends on whether the supply is taxable or exempt, and on place-of-supply rules for customers outside Ireland. Registration gives you the obligation to charge VAT on taxable Irish supplies, not on everything you invoice.
Can I account for VAT on a cash basis instead of an invoice basis?
Possibly. Revenue's moneys received basis lets qualifying businesses, broadly those selling mainly to unregistered customers or with annual turnover under €2 million, pay VAT when they get paid rather than when they invoice. It can be a real cashflow help for service businesses with slow payers.
What happens if I make a mistake on a return?
Fix it quickly. Errors can usually be corrected through an adjustment in a later return or by amending the original filing through ROS, and acting early reduces the risk of interest and penalties.
Want VAT handled properly every period?
As a business owner you have better things to do than reconcile a VAT control account. Our VAT return service handles the bookkeeping, the rate checks, the VAT3 and the RTD, with everything filed on time through ROS. If VAT is the job you keep putting off, book a consultation and get in touch today.
Disclaimer: This guide is for general information purposes only and does not constitute professional advice. Speak to a qualified accountant about your specific circumstances before acting on anything covered here.