VAT — Value Added Tax — is the tax that generates the most day-to-day confusion among small business owners in Ireland. People understand income tax reasonably well. Corporation tax, less so but still broadly. VAT is the one that catches people out, generates the most Revenue queries, and causes the most stress at return time.
This article explains how VAT works in Ireland from the ground up — for small business owners who are either approaching the VAT threshold for the first time, recently registered, or who simply want to make sure they understand what they’re doing.
What Is VAT?
VAT is a consumption tax charged on the sale of goods and services. It is ultimately borne by the end consumer, but it is collected and remitted to Revenue by businesses at each stage of the supply chain.
Here is the fundamental mechanism. You charge VAT to your customers on your sales. You pay VAT to your suppliers on your purchases. The difference — the VAT you collected minus the VAT you paid — is what you remit to Revenue in your VAT return. If you paid more VAT to suppliers than you collected from customers in a period, Revenue owes you a refund.
You are not the final payer of VAT — you are a collector on behalf of Revenue. This is a crucial mental model. The VAT you charge your customers does not belong to you from the moment you charge it.
VAT Rates in Ireland
Ireland operates several VAT rates:
23% — the standard rate. This applies to most goods and services that are not specifically rated at a lower rate. If you are not sure which rate applies to something you’re supplying, 23% is the default.
13.5% — the reduced rate. This applies to a broad range of goods and services, including most construction services, fuel, electricity, gas, hotel accommodation, restaurant and café services, and certain agricultural supplies. This is the rate most relevant to trades and construction businesses.
9% — the second reduced rate. This applies to newspapers, certain electronic publications, and the provision of certain sporting facilities.
0% — the zero rate. This applies to exports (goods dispatched outside Ireland), most food and drink (with exceptions for restaurant meals, hot food, and certain beverages), children’s clothing and footwear, oral medicines, and certain other categories.
Exempt. Some supplies are exempt from VAT entirely — this means you don’t charge VAT, but you also cannot reclaim VAT on related costs. Exempt supplies include financial services, medical services, education, and certain insurance transactions. This is different from zero-rated: zero-rated supplies are taxable at 0% (VAT can be reclaimed on costs); exempt supplies sit outside the VAT system entirely.
Getting the rate wrong on your sales — charging 23% when you should charge 13.5%, for example — creates a mess. If you overcharge VAT, you owe the higher amount to Revenue regardless. If you undercharge, you are exposed to Revenue for the difference. Rate accuracy matters.
When Must You Register for VAT?
You are legally required to register for VAT when your annual turnover from taxable supplies exceeds:
€80,000 for businesses supplying goods. €40,000 for businesses supplying services.
These thresholds apply to Irish turnover and were unchanged in Budget 2026. If you are also making taxable supplies in other EU countries, there may be registration obligations in those countries as well — a more complex area covered separately.
Crucially, the obligation to register arises when you expect to exceed these thresholds, not when you already have. If your turnover in the last 12 months has exceeded the threshold, or if you reasonably expect it to exceed the threshold in the next 12 months, you must register. Waiting until the end of the year and registering retrospectively is not the correct approach.
You can also register for VAT voluntarily — even if your turnover is below the threshold. There are reasons to do this. If you are making significant purchases from VAT-registered suppliers and your own customers are VAT-registered businesses who can reclaim VAT, voluntary registration allows you to reclaim the VAT on your costs. For a start-up buying equipment and materials, this can be a significant cash flow benefit.
How to Calculate the VAT You Owe
Your VAT liability for a period is calculated as follows:
VAT on your sales (output VAT) minus VAT on your business purchases (input VAT) equals the net VAT payable to Revenue (or refundable from Revenue if negative).
Output VAT is the VAT you charged on your invoices during the period. If you issued invoices totalling €24,600 including VAT at 23%, your output VAT is €4,600.
Input VAT is the VAT you paid on business purchases during the period — materials, equipment, professional services, utilities, and other costs. If your business purchases included €3,690 VAT during the period, you can deduct this.
Net VAT payable = €4,600 − €3,690 = €910.
You can only reclaim input VAT on purchases that relate to your taxable business activities. You cannot reclaim VAT on:
Personal expenses. Entertainment (client dinners, hospitality). Cars and related costs (there are specific restrictions on VAT recovery for cars as distinct from commercial vehicles). Purchases related to exempt activities, if your business has an exempt element.
VAT and the Cash Receipts Basis
Most small businesses in Ireland account for VAT on the “invoice basis” — meaning VAT is accounted for in the period when the invoice is issued, regardless of when payment is received. If you invoice a customer in March but they pay in May, the VAT is included in your March-April return.
However, businesses with turnover below €2 million can elect to use the “cash receipts basis” — meaning VAT is only accounted for when payment is actually received. This is a significant cash flow benefit for businesses that have long payment terms or slow-paying customers. You are not remitting VAT to Revenue before your customer has paid you.
The cash receipts basis must be applied consistently and cannot be changed without Revenue approval. If you are a service business or a trades business with customers who take 30–60 days to pay, this election is worth exploring.
Filing VAT Returns
VAT returns in Ireland are filed bi-monthly for most businesses (every two months), quarterly for some, and annually for small businesses with a very low VAT liability. The return and payment are due by the 23rd of the month following the end of the return period, for online filers (using ROS).
Missing a VAT return deadline attracts interest at 0.0219% per day on the amount outstanding, plus a potential surcharge. Our Irish tax calendar for 2026 lists every bi-monthly VAT deadline alongside income tax and corporation tax dates. Revenue can also issue an estimated assessment — a VAT liability based on Revenue’s estimate of what you owe — if returns are not filed. Estimated assessments are generally higher than the actual liability, and appealing them takes time and cost.
File on time, every time. Put the dates in your calendar now.
The Most Common VAT Mistakes
Applying the wrong rate. Particularly common in mixed trades businesses — the 13.5% reduced rate for construction services versus the 23% standard rate for other services. The rules are specific and the consequences of getting it wrong are real.
Not registering on time. A significant number of small businesses continue trading above the VAT threshold without registering, often because they don’t realise they’ve crossed it. Revenue will identify this through income tax returns and cross-matching. The liability, including interest, accrues from when you should have registered.
Missing the cash receipts basis election. Businesses that would benefit significantly from accounting on receipts rather than invoices but who have never made the election.
Claiming VAT on non-deductible items. Client entertainment and car-related costs are the most common errors here.
Not keeping VAT invoices. You can only reclaim input VAT if you have a valid VAT invoice from the supplier. The invoice must show the supplier’s VAT registration number, the date, the amount of VAT charged, and the supply description. A receipt is not the same as a VAT invoice. If your supplier isn’t issuing proper VAT invoices, ask them to.
VAT is mechanical once you understand the rules. If you are uncertain about any aspect of your VAT obligations — registration, rates, returns, or reclaims — it is worth having a conversation with your accountant before Revenue has one with you. For more on VAT and other tax topics, see our full library of taxation guides.
Paddy Malone FCA AITI
Paddy is the principal of Malone & Co. Chartered Accountants in Dundalk. A Fellow of Chartered Accountants Ireland and a Chartered Tax Consultant with the Irish Tax Institute, he has been advising businesses across County Louth and the North-East for over 35 years.