VAT in Ireland: Full Explanation and Bookkeeping Guidance

 What is VAT?

What is VAT?

Value-Added Tax (VAT) is a consumption tax charged on the sale of goods and services in Ireland. Businesses registered for VAT collect VAT from their customers and remit it to the Irish Revenue Commissioners. VAT is ultimately borne by the final consumer, not the business.

VAT Rates in Ireland

Rate	Description	Examples
23%	Standard rate (most goods and services)	Electronics, cosmetics, appliances, some medicines
13.5%	Reduced rate	Heating oil, coal, electricity, some construction
9%	Second reduced rate	Newspapers, ebooks, certain sporting facilities
4.8%	Super-reduced rate	Livestock
0%	Zero rate	Most food, children’s clothes, books, exports
Exempt	VAT not charged, and input VAT not reclaimable	Finance, insurance, healthcare, education, betting

Key Point: Even zero-rated and exempt goods must be tracked and reported as part of VAT returns.

VAT Registration Thresholds

Business Type	Annual Turnover Threshold for Mandatory Registration
Services	€42,500
Physical goods	€85,000

Businesses must register within 30 days of crossing the threshold. Voluntary registration is allowed before these limits are reached.

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Bookkeeping: How to Record VAT

Bookkeepers should follow these best practices:

• Sales Invoices:

  • Show net amount (excluding VAT), VAT rate, VAT amount, and gross total (including VAT).

  • Retain copies of all invoices issued.

• Purchase Invoices:

  • Make sure they are proper VAT invoices if you wish to reclaim input VAT.

  • Record the VAT paid separately in your books.

• Separate Accounts:

  • Maintain distinct accounts for VAT collected (output VAT) and VAT paid (input VAT), making reconciliation and returns easier.

• Keep All Records:

  • Keep VAT invoices, receipts, and supporting documentation, both physically and electronically, securely for at least 6 years.

• Monitor Thresholds:

  • Track sales regularly to ensure timely registration or deregistration for VAT.

• Apply Correct Rates:

• Check regularly that the appropriate VAT rate is being applied for each good or service category

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Example for Bookkeeping Entry

Suppose your business sells a product for €100 + 23% VAT to a customer:

Sales Entry:

• Debit: Accounts Receivable €123

• Credit: Sales Revenue €100

• Credit: VAT (Output) Payable €23

If you buy materials for €54 + 23% VAT:

Purchase Entry:

• Debit: Purchases €54

• Debit: VAT (Input) Receivable €12.42

• Credit: Accounts Payable €66.42

At VAT return time, net off Output VAT and Input VAT:

• If Output VAT (€2,000) - Input VAT (€1,500) = €500, you pay €500 to Revenue.

VAT Calculation Example

Let’s walk through a typical supply chain with 23% VAT:

Stage	Net Price	VAT (23%)	Gross Price	VAT Payable to Revenue*
Manufacturer	€100	€23	€123	€23
Wholesaler	€200	€46	€246	€23
Retailer	€300	€69	€369	€23

*Each payer subtracts the VAT on its purchases (input VAT) from VAT billed to its customers (output VAT)

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Filing and Paying VAT to Revenue

When and How to File

• VAT returns ("VAT3") are usually due every two months.

• The deadline is the 19th day of the second month after the VAT period ends (e.g., Jan–Feb return due by April 19).

• Most businesses must file electronically via Revenue Online Service (ROS).

Payment Process

• Calculate the amount of VAT due (Output VAT - Input VAT for the period).

• Pay the balance via ROS using direct debit, bank transfer, or other approved methods.

• If your input VAT exceeds output VAT, a refund will be issued to your designated bank account.

If payment is late or missed, penalties and interest may apply.

Compliance Checklist for Bookkeepers

• Ensure invoices meet VAT requirements.

• Track all sales and purchases for accurate VAT calculation.

• Reconcile VAT accounts routinely.

• File returns and make payments by the deadlines.

• Retain detailed VAT documentation for six years.

• Check the correct application of VAT rates regularly

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How are VAT rates applied to different types of goods and services in Ireland

What steps should a bookkeeper follow to record VAT collected and paid in Ireland

How does VAT accounting on an invoice basis differ from cash basis for Irish businesses

What are practical examples of calculating VAT amounts for common transactions in Ireland

How does the Irish VAT system ensure compliance and timely payments to the government

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