PART 8 – DEDUCTIONS

Overview

This Part has 2 Chapters and contains the deductibility provisions for the tax.

Chapter 1 deals with the general rules on deductions for tax borne or paid (sections 59 to 62A). In computing the amount of VAT payable in respect of a taxable period, an accountable person may deduct the VAT charged on most goods and services that are used for the purpose of the taxable business. Deductions may not be made for VAT on goods and services used for other purposes. Apportionment is provided for where a trader engages in taxable and exempt activities, or where some portion of the inputs is used for non-taxable purposes. The accountable person must have appropriate documentation (such as a VAT invoice) to be entitled to the deduction.

Chapter 2 covers the capital goods scheme for immovable goods (sections 63 and 64). The scheme is part of the system for VAT on property transactions, which was introduced with effect from 1 July 2008. A capital good is defined in terms of immovable goods (property) that have been developed. The section applies only to capital goods on which VAT was chargeable to a person who is carrying on a business activity and, therefore, does not apply to private individuals or those who are not operating in business. The purpose of this scheme is to ensure that VAT deductibility for a property is equitable and proportionate over its “VAT life”, which is generally 20 years.

Chapter 1 - General provisions

59. Deduction for tax borne or paid

Summary

This section contains the main rules on deductibility for input VAT. Input VAT is VAT that is charged on goods and services that are used for the purpose of a taxable business or that are used for certain “qualifying activities” defined in the section. Tax that may be deducted by an accountable person is listed in the section and includes VAT chargeable on purchases from other accountable persons that are properly invoiced and VAT on imports and on intra-Community acquisitions. VAT chargeable in respect of reverse charge rules and under special schemes is also deductible. The section also provides for stock-in-trade relief.

Details

(1) The general rule is that input tax is deductible on purchases used for a taxable business. However, input tax is also deductible in respect of ‘qualifying activities’. These are defined in subsection (1) as—

(a) transport outside the State of passengers and their accompanying baggage,

(b) supplies of goods which, by virtue of the distance sales rules in section 30, are deemed to have taken place in the territory of another Member State, provided that the supplier is registered for VAT in that other Member State,

(c)

(d) exempt financial and insurance/reinsurance services specified in paragraphs 6(1), 7(1) or 8 of Schedule 1 supplied—

(i) outside the Community, or

(ii) directly in connection with the export of goods to a place outside the Community,

(e) services consisting of the issue of new stocks, new shares, new debentures and other new securities made to raise capital for an accountable person’s taxable supplies, and

(f) supplies of goods or services outside the State that would be taxable supplies if made in the State.

A ‘qualifying vehicle’ is a motor vehicle which is first registered for vehicle registration tax (VRT) –

1. on or after 1 January 2009 and up to 31 December 2020 and has, for the purposes of that registration, a level of CO₂ emissions of less than 156g/km
   or
2. on or after 1 January 2021 and has, for the purposes of that registration a level of CO₂ emissions of less than 140g/km.

Some level of deductibility is available for qualifying vehicles – see subsection (2)(d) and section 62.

(2) Tax that may be deducted by an accountable person (in respect of his/her taxable supplies or qualifying activities) from the amount of tax payable by him/her in a taxable period is as follows—

• (2)(a) tax properly charged during the period in respect of goods or services supplied to him/her by other accountable persons,
• (2)(b) tax incurred during the period in respect of imports by him/her,
• (2)(c) tax chargeable during the period in respect of intra-Community acquisitions,
• (2)(d) deductibility of up to 20% of the tax paid for qualifying vehicles where that vehicle is used for at least 60% business purposes. Also, the subsequent disposal of that vehicle by that business is not subject to tax,
• (2)(e) tax chargeable during the period in respect of supplies of natural gas and electricity for which tax the recipient is liable under section 10(1) provided that recipient would be entitled to deduct this tax under normal deductibility rules if it was charged to him/her by another accountable person,
• (2)(f) tax chargeable during the period, in respect of goods which are installed or assembled in the State by a foreign supplier, for which tax the recipient is liable under section 10(2), provided that recipient would be entitled to deduct this tax under normal deductibility rules if it was charged to him/her by another accountable person,
• (2)(g) tax chargeable during the period in respect of reverse charge services under section 12(3) or (5) or 17(1),
• (2)(h) tax chargeable during the period in respect of supplies of greenhouse gas emission allowances for which tax the recipient is liable under section 16(2) provided that recipient would be entitled to deduct this tax under normal deductibility rules if it was charged to him/her by another accountable person,
• (2)(i) tax chargeable during the period in respect of supplies of construction services for which tax the recipient (i.e. the principal contractor) is liable provided that principal would be entitled to deduct this tax under normal deductibility rules if it was charged to him/her by another accountable person,
• (2)(ia) tax chargeable during the period in respect of supplies of scrap metal for which tax the recipient is liable under section 16(4) provided that recipient would be entitled to deduct this tax under normal deductibility rules if it was charged to him/her by another accountable person,
• (2)(ib) tax chargeable during the period in respect of supplies of construction work for which tax the recipient is liable under section 16(5), subject to the usual deductibility rules,
• (2)(ic) tax chargeable during the period in respect of supplies of gas or of electricity for which tax the recipient is liable under section 16(6)(b) provided that recipient would be entitled to deduct this tax under normal deductibility rules if it was charged to him/her by another accountable person,
• (2)(id) tax chargeable during the period in respect of supplies of a gas or an electricity certificate for which tax the recipient is liable under section 16(7)(b) provided that recipient would be entitled to deduct this tax under normal deductibility rules if it was charged to him/her by another accountable person,
• (2)(j) tax chargeable during the period in respect of reverse charge VAT under section 16(1), 94(6)(a) or (7) or 95(8)(c) to (e) in relation to an assignment/surrender of immovable property,
• (2)(k) tax chargeable during the period in respect of goods treated as self-supplies,
• (2)(l) residual tax in respect of intra-Community inter-branch supplies made by the accountable person,
• (2)(m)
• (2)(n) tax chargeable during the period in respect of services deemed to be self-supplied in accordance with regulations,
• (2)(o) tax deemed to be charged during the period in respect of the flat-rate addition specified in section 86(1),
• (2)(p) tax chargeable during the period in respect of supplies of investment gold which are subject to the reverse charge mechanism under section 90(5)(a),
• (2)(q) tax due during the period in respect of alcohol under suspension arrangements supplied under section 92.

(3) Where a farmer or fisherman is taxable only in respect of his/her intra-Community acquisitions or receipt of certain services from abroad, the tax due on the acquisition or service is not deductible. However, if the farmer provides racehorse training services and the acquisition or service specifically relates to racehorse training, then he/she will be entitled to deduct any such tax.

(4) Stock-in-trade relief is provided for as follows:

• (4)(a) Paragraph (a) provides that a person who becomes an accountable person, whether by election or because his/her turnover has exceeded the prescribed limit, is entitled to a tax credit for the estimated element of VAT in the value of stock-in-trade held by him/her at the commencement of the first taxable period for which he/she becomes accountable for tax. The procedures for calculating and claiming the relief are set out in Regulation 16 of the VAT Regulations 2010.
• (4)(b) Paragraph (b) is designed to obviate double relief. A taxable person is not required to issue an invoice for goods delivered to another taxable person until the 15th of the month following that in which the actual supply takes place. It could happen, therefore, that a trader who becomes registered for the first time would hold stock immediately before the date of registration. This stock would not be invoiced to him/her until after that date.
• He/she would be entitled to claim credit in the normal way for the tax shown on such an invoice. The paragraph ensures that he/she will not also be able to claim relief under the provision for the tax element in any part of the stock to which the invoice relates which was held by him/her immediately before he/she became taxable.

(5) There is provision for the repayment by Revenue of any excess of VAT input credit over VAT liability. The basis on which the repayment is to be calculated is set out in the main refunds provision in section 99(1) but is subject to the group rules in section 99(2) and to the unjust enrichment provisions in section 100.

Relevant Date: Finance Act 2020