Revenue Information Note

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Scrap Metal

Introduction

From 1 May 2011 new VAT rules apply to supplies of scrap metal. The new rules are known as the reverse charge rules for accounting for VAT and make the recipient, rather than the supplier, liable for the VAT on the supply.

Who is impacted by the new rules?

The new rules will impact on:

  • taxable persons carrying on a business in the State, which consists of, or includes, dealing in scrap metal and who receive supplies of scrap metal from other taxable persons who carry on a business in the State, and
  • taxable persons carrying on a business in the State who supply scrap metal to taxable persons in the State.

However, if your main business activity is not in the scrap metal trade but your business includes purchases or sales of scrap metal products, such as scrap metal from construction activities or scrap metal from the jewellery trade, you will be impacted.

Supplies impacted by the new rules

The new rules apply to supplies of scrap metal. Supplies of other goods and services continue to be treated under the normal VAT rules.

Definitions

‘Scrap metal’ includes scrapped metal and metal waste originating from, or extracted from, the processing of metals, metal derived from vehicles, metal derived from construction and demolition waste, machine parts and metal items no longer useable in their original form due to their breaking, obsolescence, shearing, wearing or the like, and also includes supplies of the following which are listed in paragraphs (1) to (3) of Annex VI of the VAT Directive:

  • ferrous and non-ferrous waste, scrap, and used materials including that of semi-finished products resulting from the processing, manufacturing or melting down of ferrous and non-ferrous metals and their alloys;
  • ferrous and non-ferrous semi-processed products and certain associated processing services;
  • residues and other recyclable materials consisting of ferrous and non-ferrous metals, their alloys, slag, ash, scale and industrial residues containing metals or their alloys and supply of selection, cutting, fragmenting and pressing services of these products.

‘Dealing in scrap metal’ means the purchase, sale, resale or recovery of scrap metal.

‘Recovery’ in relation to scrap metal means any activity carried on for the purposes of reclaiming, recycling or re-using, in whole or in part, scrap metal and any activities related to such reclamation, re-cycling or re-use.

How the reverse charge system works

Under the reverse charge system the recipient, rather than the supplier, is accountable for the VAT on the supplies made to him or her.

  • The supplier issues to the recipient a document (referred to hereafter as a reverse charge invoice) that includes all of the information required on a VAT invoice, except the VAT rate and the VAT amount. It also includes an indication that it is the recipient who is accountable for the VAT.
  • If there is prior agreement between the supplier and the recipient, the recipient may issue the reverse charge invoice, subject to agreed procedures being in place for the acceptance by the supplier of the validity of the invoice (e.g. invoice is signed by both parties).
  • The recipient does not pay the VAT to the supplier but instead accounts for it in the VAT return for the relevant period in VAT on Sales (T1).
  • The recipient can claim a simultaneous input credit in VAT on Purchases (T2) for that VAT if s/he has valid documentation and would have been entitled to an input credit if that VAT had been charged by the supplier.

Example 1

Business A supplies scrap metal to Business B for consideration of €1,000 (excl. VAT). Both businesses are VAT-registered.

  • Business A raises an invoice (or, if agreed, Business B may raise the invoice) which shows that the recipient (Business B) is accountable for the VAT.
  • The VAT amount or rate is not shown on the invoice.
  • Business B calculates the VAT (1,000 x 21% = €210) and accounts for it in the VAT return for that period as VAT on Sales (T1).
  • Business B, subject to deductibility rules, can claim input credit, in the same return for that VAT (T2).

Business B supplies the scrap metal to Business C, also VAT-registered, for €1,300 (excl. VAT).

  • Business B (or Business C, if agreed) raises the invoice, without showing the VAT rate and VAT amount but indicating that Business C is accountable for the VAT.
  • Business C calculates the VAT (€1,300 x 21% = €273) and accounts for the VAT in the VAT return for the period at T1.
  • Business C, subject to deductibility rules, can claim input credit for that VAT in the same return at T2.

Example 2

Jeweller D purchases a second-hand bracelet from a private individual and sells it on to another private individual. There are no reverse charge implications for either transaction. Normal VAT rules will apply.

Example 3

Jeweller D purchases broken jewellery from a private individual and sells it on as scrap to a VAT-registered Business E for consideration of €500 (excl. VAT).

  • Jeweller D raises an invoice (or, if agreed, Business E may raise the invoice) which shows that the recipient (Business E) is accountable for the VAT.
  • The VAT amount or rate is not shown on the invoice.
  • Business E calculates the VAT (500 x 21% = €105) and accounts for it in the VAT return for that period as VAT on Sales (T1).
  • Business E, subject to deductibility rules, can claim input credit, in the same return for that VAT (T2).

Invoicing

The supplier should issue an invoice to the recipient in respect of supplies of scrap metal within 15 days of the end of the month in which the goods are supplied. However, the recipient may issue the reverse charge invoice where:

  • there is prior agreement between the supplier and the recipient and
  • there are agreed procedures in place for the acceptance by the supplier of the validity of the invoice (e.g. both parties sign the invoice).

Deductibility in respect of VAT incurred, either by reverse charge or under normal invoicing rules, is only allowed on the basis of valid VAT invoices.

Recipients must take all reasonable steps to ensure that information provided on the reverse charge invoice is correct and that VAT numbers provided are valid and in date at the time of supply. VAT numbers can be validated online at VAT number validation.

Information required on the reverse charge invoice

The reverse charge invoice must contain all the information required on a normal VAT invoice except the VAT rate and the VAT amount. The information required includes the following:

  • the date of issue of the invoice,
  • a sequential number, based on one or more series, which uniquely identifies the invoice,
  • the full name, address and VAT registration number of the person who supplied the goods to which the invoice relates,
  • the full name and address of the person to whom the goods were supplied,
  • a statement “VAT on this supply to be accounted for by the recipient”,
  • the quantity and nature of the goods supplied,
  • the date on which the goods were supplied or, where payment in full, or by instalments, for goods is made before the completion of the supply, the date on which the payment on account was made in so far as that date differs from the date of issue of the invoice,
  • the unit price, exclusive of tax, of the goods supplied, any discounts or price reductions not included in the unit price, and
  • the amount of the consideration exclusive of VAT.

For further information on invoicing see Invoicing - Information required on invoices.

(Note: The VAT number of the recipient is not required on domestic reverse charge invoices.).

Deductibility

Where the recipient of a supply of scrap metal is accountable for VAT under reverse charge rules that recipient can claim a simultaneous input credit in respect of that VAT but only if:

  • the recipient has a valid reverse charge invoice, whether drawn up by the supplier or (by agreement) the recipient,
  • the recipient is engaged in fully taxable activities and would have been entitled to deductibility if the VAT was invoiced under normal VAT rules.

Supplies of scrap metal from persons not registered for VAT

Where a recipient receives a supply of scrap metal from persons who are not registered for VAT, the dealer must keep a full record of those supplies. S/he should issue to the supplier, and retain a copy of, a document which contains the following information:

  • the date of issue of the document,
  • a sequential number, based on one or more series, which uniquely identifies the document,
  • the full name and address of the person who supplied the goods to which the document relates,
  • the full name and address of the person to whom the goods were supplied,
  • the quantity and nature of the goods supplied,
  • the date on which the supply was made,
  • the unit price of the goods supplied, any discounts or price reductions not included in the unit price,
  • the amount of the consideration,
  • agreed procedures for the acceptance by the supplier of the validity of the document (e.g. signature of both parties).

A trader whose supplies of taxable goods within any continuous period of 12 months exceeds €75,000, is obliged to register for VAT. If a person dealing in scrap metal receives supplies of scrap metal, the value of which exceeds €75,000 in any 12-month period, from a trader who is not registered for VAT, that person must notify the Revenue Commissioners.

Margin Scheme Goods

Scrap metal cannot be included in the Margin scheme - Second-hand Goods.

Zero-rating scheme for qualifying businesses

Where a taxable person qualifies for the Zero-rating scheme for Businesses that person is not authorised to receive supplies of scrap metal at the zero-rate. Qualifying persons under the zero-rating scheme must account for the VAT on supplies of scrap metal from other taxable persons in the State at the standard rate.

Further information

For further information see Scrap Metal - Frequently Asked Questions or contact your local Revenue District. Contact details for all Revenue Districts can be found at Contact details.

This leaflet is issued by:

VAT Policy & Legislation Branch,
Indirect Taxes Division,
Stamping Building,
Dublin Castle.

April 2011