Value-Added Tax (VAT) is a frequently scrutinised area of tax compliance for businesses. As we move through 2025, it’s crucial that traders are aware of the key areas that can give rise to VAT risks and what practical steps can be taken to stay on the right side of Revenue.

Below, I have outlined some important VAT considerations and common pitfalls for businesses and their advisors to be mindful of.

Common VAT Issues to Watch Out For

• VAT Registration Thresholds
  All businesses (sole traders and corporates) must monitor their turnover carefully to ensure that they register for VAT when required. The VAT registration threshold for most businesses is where turnover exceeds or is expected to exceed in any continuous 12-month period €42,500 where only services are supplied and €85,000 where only goods are supplied (and where both goods and services are supplied and the supply of goods accounts for greater than 90% of those total supplies). All the relevant thresholds are easily accessible on Revenue’s website and should be assessed on a continuous basis. Exceeding the applicable threshold without registering could result in significant underpayments, interest, and penalties. Before any tax return is filed, a check should be carried out to assess if the turnover thresholds have been exceeded.
  
• Correct VAT Rates
  Ensurethat the correct VAT rate is applied to your products or services – whether the standard 23%, reduced 13.5%, or zero rate applies. Mistakes in rate application, especially in food, hospitality, and mixed supply scenarios, for example, can lead to assessments and costly corrections. Regular checks and reports should be run by businesses to check that the VAT rates currently charged continue to be the correct rates, as rates can change over time
  
• Invoice or Cash Receipts Basis
  The normal method for accounting for VAT is on an invoice basis; however, a cash receipts basis may be chosen for certain traders. A business using the invoice basis accounts for VAT when they issue an invoice to a customer. Where the option for the cash receipts basis is chosen, a business accounts for VAT when payment is actually received from the customer. In order to be able to opt for the cash receipts basis, turnover must not exceed or not likely exceed €2,000,000 in any continuous period or whose supplies (at least 90%) are made to customers who are not entitled to claim a full VAT deduction / who are not VAT registered.
  
• Timing of VAT Invoices
  Invoicing delays, prepayments, or incorrect recognition of VAT on credit notes can all result in discrepancies between documentation and the VAT liabilities due. Ensure invoices are issued within 15 days of the month's end and review timing regularly to avoid mismatches as the legislation states it must be raised by this date once the service or good is provided. Businesses should ensure they pay invoices within 6 months of deducting VAT to avoid having to make an adjustment to the VAT input credit claimed.
  
• Deduct VAT on Expenses
  Retailers should review whether input VAT is fully recoverable. Certain costs, such as entertainment, motor expenses, or purchases used for exempt activities, may not be reclaimable. Keeping proper records and rationale for all input VAT claims is critical.
  
• VAT on Imports & Postponed Accounting
  Generally, import VAT is applied to the import value of goods from outside the EU. Import VAT is applied at the time of importation or if a deferral is agreed with Revenue by the 15th day of the following month. VAT on imports from non-EU countries can be dealt with under the postponed accounting system. This system is optional. Businesses should ensure they are correctly availing of this system and accurately reflecting import VAT through their VAT returns. This is an area Revenue is reviewing and can take away the postponed accounting treatment where it is not being complied with fully. Businesses must demonstrate their compliance should they be requested to by Revenue. It is important that records are maintained and reconciliations performed to identify any discrepancies.
  
• VAT on Property
  Where a business is considering a commercial property sale or purchase, the VAT position should be reviewed to avoid any unexpected tax liabilities for both parties. E.g. for a seller it is important to review the capital good scheme (“CGS”) to determine if the sale could trigger a VAT adjustment and for a purchaser it is important to assess the VAT implications on acquiring the property and all items in the contract and to determine the need to maintain for a taxable use to avoid CGS adjustments from occurring.
  
• VAT issued on Deposits, Discounts, credit notes, etc. and bad debts
  Businesses should always ensure they are correctly accounting for VAT where deposit payments, discounts, credit notes, etc., are part of their operations. The VAT treatment will vary depending on the circumstances and it is crucial to always review the commercial reality of transactions to ensure the corresponding VAT treatment is compliant. Where a bad debt arises, a VAT input credit can be made in the period the debt becomes bad – subject to conditions being satisfied. Each bad debt should be separately reviewed from a VAT perspective to assess an entitlement to a VAT deduction.
  
• VAT on Share Transactions
  VAT on the transfer of shares and trading in shares in the course or furtherance of a business is a supply for VAT purposes, which is exempt. The allotment of new shares is outside the scope of VAT. VAT deductibility in respect of costs incurred in respect of share transactions and VAT deductibility for holding companies on costs in respect of its activity as a holding company is complicated and has been and continues to be the subject of significant case law. It is always recommended to assess in advance the VAT deductibility of expected costs before proceeding with share transactions.
  
• Relevant Contracts Tax (“RCT”) and VAT
  VAT on construction services that are subject to RCT are taxed on a reverse charge basis. The charge for the services supplied by a subcontractor, for example, does not include VAT. The Principal Contractor accounts for the VAT on a reverse charge basis. Where RCT is to be deducted on the transaction, it should be calculated on the VAT exclusive amount.
  
• Intra-EU Activity and Compliance
  In circumstances where a business supplies or receives goods and/or services to customers in other EU Member States, the business needs to understand its VAT compliance requirements both in Ireland and potentially in the other EU Member States. The VAT rate to charge, the invoicing requirements, the customer’s VAT status, the VAT registration thresholds, the reverse charge mechanism and the place of supply rules will all need to be examined to ensure correct VAT compliance procedures are occurring.
  
• VAT look back review period
  In general, there is a 4-year review period after a return (or amended return) has been filed where Revenue can make an enquiry or raise an assessment. However, in cases of incomplete returns or fraud instances, this review period does not apply. It is important that businesses regularly review their VAT compliance to reduce the scope for Revenue assessments in respect of prior periods which could result in costly interest and penalties should underpayments be identified.
  

Key Steps for 2025 VAT Compliance

• Conduct a VAT Health Check: Review your VAT returns, invoicing practices, and treatment of key income and expense categories to identify potential risks.
  
• Keep Records: Ensure VAT records are maintained and, where possible in a digital and readily accessible format, in line with Revenue’s expectations under the evolving “e-invoicing” and real-time reporting proposals.
  
• Review Mixed Use and Apportionment: Where you have both taxable and exempt income, ensure your VAT recovery method is reviewed and updated annually.
  
• Check EU Transactions and Reporting Obligations: Review obligations for Intrastat, VIES, and Distance Selling thresholds where applicable, especially if trading across borders online.
  
• Stay Updated on VAT Changes: New Revenue guidance or case law could affect your VAT position. It’s important to keep up to date or speak with a VAT specialist regularly.

Don't Wait Until It's Too Late

VAT is an area where Revenue audits are increasingly active, and penalties can be significant if errors go undetected. Proactive VAT reviews and advisory support can help protect your business from costly surprises

Take the Next Step

Ensure your VAT systems are robust and compliant. Schedule a VAT Review Call with OmniPro Tax and Legal today and stay confident in your compliance strategy for 2025 and beyond.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.