VAT Section 56 authorisation

Generally, a VAT registered entity is eligible to apply for a Section 56 authorisation where over 75% of their annual turnover is derived from qualifying sales, namely; intra-community supplies of goods, exports and certain contract work. Revenue will grant the trader a VAT56B authorisation.

Finance Act 2020 brought about changes as to who could apply for a Section 56 authorisation which effectively excluded a VAT registered person in a start-up situation from applying as a trader could only apply for a Section 56 authorisation where they could prove that, in the previous 12-month period, at least 75% of their turnover was derived from qualifying sales.

Revenue have recently clarified that a VAT registered entity in a start-up situation, who previously did not meet the 12-month trading requirement, can now apply for a Section 56 authorisation on an interim basis if they meet the following three conditions:

• their turnover from zero-rated intra-Community supplies of goods, exports and certain supplies of contract work will exceed 75% of their total turnover in the first year of trading;
• they satisfy all other requirements and criteria as set out under Section 56; and
• they are a subsidiary of, or are otherwise connected to a company that is in possession of a current Section 56 authorisation.

The third condition here could be difficult for many start-ups to meet – if they are a new stand-alone company with no related entities then the third limb of the test will not be met. As such, based on the current Revenue guidance, the start-up would have to wait the requisite 12 months in order to make an application for a VAT56B.

Speak to us if you are a start-up business or an existing business seeking to renew its VAT 56B authorisation.

Revenue Code of Practice – Implications for VAT

Revenue have published their updated Code of Practice for Revenue Audit and other Compliance Interventions which will be effective from 1 May 2022. There will be a graduated approach to Revenue intervention.

• Level 1 intervention - allows a taxpayer make an Unprompted Qualifying Disclosure.
• Level 2 intervention - Revenue will conduct a Risk Review, Revenue Audit or an Aspect Query and a taxpayer will be afforded the opportunity of making a Prompted Qualifying Disclosure.
• Level 3 intervention - Revenue investigation being conducted. The taxpayer would not be afforded the opportunity to make any disclosures prior to the commencement of this intervention once the notification has been received.

Some of the salient features from a VAT perspective are as follows:

• Under Level 1, a taxpayer can self-correct an identified error through their VAT return in the following period in which the error is identified. This adjustment may be included without notification to Revenue and also without interest or penalties provided that the under-declared VAT does not exceed €6,000. The adjustment must be made before the due date of filing the respective Income Tax or Corporation Tax return for the period in which the relevant VAT period ends.
• Revenue have now introduced the concept of a Risk Review which is a focused intervention to examine a risk or a small number of risks. For example, the risk review may focus on a particular risk identified following on from the submission of a VAT return or Annual Return of Trading Details. Where a taxpayer does not make a prompted qualifying disclosure and the Risk Review has commenced, then additional information may come to light which may require the widening of the scope of the intervention. In such cases, Revenue may escalate this review to an Audit and the scope may be increased to include other tax heads or periods. Taxpayers should also be aware that they may only receive one opportunity to provide a disclosure for a given period.
• A business is liable to a penalty of €4,000 for non-compliance with their duty to keep full and true VAT records and also where a taxpayer improperly procured the importation of goods without payment of VAT in circumstances in which the VAT is chargeable. This is in addition to a potential penalty of up to €4,000 for filing a VAT return late or filling an incorrect VAT return.

Regular self-review with a view to a voluntary disclosure of any VAT underpayment provides the best protection available in the new environment. Tax Risk Management is key and we have extensive experience in identifying and resolving VAT issues and in dealing with Revenue interventions at all levels.