The Minister has announced some welcome VAT reliefs for small businesses. The effect of these reliefs will be to reduce the administrative burden for small businesses, which is currently quite onerous, and also to provide some cash flow benefits.
The VAT registration thresholds that enable small businesses to remain outside the VAT net will be increased from €27,500 to €35,000 in case of businesses providing services, and from €55,000 to €70,000 in case of businesses providing goods. These increases will take effect from 1 March 2007. The Minister estimates that this measure could remove up to 8,000 businesses from the VAT net.
It is hoped that this is part of a series of increases to bring the thresholds to a more realistic level. In our view, the proposed thresholds are still too low and will continue to catch a large number of very small businesses in the VAT net.
In general, small businesses can account for VAT when they are in receipt of payment for the supply of their goods/services rather than when they issue invoices, thereby providing a cash flow benefit. This relief will now be afforded to businesses whose turnover does not exceed €1 million, an increase from the current level of €635,000.
Currently, a business is required to submit six VAT returns per annum, which is an extensive reporting requirement for small businesses. The Minister had proposed that, with effect from July 2007, businesses with an annual VAT liability of €3,000 or less will have the option of filing bi-annual returns. For businesses with an annual VAT liability between €3,001 and €14,400, there will be an option to file returns every four months.
