In order for you to be entitled to a deduction, the following criteria must be met:
- The goods and services must be used within the enterprise
- The seller has calculated VAT on the goods or service
- The VAT must be stated on the receipt (or other sales document)
- You must be able to present the sales document in the event of an audit
- The enterprise must be registered in the VAT Register.
The deduction entitlement will not apply when:
- You have purchased something which is intended for private use
- You have purchased something which is intended for use within an enterprise with turnover which is excepted from the VAT Act
There are a number of other exceptions from the deduction entitlement These are defined in Section 8-3 of the VAT Act.
Partial deduction entitlement for VAT
If you run a business which includes activity which falls both within and outside the scope of the VAT Act, you may have a partial deduction entitlement.
Example of a partial deduction entitlement
You teach music and sell musical instruments to your pupils. You purchase a photocopier for use within the enterprise. You can only claim a deduction for the part of the activity that concerns the sale of musical instruments. You must calculate the deduction for VAT based on the proportion of the turnover that relates to the different parts.
The deduction entitlement only applies to VAT on goods and services you have purchased. This is called ‘input VAT’.
Deductions for VAT paid on purchases prior to registration in the VAT Register
Enterprises are entitled to deductions for VAT paid on many goods and services purchased up to three years before they registered in the VAT Register. This is called ‘retrospective VAT refund’. The purchases must be intended for use within your own business.
Businesses and organisations can claim a deduction for VAT on goods and services which are not re-sold prior to registration.
You can claim a retrospective VAT refund by altering previously submitted tax returns for VAT. You do this by submitting a supplementary statement for the period in which you were registered in the VAT Register.