The Irish VAT rate applying to certain goods and services, mainly in the tourism and hospitality sectors, will decrease from 13.5% to 9% for the period from 1 November 2020 to 31 December 2021.
This targeted VAT rate reduction, which follows the standard rate reduction from 23% to 21% from 1 September 2020 to 28 February 2021, is a welcome development for these sectors which have been heavily impacted by the Covid pandemic. However, businesses affected by the change need to move quickly given the short time window before the rate change takes effect. This timing may be particularly challenging in light of the ongoing disruptions to normal business activity.
What should businesses prioritise over the next number of weeks?
Businesses in these sectors should be largely familiar with the types of goods and services that will qualify for the 9% rate, as they closely resemble those that were previously subject to the 9% VAT rate in the period from 1 July 2011 to 31 December 2018.
This list of goods and services includes the following:
The 9% VAT rate already applies to, and will continue to apply to, the sale of printed newspapers, digital supplies of e-books and e-publications, and the provision of sporting facilities by profit-making bodies.
You should consider how the change will impact your business and any actions you need to take between now and 1 November to ensure that you are ready for the change.
Typical issues that businesses need to consider.
What steps are required to update your systems for the VAT rate change? Depending on the particular systems, this may either be a simple task or in other cases may involve significant work on tax codes and tax determination logic, potentially across multiple systems.
Many businesses in these sectors operate electronic point of sale (EPOS) systems. Does your EPOS system have in-built VAT functionality which may need to be altered?
Can the systems changes be easily reversed when the rate reverts back to 13.5% again?
Should you factor the VAT rate cut into your pricing? Given the high volume of business-to-consumer (B2C) sales in these sectors the pricing decisions will need to be carefully considered.
Businesses in these sectors typically supply goods and services at a number of different rates of VAT. Therefore, maintaining a comprehensive product file with associated VAT rate codes is important.
We recommend that you carefully review your product file to identify the goods and services that are subject to the change.
Compare the list you have identified as qualifying for the new 9% VAT rate to those which were previously subject to the 9% rate up to 31 December 2018 in order to identify any potential exceptions or anomalies.
If you supply multiple goods or services as part of a package for a single price, you should carefully consider how this VAT rate change will affect those supplies.
How do you determine the timing of the VAT rate change for your supplies?
In many cases, supplies in these sectors are “on the spot” supplies which are supplied and paid for at the same time allowing the tax point and corresponding VAT rate to be easily identified.
However, there can be additional complexity in scenarios such as advance payments and deposits received before the VAT rate change or services supplied before the VAT rate change but invoiced after the change. The rules can differ for B2B versus B2C supplies.
You should ensure your invoicing systems are updated to show the appropriate VAT rate from the relevant date.
In B2C scenarios, businesses often issue receipts with a summary breakdown of the VAT at different rates included in the price of the goods and services. You should review whether your system can be updated to reflect the new rate.
The VAT treatment of credit notes will also need to be considered. Typically the VAT rate on a credit note follows the VAT rate on the original invoice. Can your system deal with these scenarios?
Businesses which buy-in goods and services affected by the change should ensure the correct rates of VAT have been applied after the new rate takes effect.
It is important to remember that many of the items subject to the 9% rate do not qualify for a VAT deduction under Irish VAT law and this should be carefully monitored to help avoid potential VAT liabilities.
Supplies of other goods and services which are subject to the 13.5% VAT rate are not affected by this change. It is worth noting that the supply of live horses (other than for agricultural or food purposes) which had qualified for the 9% rate prior to 31 December 2018 is not impacted by this change and will remain at the 13.5% rate at this time.
Supplies of goods and services that are subject to the standard rate of VAT, the zero rate of VAT or any activities falling within the scope of VAT exemption in Ireland will not be impacted by this change. However, this change will overlap for a 4-month period with the temporary standard VAT rate reduction.