On July 23rd, the Irish Government announced the July Stimulus package. As part of this package of measures, the government announced a temporary reduction in the standard rate of VAT.
What has changed?
There will be a temporary reduction to the standard rate of VAT from 23% to 21% for a 6-month period effective from 1 September 2020, ending 28 February 2021.
This is the first change to the standard VAT rate in Ireland since 2012. Unlike the sectoral approach taken in other jurisdictions, this applies to all businesses.
Practical issues to consider
We have listed out below some key issues that businesses should consider in advance of the temporary rate change;
- Amending IT systems to apply the rate change for the temporary period.
- Consider if the rate change affects pricing of products and services.
- Consider if existing contracts may require amendment to cover the rate change.
- For exempt or partially exempt businesses, consider potential planning around your supply chain to benefit from the period of the rate cut.
Revenue’s guidance on a rate change
Please see below a summary of Revenue’s guidance as published in the Tax and Duty Manual for procedures following the increase or reduction in VAT rates. This guidance applies to the upcoming change. Businesses should ensure that any changes implemented are consistent with these guidelines where relevant.
1. Which VAT rate must the trader apply?
- In the case of transactions with other VAT registered persons, a person accounting for VAT on the sales or invoice basis must apply the rate of VAT in force at the time they issue, or are obliged to issue, an invoice. In the case of transactions with persons who are not registered for VAT, an accountable person must apply the VAT rate in force at the time of the supply.
- Persons accounting for VAT on the basis of moneys received, must apply the rate of VAT in force at the time of the supply.
- VAT invoices issued by a VAT registered person to another VAT registered person on or after the date of change of a VAT rate(s), either upwards or downwards, should show VAT at the new rate(s). This applies even if the goods or services were supplied before the date of the change.
- VAT liability in respect of goods or services supplied by a VAT registered person to an unregistered person is normally determined by the date of supply and not the date of issue of the invoice. Goods or services which are actually supplied to unregistered persons prior to the date of a change in VAT rates are taxable at the VAT rate in force when they are supplied. This applies even though they may be invoiced on or after the date of the change.
3. Credit notes
- Any credit note relating to a supply of goods or services which contains a VAT adjustment and which is issued to a VAT registered person on or after the date of a change in a VAT rate(s), should show VAT at the rate in force at the time the original invoice issued.
- Any credit note relating to a supply of goods or services which is issued to an unregistered person on or after the date of a change should show VAT at the rate in force at the time of the supply.
4. Payments in advance
- Payments, including part payments, may be received from VAT registered persons before the date of a change in rate in respect of goods or services which are not supplied until on or after that date.
- In the case of persons on the invoice basis of accounting, the supply is subject to VAT by reference to the rate in force at the time the invoice relating to the payment is issued, or ought to have been issued, whichever is the earlier.
- In the case of persons operating on the moneys received basis, the rate appropriate to the supply is by reference to the rate in force at the time of the advance payment. An advance payment received from an unregistered person is subject to VAT by reference to the rate in force at the time of the advance payment.
5. Contracts existing at time of a change in VAT rates
- VAT is generally due on supplies at the rate in force at the time of the supply, or at the time of issue of the invoice relating to the supply.
- In a situation where a contract has been entered into at a particular rate of VAT, and that rate changes before the contract is fulfilled, an adjustment to account for the change in the rate may be necessary.
- Where: -
- a contract to supply goods or services is entered into before the date of a change in a VAT rate, and
- the contract is not completed until after that date,
then the agreed price is subject to an appropriate adjustment on account of the change in the VAT rate, unless there is an agreement to the contrary between the contracting parties.
- If, for example: -
- a builder were to contract in January to build a house for €300,000, and
- the rate of VAT was increased with effect from 1st March,
then, in the absence of an agreement, the builder could increase the agreed price to include the extra VAT, assuming the house had not been completed or paid for before 1st March. The builder would, of course, be liable to VAT at the increased rate on the supply.
- Fixed interval payments that become due before the date of a VAT rate change and which are in respect of a period of time spanning that date may be treated, for the purposes of transition only, as being taxable at the old rates if invoiced before the date of the change. Such an example would include the advance quarterly rentals on office equipment due and payable, say, one month before the date of a VAT rate change.
- Continuous supplies of utilities included gas, electricity, and telecommunications.
- In the case of continuous supplies of utilities to non-business and other unregistered customers, the VAT rate applicable is the rate in force at the time the bill issues to the consumer. This applies where the company issues a bill at least every three months.
- If the company does not issue a bill at least every three months, then the VAT rate applicable is the rate in force at the time of supply.
- In the case of VAT registered customers, the appropriate rate of VAT is the rate applicable
- when the bill issues.
7. Budget account sales, hire-purchase sales and other credit sales
- In the case of sales to unregistered persons, these sales are chargeable to VAT at the rate in force at the time of the sale by the finance house.
- In the case of sales to VAT-registered traders, these sales are chargeable to VAT at the rate in force at the time of issue of the invoice by the finance house or the time the invoice ought to have been issued, if earlier.
8. Stock on hand on the date of a change
- Persons who are registered for VAT on the date of a change of a VAT rate(s) must account for VAT at the new rate(s) even though they may have been invoiced with VAT at the old rates. Such persons will already have been entitled to a credit for VAT on the purchase of that stock, subject to the usual conditions.
If you have any related questions or need further information on this measure, please get in touch with your usual advisor at RSM Ireland.