March 2021 update on the standard rate of VAT

RSM Ireland provides an update on the standard rate of VAT, which has returned to 23% from 1st March 2021.

What has changed?

The temporary reduction in the standard rate of VAT from 23% to 21% was announced as part of the July 2020 Jobs Stimulus Plan, a measure introduced to support businesses impacted by COVID-19.  This reduction in the standard rate applied from 1 September 2020 to 28 February 2021. 

With effect from 1st March 2021 the standard rate of VAT has now reverted to 23%. 

What is the impact?

As a result of this change in rate, there are several practical issues that businesses should consider as follows:

Invoicing 
In the case of transactions with other VAT registered businesses (i.e., a B2B supply) the rate of VAT applicable is the rate in force at the time the business issues, or was obliged to issue, an invoice.

In the case of transactions with persons who are not registered for VAT (i.e., a B2C supply), a business must apply the VAT rate in force at the time of the supply.

In respect of B2C continuous supplies of utilities included gas, electricity and telecommunications, the rate applicable is based on the date the 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.

Advanced payments
Payments or 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.

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, 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.

Reverse Charge VAT
VAT at 21% must be self-accounted for on taxable purchase of goods or services received from non-Irish established business based on the invoices dated on or before 28 February, even if those invoices may not be received until March 2021.As a result, for business with limited or no recovery, this is a very relevant impact where this reverse charge VAT will not be fully recoverable.

Stock on hand on the date of a change
As and from 1st March 2021, VAT registered business must account for VAT 23%, subject to the invoicing requirements, notwithstanding the business may have purchased the stock prior to 1st March and have received an invoiced with VAT at the 21%.

Pricing/Contracts
Consideration should be given to whether the price of goods and/or services need to be amended, as a result of the VAT rate change.Equally, contracts should be reviewed to assess the impact on pricing, commercial contracts may need to be reviewed, for example is the price fixed i.e., VAT inclusive or does the contract provide for VAT rate variations?

 

Further Guidance

For further guidance on the impact of this VAT rate change, please refer to Irish Revenues Tax and Duty manual, link below, which explains the procedures to be followed by VAT registered traders when increases or reductions in VAT rates take place.

More information

If you have queries or required assistance, please get in touch with your usual contact at RSM.