As part of the July stimulus the Government announced a six-month reduction in the standard rate of Value-Added Tax (VAT) from 23% to 21% will apply, effective from 1 September 2020.
The standard rate of VAT applies to broadly 50% of activity in Ireland and to a wide range of goods and services including for example, the sale of motor vehicles, adult clothing, alcohol, electrical goods, most household goods, non-basic foods stuffs, many e-services, professional services and telecommunications. This change will therefore require action to be taken by the majority of VAT registered traders.
You should therefore consider how the change will impact your business and any actions you need to take between now and 1 September to ensure that you are ready for the change.
The following are some of the areas you may need to address:
- Sales & Point of Sale systems & accounting systems
Do you know what steps are required to update your systems for the VAT rate cut? 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 may already have had a 21% VAT code on their systems from prior years – however you will need to check whether this code continues to function correctly in terms of calculating VAT.
In relation to accounting system changes we have prepared some useful step by step guides on how to change the VAT rate on Quickbooks online, Quickbooks Desktop and Xero and these guides are available at the links below.
Should you factor the VAT rate cut into your pricing? This is particularly relevant for businesses who set their prices on a VAT-inclusive basis such as retailers or suppliers to businesses with limited VAT recovery.
Do your existing contracts state prices on a VAT-exclusive or VAT-inclusive basis and do you need to engage with any of your suppliers or customers in respect of the VAT rate change.
- Credit notes
What if you raised an invoice charging 23% VAT but the customer requests a credit note after the VAT rate has changed? This may involve applying the 23% rate during the period of the VAT rate reduction – can your system deal with these scenarios?
- VAT payments
If your business pays VAT to Revenue on a monthly direct debit basis, can the direct debit payment be reduced in light of the VAT rate decrease?
- What the change does not cover
It is important to note the VAT rate change will not impact all supplies. Importantly, the change will not impact the VAT treatment of supplies which qualify for the reduced rate of VAT which remains at 13.5%. This includes many activities in the tourism and hospitality sector such as meals in a restaurant, hotel accommodation, housing and hairdressing as well as general repairs and maintenance.
Revenue Commissioners guidance document
Revenue guidance on the impact of a VAT rate change is available at the following link – https://www.revenue.ie/en/tax-professionals/tdm/value-added-tax/part06-rates-and-exemptions/changes-in-rates-of-vat/changes-in-rates-of-vat.pdf
Accounting systems change of rates guidance
We have provided below three documents giving guidance on how to amend VAT rates within Quickbooks Online, Quickbooks Desktop and Xero.
Should you have any queries or require any further explanations or clarifications
please do not hesitate to contact us at 091 75 82 82
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