Temporary VAT Rate Reduction
As part of the recent Budget, the Government announced that a 14-month reduction in the reduced rate of Value-Added Tax (VAT) from 13.5% to 9% on certain goods and services will apply effective from 1 November 2020 to 31 December 2021.
For the period from 1 November 2020 to 31 December 2021 the followings items are subject to the 9% rate of VAT:
- catering and restaurant supplies (excluding alcohol, soft drinks and bottled water)
- hot takeaway food and hot tea and coffee
- hotel lettings, for example, guesthouses, caravan parks or camping sites
- admissions to cinemas, theatres, certain musical performances, museums, art galleries or exhibitions
- amusement services of the kind normally supplied in fairgrounds or amusement parks
- admission to an open farm
- hairdressing services
- certain printed matter, such as brochures, leaflets, catalogues or printed music (excluding books).
This change will 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 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 9% 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; these guides are available at the following links.
Quickbooks Online:
Quickbooks Desktop:
- QuickBooks Desktop COVID19 9% VAT Rate Set Up V1.0
- QuickBooks Desktop COVID19 21% VAT Rate Set Up V2.0
Xero:
Pricing –
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
Contracts –
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 13.5% VAT but the customer requests a credit note after the VAT rate has changed? This may involve applying the 13.5% 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?