13/08/2020: The VAT rate in Ireland will decrease temporarily from 23% to 21% effective from September 1st, 2020 to March 1st, 2021.

A temporary reduction in the standard rate of VAT for a six month period was announced by Government as part of the July Stimulus Package.  On  September 1st, 2020, the standard rate will change from 23% to 21%. The rate is due to revert to 23% with effect from 1 March 2021.

Planning for the change

The change impacts the majority of business owners in Ireland.

We are advising our clients to prepare by considering all processes/systems that may be impacted by the rate reduction and suggest carrying out and testing any changes well in advance of the changeover date.

We have provided a useful checklist below to help you get started.

1. Systems/Processes

Do you know how to update your systems to reflect the VAT rate reduction?  If not, do get in touch with Avid Partners and we will go through what’s typically involved.  Your business may already have had a 21% code on the systems? The last change was in 2012. Does it still function correctly?  Can the system be easily reversed when the rate changes back to 23% from March 1st, 2021?

2. Invoicing

On or after September 1st, 2020  invoices issued by one VAT registered person/entity to another or an invoice issued to a VAT-exempt business should show VAT at the new 21% rate, even if the goods or services were supplied before this date.  Goods or services supplied to customers prior to September 1^st, 2020 are taxable at the 23% rate even though they may be invoiced after September 1^st, 2020.

3. Consider all scenarios

What if you raised an invoice charging 23% VAT and a customer requests a credit note after the  rate has changed to 21%? This may involve applying the 23% rate during the period of the rate reduction. Check if your systems are flexible enough to deal with these kind of events? Again, get in touch with Avid Partners, if you need any assistance with regard to your invoicing process/system.

4. Existing Contracts

Consider all existing contracts. Are prices stated on a VAT-exclusive or inclusive basis? Revenue state “If 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”  Further information is available on  Revenue’s website

5. Direct Debits

Your business may pay VAT to Revenue on a monthly direct debit basis? Can the payment be reduced to reflect the 6 month decrease? Do you pay any other creditor/supplier by direct debit? A similar reduction may apply for the duration of the change.

6. Pricing

Finally, should you factor the VAT decrease into your pricing? Particularly applies to retailers who set their prices on a VAT-inclusive basis. Bear in mind that there has been considerable media coverage of the 2% reduction and it is hoped that it will act as an incentive to consumer spending.  Your customers will expect a price decrease.

Important to mention that not all businesses will be impacted by the rate change. This includes many activities in the tourism and hospitality sector such as meals and hotel accommodation, housing and hairdressing as well as construction, the cleaning sector and car rentals, which operate at a rate of 13.5% VAT.

If you require any assistance with this topic or any area of business or financial advice, contact Jamie O’Hanlon on 0818 303087 or email info@avidpartners.ie.