VAT Rate Change: Is your Business Prepared?

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. 

The VAT rate in Ireland was decreased temporarily from 23% to 21% effective from 01 September 2020 to 28 February 2021.

The rate is now due to revert back to 23% with effect from 01 March 2021.

Planning for the change back to 23% VAT

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 change 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.

Changeover Checklist

1. Systems/Processes

Do you know how to update your systems to reflect the VAT rate increase?  If not, do get in touch with Avid Partners and we will go through what’s typically involved.  If you changed the rate in September, your business will already have had a 23% code on the system. Check that it still functions correctly and change back to that rate from 01 March 2021?

2. Invoicing

On or after 01 March 2021, invoices issued by one VAT registered person/entity to another or an invoice issued to a VAT-exempt business should show VAT at 23%. This is so even if the goods or services were supplied before this date.

3. Consider all scenarios

What if you raised an invoice charging 21% VAT and a customer requests a credit note after the  rate has changed to 23%? This may involve applying the 21% 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? If payments were reduced since September, they will now change to include the original rate of 23% ? Do you pay any other creditor/supplier by direct debit? A similar increase may apply from 01 March.

6. Pricing

Finally, should you factor the VAT increase into your pricing? Particularly applies to retailers who set their prices on a VAT-inclusive basis. For those retailers who reduced prices to reflect the change in VAT rate in September, prices should now revert back to include the original rate of 23%, effective from 01 March 2021.

Note: not all businesses are 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.