Reduction VAT standard rate

In the July 2020 stimulus package, the Irish Government announced that the standard rate of Irish VAT will be temporarily reduced from 23% to 21% for the period from 1 September 2020 to 28 February 2021.

The standard VAT rate applies to around 50% of activity in Ireland and to a wide range of goods and services, including the sale of motor vehicles, adult clothing, alcohol, non-basic foodstuffs, many e-services, professional services and telecommunications.

The breadth of application of the standard rate means that the majority of traders in Ireland will need to consider the impact on their business and changes to systems in order to implement the rate reduction. Consideration should be given to any actions that need to be taken between now and 1 September to ensure readiness for the change. These actions/issues include:

Issue	What to consider
Systems	Do you know what steps are required to update your systems for the VAT rate cut? Depending on the specific 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 have already had a 21% VAT code on their systems from previous years – however, they will need to check whether this code continues to function correctly in terms of calculating VAT and including that VAT in the relevant ledgers and reports. Can the system changes be easily reversed when the rate increases again?
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.
Product files	Product files may need to be reviewed and managed, noting that this is a temporary, not a long-term, change.
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 with respect to the VAT rate change?
Timing	How do you determine whether the 23% or 21% rate applies to transactions spanning both periods? Working out the tax point of specific supplies can be complex but will take on increasing importance. Relevant factors can include whether the supply is a discrete transaction or a continuous supply, the time that the payment is made and whether you are selling to a consumer or another business.
Partially-exempt businesses	If your business cannot fully recover VAT, can you maximise the benefit of the VAT rate cut?
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?
Direct debit	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?
Advance Payments	How to treat advance payments/payments on account received in advance of the VAT rate change
Import guarantees	If your business has an import VAT deferment account, can the level of bond or guarantee be reduced to take into account lower VAT import payables?
Non-Irish Businesses	Businesses established outside of Ireland may still be affected by the change. For example, businesses making supplies to Irish consumers of electronically supplied services, broadcasting and telecom services, as well as remote sales of goods to Irish consumers exceeding EUR 35,000 per annum.

WTS Global VAT Newsletter Q3/2020

Recent or expected changes in VAT and GST regulations and compliance duties in various EU and third countries

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