VAT rate for the hospitality sector reverts to 13.5%

Businesses which supply the types of goods and services mentioned above will need take steps to ensure they apply the 13.5% rate of VAT to those supplies from 1 September 2023 onwards.  While this VAT will not become due to Revenue until 23 November when they file their September/October 2023 VAT return, businesses should nonetheless take steps now to ensure they are commercially protected and are compliant with the new requirements.

A checklist of issues that relevant businesses should consider is included below:

Businesses should ensure they update their systems for the VAT rate change. Depending on the particular systems, this may be a simple task or in other cases this may involve more significant work on tax codes and tax determination logic. In addition, various systems may be affected including customer-facing point of sale systems and back-end finance and ERP systems.

Businesses need to consider the impact of the VAT rate change on their pricing. As many of the goods and services affected are supplied to consumers or are specified non-deductible supplies for VAT purposes, the VAT amount included in the price will be a net cost to many customers.

Knowing the VAT “tax point” of each supply is important to ensuring the correct rate of VAT applies.  Where goods or services are supplied and paid for on the spot (e.g. a restaurant meal or admission to attractions) the tax point may be easy to determine.

However, if there are deposits or pre-payments before the supply takes place or, alternatively, invoices are issued or payments are made after the supply, which straddle the period of the VAT rate change, this may be more complex.

Some businesses may have existing contracts for future supplies or purchases of goods or services affected by the VAT rate change. These should be reviewed to confirm if the price was agreed on a VAT exclusive or VAT inclusive basis.

The relevant goods and services may in some cases be sold as part of a package along with other goods and services subject to other rates of VAT, for example, meal deals, hotel packages etc.

Some businesses and systems deal with such mixed supplies by calculating a blended VAT rate taking account of the value of goods and services at the various rates. The calculation of any such blended rates should be reviewed taking account of the increased rate for relevant supplies.

Businesses may need to issue a credit note after the VAT rate change in respect of an invoice issued before the change. Systems may therefore still need to be capable of processing transactions at the 9% rate.

Many businesses affected by the VAT rate change may have availed of the COVID-19 debt warehousing scheme offered by Revenue and may still have amounts outstanding in respect of the warehouse periods.

One of the conditions of warehousing is that current taxes must be paid as they fall due, so ensuring that the correct VAT rate is applied is important to meeting this condition.