What is changing?
The rate of Irish VAT which applies to certain goods and services, mainly in the tourism and hospitality sector, will increase from 9% back to 13.5%, with effect from 1 September 2023. Glenn Reynolds and David Duffy of our VAT team explain the changes below.
The types of goods and services affected by the VAT increase include supplies of certain food and beverages in restaurants, take-aways and other catering establishments; admissions to certain attractions including cinemas, museums and exhibitions; the provision of hotel, guesthouse and similar accommodation; and hairdressing services.
The temporary 9% VAT rate for these supplies came into effect on 1 November 2020 in response to the challenges faced by these sectors as a result of the COVID-19 pandemic. Its expiry date was extended on a several occasions, but Government had indicated that there would be no further extensions beyond 31 August 2023.
Supplies of certain printed matter including magazines and periodicals and the provision of sporting facilities by profit making bodies, which also qualify for the 9% rate of VAT, are not affected by this change, nor are goods and services subject to other rates of VAT affected.
How does the change impact businesses?
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.
Warehoused VAT debts
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.
Get in touch
This VAT rate increase will have implications across Irish society. If you would like to discuss in further detail the impact of this change for your business, please do not hesitate to contact our VAT team. We look forward to hearing from you.
Partner, Head of Indirect Tax - VAT & Customs
KPMG in Ireland