Updated on June 9, 2022
VAT Rate Change: Is your Business Prepared?
As part of the July Stimulus Package, the government announced a six-month temporary cut in the regular rate of VAT.
The VAT rate in Ireland was reduced from 23 percent to 21 percent from September 1, 2020, to February 28, 2021, as a temporary measure.
The tax rate will return to 23% on March 1, 2021, when the new fiscal year begins.
Planning for the change back to 23% VAT
This new rule will affect the vast majority of Irish business owners.
By examining all processes and systems that may be affected by the rate change, we propose making any necessary changes far ahead of the switchover date and testing them thoroughly.
To make things easier for you, we’ve included a handy check list at the bottom of this page.
Do you know how to alter your systems to account for the VAT rate change? Don’t hesitate to get in contact with us at Avid Partners if you have any questions about the process. A 23 percent code will already be in the system if you modify the rate in September. Make sure that it’s working properly before reverting back to the old rate on March 1, 2021?
After March 1, 2021, invoices issued by one VAT registered person/entity to another or an invoice submitted to a VAT-exempt business should show VAT at 23 percent. Regardless of when the products or services were delivered, this rule still applies.
- Consider all scenarios
Is it possible to issue a credit note to a customer once the VAT rate has increased from 21% to 23%? During this time, the reduced rate may be applied at the 21 percent rate. Check to see if your systems are able to handle these kinds of situations? Again, contact Avid Partners if you need help with your invoicing system or process. They can help.
- Existing Contracts
Take into account all of the current agreements. Is the VAT included or excluded in the pricing you’ve listed? Contracts to deliver goods or services before the date of a change in VAT rates are subject to a “appropriate adjustment” if they aren’t executed until after that date, unless a contracting party agrees otherwise, according to Revenue’s statement. On Revenue’s website, you may get more information.
- Direct Debits
Direct debit payments of VAT may be an option for your business? In the event that payments have been cut since September, will they now revert to the initial rate of 23%? Direct debit is a common method of paying other creditors and suppliers. It’s possible that a comparable hike will take effect on March 1.
Finally, should you raise your prices to reflect the new VAT rate? Retailers who price their goods on a VAT-inclusive basis are particularly affected. Retailers who lowered prices in September to reflect the new VAT rate will have to raise them again on March 1, 2021, to match the old rate of 23%.
Note that the pricing change does not apply to all businesses. Construction, cleaning, and car rentals are all subject to a 13.5% VAT rate, as are many services in the tourism and hospitality industry. Meals and hotel lodging are all included in this category.