Today the standard rate of Irish VAT will be temporarily reduced from 23% to 21% for a six-month period from the period 1 September 2020 to 28 February 2021.
This is the first change to the standard VAT rate in Ireland since 2012 (when the rate increased to 23% from 21%).
The standard rate of VAT applies to broadly half of purchasing activity in Ireland and to a wide range of goods and services including for example, the sale of vehicles, alcohol, electrical goods, most household goods, non-basic foods stuffs, many e-services, professional services and telecommunications.
The breadth of the application of the standard rate means the majority of traders in Ireland will need to consider the impact on their business and changes to systems to implement the VAT rate reduction.
Do you know what steps are required to update your systems for the VAT rate cut? Depending on the particular 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 already have had a 21% VAT code on their systems from prior years – however they will need to check whether this code are still valid to function correctly in terms of calculating VAT and including that VAT in the relevant ledgers and reports.
Any VAT credit note or debit note relating to a supply of goods or services, which contains a VAT adjustment, should show VAT at the rate in place at the time the original invoice was issued. For example, if goods are supplied in August 2020 and a credit note is issued in September 2020 (due perhaps to an adjustment in the price of the goods or services), the rate of VAT on that credit note is 23%. This is because the goods or services were supplied when the rate of VAT was 23%.
The change in the VAT rate may also be used by businesses as an opportunity to review their pricing policies and perhaps consider any efficiencies that could be made around the timing of supplies.
The reduction in the standard VAT rate is expected to provide a boost to those involved in the B2C sector such as retailers and it is hoped that the rate decrease will result in price reductions that will stimulate consumer demand. Only time will tell whether the reduction in the VAT rate will find its way into the pockets of consumers. It will be interesting however if businesses will pass on the price difference to customers or keep the changes.