As part of the July Stimulus Plan, the Irish government announced the temporary reduction in the standard rate of VAT from 23% to 21% with effect from 1 September 2020. It is intended that this temporary rate reduction will be in place for a period of 6 months to 28 February 2021. This rate change will affect a wide range of goods and services and Irish businesses should consider the impact of this rate change on their activities.
Some points for consideration should include (but are not limited to):
- Systems: Tax code changes may now be required in your accounting system to reflect a 21% standard VAT rate. Given the long lead-in time for IT system changes, we recommend that action is taken now to ensure your IT system can deal with the VAT rate change from 1 September.
- Credit Notes: Where a credit note is issued after 1 September 2020 in relation to an invoice issued for a standard-rated supply prior to 1 September 2020, the VAT rate of the original invoice must be used on the credit note. Therefore, it would be important that your system can handle both the 23% and the 21% VAT rates.
- Cash receipts basis of accounting for VAT: If you supply your standard-rated goods prior to the VAT rate change, you must account for VAT at the 23% rate even if you receive payment for those goods after 1 September 2020.
- VAT recovery: Businesses with no or limited VAT recovery entitlement should benefit from lower irrecoverable VAT costs during this period.
- Deposits or advance payments: Care should be taken where deposits or advance payments are received prior to 1 September 2020 for supplies of standard rated goods to be made after 1 September 2020.
- Contracts: Supplier contracts should be reviewed to determine whether there is any requirement to amend the price agreed to reflect the VAT rate decrease and possibly avail of lower prices.
If you require further detail on the temporary VAT rate change, please contact Desi Foley, Tax Director (firstname.lastname@example.org), Laura Cassidy, Senior Tax Manager (email@example.com) or your usual Gilroy Gannon contact.