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VAT rate decrease announced as part of the July 2020 Stimulus Plan

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The July 2020 Jobs Stimulus Plan announced by the Government contains a suite of tax, loan and expenditure measures designed to directly support business at all levels of the economy that are negatively impacted by Covid-19. One of the key measures is the temporary reduction in the standard rate of VAT from 23% to 21% with effect from 1 September 2020 until 28 February 2021.

When a VAT rate change is introduced, there are a number of practical issues taxpayers need to consider.

  1. Systems: Your ERP system(s) will have to be updated and tested for the new VAT rate change which takes effect from 1 September. With only 5 weeks to go and in the middle of the Summer holiday season, depending on your systems configuration, this could be a tight turnaround.
  2. Pricing: Does the pricing of your goods and services need to be amended as a result of the temporary VAT rate change? What will be the impact on your budgets heading into the last quarter of 2020? Does the VAT rate reduction have to be passed onto the customer? On your purchases side, particularly if you only have partial VAT recovery entitlement, will the VAT rate reduction be passed on to you, by your suppliers?
  3. Contracts: To assess the impact of pricing, you may need to consult your business contracts. Is the price fixed or does the contract provide for changes in VAT rates?
  4. Sales invoices: The VAT rate in force at the time an invoice is issued (or is obliged to be issued) is the VAT rate that applies. For sales scheduled to be supplied in August but only invoiced in September, it is the decreased 21% rate that applies.
  5. Reverse charges: For partially recoverable entities particularly, you are liable to account for reverse charge VAT at 23% on any taxable foreign purchase invoices dated before the end of August even if those invoices are not received until September.
  6. Credit notes: Any credit notes issued on or after 1 September crediting supplies to VAT registered customers before this date should credit the VAT rate in force when the original invoice issued. For supplies to non-VAT registered customers, credit notes should be issued using the VAT rate in force at the time of the original supply.
  7. Other issues: There are other unique complications and practical issues associated with VAT rate changes, particularly with respect to payments in advance, utilities, continuous supplies of services, import VAT deferred in August and payable in September, stock in hand on date of VAT rate change and the tax point of various financial transactions such as HP or other credit arrangements which will have to be considered.

If you have any questions on any of the above, we would be delighted to talk to you further so please contact one of the below members of the VAT team or your usual EY Tax adviser.

Eamonn McCallion        eamonn.mccallion@ie.ey.com     +353 1 221 1648

Brian Keenan                  brian.keenan@ie.ey.com               +353 1 221 2487

Aideen Farrell                 aideen.farrell@ie.ey.com              +353 6 144 9896

Karl Smyth                       karl.smyth@ie.ey.com                   +353 1 221 1790

Eamonn McCallion

Partner, Tax
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