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  • NEW STANDARD VAT RATE REDUCED TO 21% From 1st SEPTEMBER 2020 to 28th FEBRUARY 2021

NEW STANDARD VAT RATE REDUCED TO 21% From 1st SEPTEMBER 2020 to 28th FEBRUARY 2021

  September 1, 2020    Finances    adm

As part of the Irish Governments July Stimulous package, the standard rate of VAT is being reduced from its current rate of 23% to 21% from 1st September 2020.

The new VAT rate will be effective until 28th February 2021. The standard VAT rate will revert to 23% from 1st March 2021.

Approximately 50% of transactions in Ireland are subject to the standard VAT rate , including non-essential foods, telecommunications and professional services. The introduction of the reduced VAT rate is expected to reduce prices for customers on a raft of items and stimulate demand from consumers. It is hoped that increased demand will assist businesses in the return to pre-covid turnover levels.

In circumstances where debit or credit notes are issued, for returned goods or there is an amendment to the agreed price the VAT rate shown should be that applicable at the tax point and time the original sales invoice was issued. This also applies to retrospective discounts such as volume-based bonuses.

In relation to existing contracts and  agreements agreed to prior to 1st September 2020, but relating to supplies for which the tax point will be between 1 September 2020 and 28 February 2021 the reduced VAT rate must be applied.

Quite often, goods and services are paid for or partially payed for prior to being supplied and there will be instances where supply is not until on or after the date of a rate change.

For businesses on the invoice basis of accounting, VAT is generally chargeable on the supply at the rate in force at the time the invoice relating to the payment is issued, or should have issued, whichever is earlier. 

For those accounting for VAT on a cash receipts basis, the appropriate rate is that which is in force at the time of receipt of the payment. 

Where a contract has been entered into at a particular VAT rate and that rate changes before the contract is fulfilled, an adjustment to take the rate change into consideration may be required. 

Should you wish to discuss the new reduction in the standard VAT rate, please do not hesitate to contact us.

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