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A Guide to Applying Ireland’s Recent VAT Changes

In light of their recent VAT rate cuts, the Irish tax authorities have released a guide to applying Ireland’s recent VAT changes. 

It includes the procedures for VAT registered traders in light of the recent changes to the VAT rates. 

Ireland announced a temporary VAT rate cut in July in a bid to stimulate the economy in the midst of the COVID-19 pandemic. Read the background story here for more details. 

The cut is aimed at decreasing the costs of purchases such as food, alcohol, clothes and motor repairs for Irish consumers.

The VAT rate on goods and services was reduced from 23% to 21% from 1 September 2020 to 28 February 2021. 

Here is the guide to applying Ireland’s recent VAT changes as released by the Irish Tax and Customs in August 2020. (Source)

Determining which VAT rate to apply

In the case of transactions with other VAT registered persons, a person accounting for VAT on the sales or invoice basis must apply the rate of VAT in force at the time they issue, or are obliged to issue an invoice. In the case of transactions with persons who are not registered for VAT, an accountable person must apply the VAT rate in force at the time of the supply.

Issuing of VAT invoices 

VAT invoices issued by a VAT registered person to another VAT registered person on or after the date of change of a VAT rate(s), either upwards or downwards, should show VAT at the new rate(s). This applies even if the goods or services were supplied before the date of the change.

Issuing of credit notes 

Any credit note relating to a supply of goods or services which contains a VAT adjustment and which is issued to a VAT registered person on or after the date of a change in a VAT rate(s), should show VAT at the rate in force at the time the original invoice was issued. 

How contracts are impacted

VAT is generally due on supplies at the rate in force at the time of the supply, or at the time of issue of the invoice relating to the supply. In a situation where a contract has been entered into at a particular rate of VAT, and that rate changes before the contract is fulfilled, an adjustment to account for the change in the rate may be necessary.

Sales to unregistered persons

In the case of sales to unregistered persons, these sales are chargeable to VAT at the rate in force at the time of the sale by the finance house. In the case of sales to VAT-registered traders, these sales are chargeable to VAT at the rate in force at the time of issue of the invoice by the finance house or the time the invoice ought to have been issued, if earlier.

Stock on hand on the date of a change

 Persons who are registered for VAT on the date of a change of a VAT rate(s) must account for VAT at the new rate(s) even though they may have been invoiced with VAT at the old rates. Such persons will already have been entitled to a credit for VAT on the purchase of that stock, subject to the usual conditions.

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