The Government recently announced a six-month reduction in the standard rate of Value-Added Tax (VAT) from 23% to 21%. The reduction is effective from 1st September 2020 to 28th February 2021. Zero rated goods and goods and services at the lower rate of 13.5% are unaffected by the change.
You will need to ensure that your computerised accounts package has been updated to take account of the new rate.
For traders on the invoice basis of accounting for VAT, sales invoices that are raised on or after 1st September must show VAT at a rate of 21% unless the invoice should have been raised before 1st September 2020 (this applies for supplies of goods/services to other VAT registered traders).
Purchases of goods and services previously vatable at 23% will have the 21% rate going forward.
Traders who account for VAT annually where the change takes place during their VAT period should be careful to account for VAT on sales at the appropriate rate when completing the VAT return. (23% up to 31st of August 2020 and 21% from 1 September 2020)
In relation to credit notes issued on or after 1 September 2020, VAT should be at the rate applicable when the original invoice was raised.
If you account for VAT on the cash receipts basis, you should apply VAT at the rate applicable at the date the goods or services are supplied and not at the rate applicable when the cash is received. In addition, when raising an invoice for a supply, the VAT rate applied must be the rate in force at the date of the supply. Therefore you will need to carefully monitor cash collections and the issuing of invoices to ensure the correct VAT rate is applied in each case.
If your business pays VAT to Revenue on a monthly direct debit basis, please review the direct debit amount in light of the above changes.
For those experiencing liquidity issues, further guidance in relation to the Debt Warehousing Scheme can be found here.
This is a summary of how the change in VAT rate may affect your business and does not cater for every situation. If you have any specific queries on the change please contact us.
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