Standard rate of Irish VAT now reduced to 21% for six months

As part of the Government’s July Stimulus, the standard rate of Irish VAT has been now been temporarily reduced from 23% to 21%, for a six-month period.

The change, which came into effect on 1 September and will remain in place until 28 February 2021, is the first to the standard VAT rate in Ireland since 2012, when the rate increased to 23% from 21%.

The standard rate of VAT applies to broadly 50% of activity in Ireland, and to a wide range of goods and services. The breadth of the application of the standard rate means the majority of traders in Ireland will need to consider the impact on their business and changes to systems to implement the rate reduction.

According to Habic, any business in the hair and beauty industry should consider how the change will impact on them, and any actions they need to take to ensure that they have everything in order for the change.

“For example, should you factor the VAT rate cut into your pricing? This is particularly relevant for businesses who set their prices on a VAT-inclusive basis such as retailers,” it said. “A price adjustment will be expected by your clients, as this reduction in VAT rate has been well publicised. Be sure to adjust your pricing of products at the standard rate of VAT from 23% to 21% – for  example, sales of cosmetics and sunbed treatments.”

Habic also stressed the importance of looking at what steps are required to update the business’s systems for the VAT rate cut. “Depending on the particular systems, this may either be a simple task or, in other cases, may involve significant work on tax codes and tax determination logic, potentially across multiple systems.

“Importantly, the change will not impact the VAT treatment of supplies, which qualify for the reduced rate that remains at 13.5%. This includes many activities in the tourism and hospitality sector, such as meals in a restaurant, hotel accommodation, and hairdressing and beauty.”