From 1 September 2023, the reduced rate for hospitality in ROI will revert to the usual 13.5% rate
The Irish Government is reverting the VAT rate which applies to certain goods and services in the tourism and hospitality sector from the second reduced rate of 9% back to the reduced rate of 13.5% with effect from 1 September 2023.
In response to the challenges faced by the food and beverage industry, attractions, accommodation providers, and hairdressing services due to the COVID-19 pandemic, the temporary 9% VAT rate was introduced on 1 November 2020.
This measure aimed to provide some relief and support to these sectors during these difficult times. However, the government has recently announced that the expiry date for this reduced rate will not be extended beyond 31 August 2023. This means that supplies of certain food and beverages in restaurants, take-aways, and catering establishments, admissions to attractions like cinemas, museums, and exhibitions, hotel and guesthouse accommodation, and hairdressing services will be affected by the VAT increase.
It is worth noting that certain printed matter such as magazines and periodicals, as well as the provision of sporting facilities by profit-making bodies, will still qualify for the 9% rate and will not be impacted by this change.
Steps to Take
To ensure compliance and commercial protection, you need to take steps now to reflect the new 13.5% VAT rate.
- Businesses must update their systems to reflect the new 13.5% VAT rate. This may involve some adjustments to tax codes and tax determination logic in customer-facing point of sale systems and back-end finance and ERP systems.
- Credit notes may need to be issued for invoices issued before the VAT rate change, requiring systems to still be capable of processing transactions at the 9% rate, so you should ensure your systems have this function enabled.
- Businesses should carefully consider the impact of the VAT rate change on their pricing strategies. As the VAT amount will be a net cost to many customers, pricing adjustments may be necessary.
- Existing contracts should be reviewed to determine whether the price was agreed on a VAT exclusive or VAT inclusive basis and if future transactions will be affected.
- Timing is also crucial, as businesses need to determine the VAT “tax point” for each supply. This may be straightforward for on-the-spot purchases but could be more complex for supplies involving deposits, pre-payments, or invoices issued before the VAT rate change.
- Furthermore, businesses offering mixed supplies that include goods and services subject to different VAT rates must calculate blended VAT rates accordingly.
- For businesses with outstanding VAT debts under the COVID-19 debt warehousing scheme, ensuring the correct VAT rate is applied is essential to meet the condition of paying current taxes as they fall due.
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