It is my understanding that a new reduced VAT rate of 9% has recently come into effect from the beginning of this month. Can you please advise me in terms of which goods and services this new rate applies to and the application of this rate in relation to these?
You are of course correct, a new temporary rate of VAT at 9% has been introduced along with a number of other measures, as part of the new government’s much publicized Jobs Initiative. This new VAT rate will apply to a range of goods and services and it is hoped that this will in turn stimulate employment, particularly in the tourism sector. This new reduced rate of VAT has been in effect since 1 July 2011 and will apply until the end of December 2013. Examples of goods and services which can avail of the new rate include restaurant and catering services; hotel and holiday accommodation; Meals provided in the course of operating hotels, restaurants, cafes, canteens, pubs, catering businesses; Hot take-away food and drink; admissions to cinemas, theatres, certain musical performances, museums and art gallery exhibitions; services in fairgrounds or amusement parks; the use of sporting facilities; hairdressing services, along with printed matter such as brochures, maps, programmes, leaflets, catalogues and newspapers.
This reduced rate of VAT is a very welcome measure and it is hoped it will assist tourist related activities by getting people to spend more of their discretionary income on the goods and services listed above. It is in effect, a 33% reduction from the 13.5% VAT rate in respect of certain goods and services and is a significant move from the new government.
That being said, it is important to note that not all goods and services previously chargeable to VAT at the 13.5% rate will now benefit from this new reduced rate. Goods and services which will remain at the 13.5% rate include the supply of fuel, gas and electricity, bakery products, agricultural services, tour guide services, photographic services, veterinary services, waste disposal, car rental, property sales and construction services. This is not an exhaustive list and if you are unsure of the correct VAT rate to be applied to your business’s activities professional advice should be sought. The 21% VAT rate will continue as before.
The introduction of this new VAT rate will of course create certain issues surrounding its application from the 1st July 2011. In general, goods and services supplied before 1 July 2011, which now qualify for the new 9% VAT rate, are liable to VAT at the rate in force at the time of supply. However, where goods and services are supplied in June 2011 by a trader who is obliged to issue a VAT invoice, and that trader issues the invoice after 30 June 2011, the 9% rate applies. However, a trader supplying goods and services to private individuals should always apply the VAT rate in force at the time of supply. As a rule, a trader who is registered for VAT on 1 July 2011 should account for VAT at the 9% rate on stock supplied after that date, even though they may have purchased their stock with VAT at the 13.5% rate, before that date. The obvious benefit of this is that, such traders will already have been entitled to a credit for VAT at 13.5% on the purchase of that stock, subject to the usual conditions.
Importantly, any VAT credit note or debit note relating to a supply of goods or services which contains a VAT adjustment and which is issued to a VAT-registered person, a public body or an exempt person on or after 1 July 2011 should now show VAT at the rate in force at the time the original invoice was issued.
In situations where a contract to supply goods or services is entered into before 1 July 2011, and the contract is not completed until after that date, the agreed VAT inclusive price may be subject to an appropriate adjustment due to the change in the VAT rate, unless there is agreement to the contrary between the contracting parties.
Clearly, then the application of this new reduced VAT rate may lead to a number of scenarios where guidance may be required. If you are unsure as to application of this new reduced rate of VAT, in any circumstance. I would advise you to discuss this with a qualified tax advisor, who will be in a position to provide the clarity required.