Budget Rate change 2012 - Increase in the Standard Rate of VAT to 23 per cent
The standard rate of VAT will increase from 21% to 23% with effect from 1 January 2012.
What goods and services will be affected by the Budget Change?
All goods and services currently subject to the standard VAT rate of 21% will be affected by the Budget change.
The following list includes items that will be subject to the increased rate of VAT:
- Drink & Cigarettes:
Alcohol, soft drinks, fruit juices, bottled waters, cigarettes and other tobacco;
- Transport fuels:
Petrol, auto diesel, motor oil and liquid petroleum gas;
Cars, lorries etc., car accessories, tyres, motorcycles, pleasure boats, mobile homes;
- Consumer Goods:
Adult clothing, adult footwear, jewellery, cosmetics, pottery and glassware, sports goods, stationery, toys, bicycles, CD/DVDs, computers, electrical equipment, carpets & floor coverings, furniture, soft furnishings, household goods;
Hiring and leasing of equipment and vehicles, television rental, DVD/video rental;
- Certain Services:
Accountancy services, advertising, haulage, telecommunications, professional services (legal), toll roads;
Sweets, chocolates, ice cream, crisps, peanuts.
Note: the above list is not exhaustive
Will the VAT increase affect other services such as tourism, fuel and construction?
The increase in the standard rate of VAT will not affect goods and services that are currently subject to the zero rate, the 13.5% reduced rate or the 9% reduced rate. These rates are not being changed in the Budget.
Examples of zero-rated goods that are not affected by the rate increase include:
- most food;
- children's clothes and shoes;
- books and oral medicines.
Examples of items at the 9% reduced rate that are not affected by the rate increase include:
- Tourist accommodation
- Meals provided in the course of operating hotels, restaurants etc.
- Cinema admissions
Examples of items at the 13.5% reduced rate that are not affected by the rate increase include:
- Electricity, gas, home heating oil and fuel for domestic use including coal, turf, peat briquettes;
- New houses and the construction sector;
- General locally-supplied, labour-intensive services, such as car repair and maintenance, and small repair services;
- Certain agriculture and horticulture services.
Do traders have to pass on the VAT increase to their customers?
- VAT is a consumer tax and it would be normal practice for traders to pass on a VAT increase to their customers.
- Traders are obliged to account to Revenue for VAT at the appropriate rate.
- Where supplies of standard-rated goods or services are made to business customers, the trader is obliged to show VAT separately at the new rate on the invoice. Business customers are entitled to claim the VAT back, subject to normal VAT rules.
- Where supplies are made to private consumers and other non-registered persons, the consideration at which the trader sells goods or services is VAT-inclusive. From 1 January 2012, the consideration will include VAT at 23%.
What is the effect of a change of VAT rate on contracts with fixed interval payments?
When payments for continuous supplies become due at fixed intervals over an agreed timeframe, those supplies are taxed at the rate in force on the date the invoice is issued or is required to be issued, whichever is the earlier. This applies even if the interval over which the supplies take place spans the period both before and after the date when the VAT rate changes.
For example, rental of office equipment for the period 1 December 2011 to 31 January 2012 may be treated as taxable entirely at 21% if the invoice for that fixed payment is required to be issued before 1 January 2012. If the invoice relating to a fixed payment is required to be issued on or after 1 January 2012, the rate is 23%.
How does the change affect the VAT on continuous supplies to both business and the public, such as telecom services?
Continuous supplies of telecom services are chargeable to VAT at the standard rate. Telecom suppliers are liable to VAT at the rate chargeable at the time the invoice or bill issues. This rule applies even though a bill may cover services that have already been supplied, plus a charge for line rental for a forthcoming period. Telecom services billed before 1 January 2012 are taxable at 21% and services billed on or after 1 January 2012 will be taxable at 23%.
Continuous supplies of gas and electricity are chargeable at the reduced rate and are not affected by the rate change.
What is the situation regarding advance payments received before 1 January 2012?
- An advance payment, including a deposit, received from a VAT-registered person before 1 January 2012, in respect of goods or services not supplied until on or after that date, is subject to VAT at 21% if the invoice relating to that payment is issued or required to be issued before 1 January. However, if the invoice relating to that payment is issued, or required to be issued, on or after 1 January 2012, the payment is taxable at 23%.
- Where traders account for VAT on the cash basis, an advance payment received before 1 January is taxable at 21%, i.e. the rate in force at the time the payment is received.
- An advance payment received from an unregistered person is taxable at the rate in force at the time the payment is received.
What is the situation for businesses on the invoice basis of accounting for VAT?
Where traders account for VAT on the sales or invoice basis they must account as follows:
- sales to businesses - at the rate in force at the time they issue the invoice or are required to issue the invoice, whichever is the earlier;
- sales to private individuals or other non-registered persons - at the rate in force at the time of the supply.
What is the situation for businesses on the cash basis of accounting for VAT?
Traders who account for VAT on the cash basis are not liable for VAT on their supplies until they receive payment. However, where they make supplies before 1 January 2012 but receive payment on or after 1 January they should account for VAT on those supplies at the 21% rate. Such traders must account for VAT at 23% on goods and services supplied on or after 1 January.
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 January 2012 should show VAT at the rate in force at the time the original invoice was issued.
Contracts Existing on 1 January 2012
Where a contract to supply goods or services is entered into before 1 January 2012, 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.
Stock on Hands on 1 January 2012
A trader who is registered for VAT on 1 January 2012 must account for VAT at the 23% rate on standard rated stock supplied after that date, even though the trader may have purchased this stock at the 21% VAT rate before that date.