Services taxable at the rate of the goods (the two-thirds rule)
What is the two-thirds rule?
Goods are often supplied in the provision of a service, for example, parts in a washing machine repair job.
There are certain rules in relation to how this transaction is taxed for Value-Added Tax (VAT) purposes.
All figures and costs are VAT exclusive.
If the cost of the goods used in carrying out the work exceeds two-thirds of the total price:
- the rate which applies to the goods then applies to the entire transaction.
If the costs of the goods used in carrying out the work does not exceed two-thirds of the total price:
- the rate which applies to the service then applies to the entire transaction.
This is known as the two-thirds rule.
Services taxable at the rate of the goods
|Guitar repair job, quoted price of
||€300 plus VAT
|Made up as follows:
|Cost of materials at 23% (VAT exclusive)
|Labour, overheads, profit
Cost of materials €220 (VAT exclusive) exceeds 2/3rds of full price (VAT exclusive)
VAT chargeable is €69 (€300 @ 23%).
The following services are not subject to the two-thirds rule
- Repair and maintenance of motor vehicles and agricultural machinery.
- Construction services where principal contractors account for VAT on the receipt of construction services from sub-contractors.
- Construction services between two connected parties.