COVID-19: Tax Measures for Irish Businesses

Updated October 1st, 2020

Income Tax/Corporation Tax

Individuals and companies that carry on trading activities are entitled to claim relief for losses incurred in their trades. New temporary loss relief provisions are to be introduced to allow for “accelerated” loss relief for individuals/companies for losses incurred in 2020.

Revenue has issued guidance which is available via the following links:

• Income tax relief for self-employed individuals adversely impacted by Covid-19 restrictions

• July Jobs Stimulus - Accelerated loss relief for companies

VAT

Revenue recently announced that the standard rate of Irish VAT is to be temporarily reduced from 23% to 21% for the six month period 1 September 2020 to 28 February 2021. The purpose of the reduction is to help assist with stimulating a number of industries affected by the Covid-19 pandemic. A change to the standard rate of VAT is generally seen as the best approach to stimulate the economy, however, the move was seen as a surprise to many who had anticipated a change in the VAT rate in the hospitality sector.

In order to ensure your business is prepared for the temporary VAT rate change, a number of issues should be considered which we have set out in more detail below.

1. Timing of the Supply

Business to Business Supplies

• The VAT rate to be chargeable should be determined by the timing of the supply or the invoice date. In other words, what was the VAT rate in effect when the supply was made or the invoice was raised;

• In scenarios where a VAT registered supplier issues an invoice to a business/VAT registered customer, and the supplier operates on the invoice basis of VAT accounting, the supplier is required to issue a valid VAT invoice by the 15th day of the month following the month in which the supply was made. The VAT rate to be applied to the supply should be the VAT rate applicable on the date the invoice is raised;

• Given that a VAT registered business is required to issue an invoice to its customers by the 15th day of the month following that in which the supply is made, there should be limited scope for a supplier to decide to charge Irish VAT at either 21% or 23%;

• For example, where a business makes a supply on 29 August 2020, the business could decide to issue its invoice on that date, in which case 23% Irish VAT should be charged, or alternatively, the invoice could be raised and issued by 15 September 2020 in which case, Irish VAT at the temporary standard rate of 21% should be charged.

Business to Consumer Supplies / Cash Receipts Basis of VAT Accounting

• However, in scenarios where a supply is made to a private customer (i.e. a customer who is not registered for Irish VAT) or where the supplier operates under the cash receipts basis of VAT accounting, the VAT rate in place at the time of the supply is the VAT rate which should be applied to the invoice;

• As such, where a supply subject to the standard rate of Irish VAT is made on 31 August 2020, the VAT rate should be 23% as this would be the VAT rate in effect on that date;

• However, in scenarios where the exact same supply was made on 1 September 2020, VAT at 21% should apply as this is the effective rate on that date.

2. Credit Notes

• Where a credit note is issued in the period 1 September 2020 to 28 February 2021, the VAT rate applicable to the credit note should be based on the VAT rate which was in effect on the date the invoice to which the credit note relates was originally raised;

• As such, in respect of credit notes relating to an invoice dated pre 1 September 2020, the VAT rate which should apply to the credit note should be the VAT rate in place during the period that the original invoice was raised, i.e. 23%, even where this differs to the VAT rate in place at the time of the credit note is being issued;

• Where the invoice was raised between 1 September 2020 and 28 February 2021, as the VAT rate in effect for that period should be 21%, the credit note should be issued with a VAT charge of 21%;

• Similar procedures should also be followed with effect from 1 March 2021 when the standard rate of Irish VAT is expected to revert to 23%. From this date, where a credit note is raised in respect of an invoice dated between 1 September 2020 and 28 February 2021, 21% VAT should be applied to the credit note. However, a credit note could be issued on the exact same date but relating to an invoice dated post 1 March 2021 in which case, 23% VAT should be applied to the credit note;

• This could result in two different VAT rates being required on your systems both during and after the temporary period of reduction of the standard rate of Irish VAT.

3. Deposits/Advance Payments

• As noted above, the tax charging point from a VAT perspective should be the time the supply of goods or services is made, or in certain cases, the invoice date. In situations where a deposit is paid, or there is an advance payment, a deemed supply should arise at the time of receiving payment;

• As such, where a sales deposit invoice is issued pre 1 September 2020, the tax point should be deemed to be the date such an invoice is raised. The VAT rate applicable in respect of such invoices should be the rate in place at the date of the invoice, i.e. 23%;

• Where the final invoice is raised during the temporary period of reduction of the standard rate of Irish VAT, the VAT race in place at that time, i.e. 21%, should apply.

4. Purchases

• In order to be in a position to recover Irish VAT charged by suppliers, businesses should ensure that Irish VAT has been correctly charged in the first instance and also ensure that the invoice is valid from a VAT perspective to support an Irish VAT recovery entitlement;

• As such, where invoices or credit notes are received in the period 1 September 2020 to 28 February 2021, businesses should review the documents received to ensure the correct rate of Irish VAT has been applied.

5. IT Systems

• In order to ensure a smooth changeover in the standard rate of VAT arises, it is important to ensure all impacted systems have been updated as appropriate;

• For example, is the correct VAT rate being applied to sales? Does the correct VAT rate appear on invoices? Does the correct VAT amount pull through from the sales to the accounting software? Can the system support having two standard rates of Irish VAT and does it know to use the correct rate as appropriate?

• In particular, it is important to ensure that the IT system is considered as a whole and that any changes to the VAT rate pull through from one system to the next.

6. Other Considerations

• Where contracts note the price of a supply, is this price stated as being inclusive or exclusive of VAT? This could be of particular relevance for business with limited or no VAT recovery entitlement who may or may not see a benefit to a temporary VAT reduction.

• Where the supply relates to a continuous supply of a service, what VAT rate should apply?

• Do contracts/schedules need to be updated to reflect the temporary change in the standard rate of Irish VAT?

• Can the timing of supplies be managed to assist with a reduced VAT rate being applied to a transaction, in particular where limited VAT recovery entitlement exists?

• Has a product file review been undertaken to consider which supplies would be impacted by the change?

Warehousing of Tax Debts

Please note the deadline for applications has been extended to October 31st, 2020.

The Revenue Commissioners introduced a “tax debt warehousing” arrangement, on an administrative basis, in May of this year. This is to apply to PAYE and VAT debts of a business for a set period which could not be paid as they fell due as a result of the business being unable to trade or whose trade was severely restricted due to the Covid-19 pandemic.

Businesses that wish to avail of the scheme must ensure that all tax returns are filed by the relevant due dates (even though the tax due may not be paid) and apply to the Revenue Commissioners to avail of this scheme by 31 October 2020.

The “warehoused” tax debts are to be repaid over a period to be agreed by Revenue which should commence when normal trading has resumed. No interest is charged on the first 12 months of the agreed repayment period with a reduced 3% rate applicable thereafter. The business must file/pay all taxes on time during the repayment period as they fall due. Legislation is being prepared to put this scheme on a legal basis rather than by way of Revenue concessional treatment as was the case.