9% VAT Reduction Expiry: How Businesses Should Respond

As the 9% VAT rate expired at midnight last night, affected business owners now face several challenges in coping with the consequences.

The extension of the second reduced rate of VAT reverts to 13.5% today – 1^st September 2023.  It’s worth noting that the second reduced VAT rate of 9% on electricity and gas is not due to cease until the end of October.

Who is Affected by the 9% VAT Reduction Expiry?

The main areas affected are tourism, hospitality, certain admission tickets and hairdressing. VAT on affected supplies will revert to 13.5% as of midnight tonight.

The full list of affected services is as follows:

• catering and restaurant supplies (excluding alcohol, soft drinks and bottled water)
• hot take-away food, and hot tea and coffee
• hotel lettings, for example, guesthouses, caravan parks or camping sites
• admissions to cinemas, theatres, certain musical performances, museums, art galleries or exhibitions
• amusement services of the kind normally supplied in fairgrounds or amusement parks
• admission to an open farm
• hairdressing services
• and certain printed matter such as brochures, leaflets, catalogues or printed music (excluding books).

What is the Background to the 9% VAT Reduction?

In November 2020, the 13.5% VAT rate for the tourism and hospitality sector was temporarily reduced to 9%. Other sectors who benefited from this reduced rate included cinemas, theatres, museums, certain printed matter and hairdressers.

The measure was announced in the 2021 budget and was intended to support these sectors during the Covid lockdown. You can read full details of the VAT reduction scheme here.

Immediate Actions for Businesses to Take

The businesses affected should take measures to update POS/ PMS or other data capture systems to ensure they reflect the correct new rate from 1^st September. This is necessary to avoid under collection of VAT.

If you are unsure whether your business is impacted by this change, please contact our VAT compliance team on contact@stratafinancial.ie or call +353 1 6311400.

Should My Business Pass on VAT Rise Costs to Customers?

You should consider whether you need to pass on the additional VAT cost to your customers. Alternatively, you need to consider your current pricing absorb an additional VAT cost? When reviewing this, you need to be aware of market pressures and issues like inflationary costs to your business.

Monitor Your Costs

IBEC and other industry associations are warning that this hike will force business closures. With this in mind, business owners need to be even more aware of the impact of increasing price and the need to monitor continually increasing costs to protect their profitability.

Accurate and up-to-date accounting systems can aid in decision making for business owners. Contact Strata Financial to find out how we can help with this. Email Sinéad Keogh at sk@stratafinancial.ie for assistance or call her on +353 1 525 2968.