VAT changes – Finance Bill 2021

There were several VAT measures proposed in Finance Act 2021 outlined below which have now taken effect. 

Deposits

A change has been introduced in relation to the VAT treatment of non-refundable deposits where there is a customer cancellation. This is especially relevant to businesses in the tourism industry to include hotels and restaurants. The amendment took effect from 01 January 2022.

Previously, where a non-refundable deposit was received from a customer and the service relating to the deposit was cancelled, the recipient of that deposit could reclaim the VAT which it previously accounted for on receipt of the deposit. This was on the basis that the receipt of the deposit was not considered to be VATable as no supply of service actually took place. 

Following an EU Court of Justice ruling which ruled that cancellation fees are taxable as they constitute a payment for either a service or a right to access a service, the legislation has been amended so that Value-Added Tax (VAT) is chargeable on the pre-payment and you must pay the VAT to Revenue in your VAT return.

VAT Groups

A VAT group simplifies the administrative burden of VAT between associated companies, by treating the companies as a single entity for VAT purposes. Where a VAT group is in place, one company (group remitter) files a single VAT return per period for the group and accounts for the VAT due to Revenue. 

The Finance Bill introduced some changes to VAT groups. When applying to enter into a VAT group, at least one member of the group must now be an accountable person (required to register and account for VAT). Revenue also will have the power to backdate a VAT group cancellation. 

The VAT group remitter must also now notify Revenue where there has been a significant change in the financial, economic or organisational links of the members of the VAT group, where an entity in a VAT group ceases to be established in the State or where a member of the VAT group ceases to be an accountable person. A penalty will apply for each taxable period in which they were not notified of €4,000.

COVID-19

The Finance Bill provides for the temporary application of the zero rate of VAT to the supply of Covid-19 vaccines and in-vitro diagnostic medical devices and services closely linked to them to be extended to 31 December 2022.

Farmers

The flat rate refund received by farmers who are not registered for VAT is being reduced from 5.6% to 5.5%. This refund compensates unregistered farmers for VAT incurred on purchases. 

If you require assistance with any VAT or other tax requirements, please contact a member of the tax team.