Budget 2021 / Finance Bill update

Indirect Tax Matters November 2020

The main change from a VAT perspective in the recent Budget and Finance Bill is that from 1 November 2020 until 31 December 2021 a reduced VAT rate of 9%, down from 13.5%, will apply to various services in the hospitality and tourism sector. Included for this reduced rate is restaurant and catering services, holiday/ hotel accommodation and entertainment services such as admission to cinemas, theatres, museums, fairgrounds and amusement parks. It will also apply to hairdressing services and the sale of certain printed matter such as brochures, maps and programmes. The 13.5% rate is still applicable to all other goods/services previously at this rate.

The Finance Bill also provides that with effect from 1 January 2021 the VAT rate that applies to certain sanitary products (menstrual caps, pants and sponges) will be reduced from 21% to 0% which is also the rate that currently applies to sanitary towels and tampons.

The current Revenue concession that extends the 0% rate of VAT to the supply of certain equipment for use in the delivery of Covid-19 services, when supplied to the HSE and certain medical facilities, is being formally introduced into legislation. The 0% rate will also apply to sales to NATO forces and effective from June 2022 to supplies to the armed forces of EU countries undertaking a common defence effort under the EU’s Common Security and Defence Policy.

In terms of a VAT rate increase, all candles will become liable to VAT at the standard rate, currently 21%, effective from 1 January 2021. This rate increase will only impact the limited range of candles that currently qualify for 0% VAT.

The support provided to non VAT registered farmers to compensate them for the fact that they cannot recover VAT on their costs, known as the flat-rate addition, will be increased from 5.4% to 5.6% effective from 1 January 2021.

Excise Duty/VRT/Motor Tax

Following the Budget there was an immediate 50 cent increase in a packet of 20 cigarettes with pro-rata increases in other tobacco products.

The Finance Bill also provided for increases in the Carbon Tax element on a range of energy products as announced in the budget including mineral oil, natural gas and solid fuels. Duty on motor fuels was increased from the night of the Budget while other increases will take effect from 1 May 2021.

Waivers of Excise Duty on the renewal of certain liquor licences in the year 2020/2021 are to be implemented in light of the trading difficulties arising from Covid-19.

VRT on motor cars is to be adjusted further under the existing Nitrogen Oxide charging table in accordance with government’s intention to increase taxation on older or ‘dirtier’ cars. The purpose of the revision is to ensure that CO2 values of used car imports will be aligned with the WLTP test applied to all new cars from the beginning of next year.

Changes are also being made to excise relief on electric vehicles including the abolition of the relief on electric vehicles with an Open Market Selling Price in excess of €50,000.

Announced in the Budget, is a change to the application of Motor Tax which will increase for the most pollutant cars. However, rates will remain unchanged for cars in the pre-2008 engine sized regime and most cars in the post-2008 regime apart from the most pollutant. New and second-hand cars registered in the State from 1 January 2021 will effectively be subject to rates based on the new WLTP emissions test.

Our View

We welcome the reduction in the VAT rate for the hospitality and tourism sector to 9% and the reduction to 0% VAT on certain sanitary products which should reduce the costs of those products for consumers though only from 1 January 2021. Rather than delay the benefit for those consumers we would ask the Minster to reduce the rate on the sanitary products with immediate effective.

The VAT rate for the hospitality and tourism sector has been reduced from 13.5% to 9% effective 1st November 2020. However, it will have very limited immediate impact due to the current highest Covid restrictions being in place and the benefit will only be felt when the restrictions are lifted and affected businesses can fully reopen for trade. For those business the fact that the 9% VAT rate will apply until the 31 December 2021 is welcome however, the economic devastation that Covid has wreaked on the hospitality and tourism sectors provides a very convincing argument for extending the period of the 9% rate beyond the proposed date of 31 December 2021. As we enter into a further period of lockdown we would ask that the Minister consider that the 9% rate would apply at least until the 31 December 2022.

We also welcome the increase in the flat rate addition which should benefit non VAT registered farmers.

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