Budget and Finance Bill updates

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Budget and Finance Bill update

Budget 2019

Budget 2019, announced on Tuesday 9th October 2018, brought a number of changes in the area of Indirect Taxes some of which followed an established pattern with others being either unwelcome or unexpected. Below is a summary of the announced changes that have had either immediate effect from midnight 9th October or will apply from 1st January 2019.

Changes to the 9% VAT

The 9% VAT rate was initially introduced in July 2011 in response to a deep recession caused by the financial crisis of 2008. The reduced VAT rate was supposed to last for a three year time period but, now, after more than 7 years, the VAT rate is being restored, for most of the services, to its original level. The government has cited the level of employment nearing its pre-crisis peak and the economy being in full recovery as its grounds for reversing the reduction.  Some concerns have been expressed in relation to its removal with the uncertainty of Brexit being prime among them.

The increase from 9% to 13.5% will affect hotels, other short-term guest accommodation, restaurants, cinemas, theatres, hairdressers, museums and art galleries.  Another area affected by the changes will be the supply of live horses (for non-food or agricultural production). The 9% VAT rate on newspapers and sporting facilities will remain. Additionally, the VAT rate for e-publications which are currently taxed at 23% will be reduced to 9%.

The changes will come into effect from 1st January 2019 and in the run up to this date the suppliers of goods or services affected by the rate change should consider updating their systems to ensure that the higher rate of VAT is correctly applied from the effective date.

Increase in excise duty on cigarettes

Following a pattern over the past few years Budget 2019 saw the excise duty on tobacco products rise by a further 50 cent from midnight 9th October 2018, increasing an average cost of a pack of 20 cigarettes to around €12.50. The VAT increase will also apply pro-rata on other tobacco products.

No change to the excise duty on petrol and diesel, but 1% increase in VRT on diesel cars

Further changes in Budget 2019 resulted in a rise in Vehicle Registration Tax (VRT) on diesel cars by 1% from midnight 9th October 2018. The Minister also referred to the introduction of a more accurate form of calculating the CO2 emissions which could potentially lead to a further increase of VRT on both diesel and petrol vehicles of 2% in January 2019. This could result in a total VRT increase of 3% for diesel and 2% for petrol vehicles.

Increase in the rate of betting duty

The final change announced in Budget 2019 in the area of indirect taxation affected the gambling sector with the duty rate for bets placed in the State doubling from 1% to 2%. Betting intermediaries and exchanges were also affected as the tax levied on their commission saw a significant increase from 15% to 25%.

The above changes will come into effect from 1st January 2019.

For further information, please see the Budget 2019 Indirect tax (VAT) webpage and Budget 2019 VAT press release.

Finance Bill 2018

In addition to the Indirect Taxation changes in Budget 2019, the Finance Bill 2018 published by the Minister for Finance, Paschal Donohoe, on 18 October 2018 included some unexpected changes which can be summarised under the following five headings:

  1. Extension of the sugar sweetened drink tax

The sugar sweetened drink tax was introduced in May 2018 and applied to water-based and juice-based drinks with 5g or more of added sugar per 100ml. Dairy products were initially exempt from the tax, however, on the basis of a commitment made to the European Commission that the drinks exempted from such tax should have certain nutritional value, the Finance Bill 2018 extended the tax to include milk substitute or milk fat based drinks containing added sugar whose calcium content is below 119mg per 100ml.

2.  Introduction of  Vehicle Registration Tax (VRT) relief for leased or hired cars

In the past, cars leased or hired in another Member State that were temporarily used in Ireland for a term of lease or hire could not avail of any VRT relief on the basis of temporary use in Ireland and were liable to the full rate of VRT. The Finance Bill 2018 grants VRT relief on such temporary use on a pro-rata basis, subject to certain conditions being met. This change is in line with a recent European Court of Justice Judgment against Ireland for imposing a full VRT charge where the vehicle was only being used for a short period in Ireland.

3.. Withdrawal of the VRT relief in respect of VAT paid on certain vehicles

Where a person carrying on the business of leasing or hiring vehicles to others or providing instruction in the driving of vehicles, acquired an unregistered category A vehicle and was entitled to an VAT input deduction an amount of VRT, calculated by way of a formula to exclude the VAT cost, was refundable. The Finance Act amends this provision by ceasing to make repayments in respect of the VAT element of the VRT payable on any cars registered after 1 January 2019, and by ceasing the repayment altogether from 1 April 2019.

4. Closure of a loophole on sale of the residential properties by the Receivers/ Mortgagees in Possession

Currently the sale of residential properties by Receiver’s or Mortgagees in Possession is only VATable if the owner was entitled to VAT input deduction in the course of a property development business. To close a loophole in which someone other than the owner developed the property and claimed the VAT input deduction the Finance Bill removes the requirement that deduction was claimed by the owner and the property will be liable to VAT if anybody developed it and received a VAT input deduction instead.

This amendment comes into effect from 1 January 2019 and will only effect the Receiver/ Mortgagee in Possession sales of the specific residential properties in question from thereon.

5.  Changes of VAT deduction rules for providers of  pre-paid phone cards

The final change introduced by the Finance Bill 2018 was removal of provisions allowing Telephone companies to adjust their VAT liability for telephone cards sold in Ireland but used outside of the EU. The ability to make such VAT adjustment for non EU use has now been removed with effect from 1 January 2019.

For any queries in relation to the changes brought by the Budget 2019 and the Finance Bill 2018, please contact Pascal Brennan.

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