The Minister for Finance, Michael Noonan, TD, published the Finance (No.2) Bill 2013 this afternoon. In a Bill comprising some 100 pages, he felt the need to allocate all of five pages to VAT. Our summary of the VAT changes proposed in the Bill is, as a consequence, a short piece of work. The principal proposed changes are as follows:
The tourism industry lobbied hard, pre-Budget, for the retention of the temporary 9% rate and their efforts bore fruit. The Finance Bill removes the temporary nature of the rate by deleting the time limit of its application. The rate would appear to be here to stay. And a good thing too.
Claw-back of Tax Deducted
This was announced in the Budget as a VAT anti-fraud measure. In essence, it seeks to force a taxpayer to repay to Revenue, VAT which they have previously reclaimed if they have not paid their supplier for the goods or services which gave rise to the VAT credit within 6 months of the time when the VAT was reclaimed. This is to be effective from 1 January 2014.
Seasoned VAT watchers will recognise a problem waiting to happen from at least 100 paces. Here, boys and girls, is one such problem-in-waiting. Firstly, what happens if the supplier has paid the VAT to Revenue (as he is obliged to do if he accounts for VAT on the invoice basis)? Revenue would have the VAT from the supplier, but wish to claw it back from the purchaser. It is a proposal which flies in the face of the first principles of VAT and would unjustly enrich the Exchequer. In all likelihood, it is beyond the scope of Articles 167 and 167a of the principal EU VAT Directive.
And I do not want to hear the cynics among you say that the Directive only applies when it is in the favour of Revenue.
Revenue may – and will need to – publish regulations to give this provision effect. It would seem, in the interest of equity at least, that bad debt relief must be available to a supplier immediately where he has paid VAT to Revenue and a purchaser of goods or services from him has had that VAT clawed back.
Cash Receipts Basis
Good news for the SME’s. The Bill confirms the Budget announcement that a business with an annual turnover of less than €2 million will be entitled to account for VAT on the cash basis. This becomes effective from 1 May 2014. It will help a lot of small businesses as it represents an increase of 60% on the current threshold.
Flat Rate Addition
From 1 January 2014, the unregistered farmer will get a flat rate addition of 5% (up from the current 4.8%) on sales of agricultural produce to registered buyers.
Horses and Greyhounds
Following infraction proceedings taken successfully by the EU Commission against Ireland in relation to the application of VAT to transactions involving horses and greyhounds (i.e. the Commission said we were not entitled to apply the 4.8% rate to non-food producing creatures), changes have had to be made.
So, unless it is for eating, a horse is no longer classed as “livestock” and such sales are liable to VAT at 9% from 1 May 2014. Similarly, greyhound sales will be taxed at 9% from then also. Thankfully, the Bill does not suggest that greyhounds may be used “in the preparation of foodstuffs”.
The provision does present the prospect of a VAT-saving opportunity, however. If your nag is in the 3.15 in Fairyhouse and is trailing in a thousand lengths behind the winner, you might still be able to benefit from the 4.8% rate if you sold said nag for a different purpose………….
On that note, have a Happy Hallowe’en.
24 October 2013