Finance Bill 2012 – Proposed VAT Changes

In a Bill of some 124 sections, all of twelve relate specifically to VAT.  Many of these are procedural, or technical, amendments so there is not a lot of material in the proposed VAT changes. Below is a summary of the more important proposed amendments.  It is not the intention to review every minor proposal in the Bill.

The key VAT changes in the Bill – as initiated – can be confined to the following:

  • Ministerial Orders
  • Construction services supplied to connected persons
  • VAT rate
  • Definition of bread
  • Open farms and district heating

Ministerial Orders

A Ministerial Order is a curious thing.  In general, it exists to allow a VAT refund in circumstances where one would not usually be available, such as for farm buildings acquired or built by unregistered farmers, touring coaches, cars for disabled drivers, etc.

Such measures are introduced for social or economic reasons.  Now, under Section 73 of the Bill, the Minister must have regard to the purpose for which an Order is being introduced – it hardly seems impertinent to suggest that he always should have had such regard, but there you go.

The changes are far more wide reaching than that.  There is now a provision to allow Revenue to assess tax previously refunded under an Order where a claimant no longer satisfies the criteria which allowed him to obtain the refund in the first place.  One thinks of the unregistered farmer, who obtained a VAT refund on the construction of a farm building, now reclining in said – newly converted – building by the pool with a Cohiba in one hand and a decent XO in the other.

Of course, not only can Revenue assess the tax, they can also seek interest and a penalty of €4,000.  It seems odd that there has never been a facility for Revenue to claw back tax where the conditions of an Order were no longer satisfied.

Construction Services

The general VAT rule of thumb is reverse charge = anti-avoidance.  This is no different.  From 1 May 2012, where a person supplies construction services to a connected person, the recipient of those services will be the one obliged to account for the VAT arising on the transaction, under the reverse charge rules.  For this purpose, the Bill defines construction services as being similar to, but not identical to, the definition of development in Section 2, VAT Consolidation Act 2010.

The Bill also provides that the recipient can take a deduction for the reverse charge VAT under the normal rules of deduction.  It also provides that the supplier must issue a relevant document to the recipient.

VAT Rate

The Bill confirms the provision in Budget 2012 that the standard rate of VAT has been increased to 23%.

Definition of Bread

With the match in Paris looming large this coming weekend, the words of Marie Antoinette ring loud in the Finance Bill.  But there is no definition of cake in Schedule 2 to the VAT Consolidation Act 2010.  There is, however, a definition of bread and the Bill is tinkering with it.

Recall the recent brouhaha when the Revenue published their amended interpretation of the term “bread”.  Now the Bill proposes a new statutory definition.  In summary, for bread to qualify for zero rating, it must contain not more than 12%, in aggregate, of its weight in fats and sugars and not more than 10% of its weight, in aggregate, of dried fruit, vegetables, herbs and spices.

So, sticking with the French garlicky theme, a loaf of garlic bread will be zero rated for VAT if its fat and sugar content is less than 12% of its weight and the garlic (and any other herbs) is less than 10%.

Open Farms and District Heating 

Admissions to open farms (as defined) will be liable to VAT at 9% and the supply of district heating (not defined) will be liable at 13.5%.

There may of course, be further proposed changes at Committee and Report stages.  Watch our website for updates of any important developments.