Indirect tax (VAT)

New measures not announced in Budget 2025

As expected following the recent Budget the key VAT change in the Finance Bill is that the VAT rate on electricity and gas will be kept at 9% until 30 April 2025, it was due to revert to 13.5% effective from 31 October 2024.

In line with other Budget announcements the Bill also proposes that, effective from 1 January 2025:

• the turnover threshold at which businesses have to register for VAT will be increased to €85,000 for supplies of goods and €42,500 for supplies of services;
• the rate of payment to non-VAT registered farmers to compensate them for the fact that they cannot recover VAT, known as the flat-rate addition, will increase from 4.8% to 5.1%; and
• the 9% rate will apply to the supply and installation of heat pumps.

The following proposed changes that were not in the Budget are included in the Bill to “clarify”:

• that the 23% VAT rate applies to drinks derived from plant, grains, seeds or pulses;
• the circumstances in which the block on recovery of VAT on food, drink, accommodation or other personal services does not apply to businesses using those services for the purposes of vatable supplies of food, drink, accommodation or other personal services; and
  
• that in receivership and similar type arrangements it is the receiver or similar person that is entitled to claim a VAT input credit on related costs.

What was unexpected? 

There were no major changes in the Bill that were unexpected. However, the Bill does include a number of changes which were not in the Budget which the Department of Finance’s Explanatory Memorandum states is to “clarify” the position. However, there is an argument that the proposed changes in the wording of the legislation is more than just a clarification of the existing position and is an amendment to the existing position.

Who will be affected? 

The fact that the VAT rate on electricity and gas will be kept at 9%, which is the main change in the budget, will benefit householders and businesses that cannot recover VAT on their costs such as those in the financial, educational and charity sectors.

Our view 

The fact that there are limited VAT changes in the Finance Bill is good news for the majority of businesses.

We welcome the continuation, to 30 April 2025, of the 9% VAT rate that currently applies to the supply of electricity and gas and the extension of the 0% VAT rate to the supply and instal of heat pumps.