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VAT Rate Change, Postponed Accounting on Import and Annual Return updates

Indirect Tax Matters February 2021

VAT Rate Change

Our previous article “6 month temporary reduction to the standard rate of VAT” outlined that the Irish standard rate of VAT was being reduced from 23% to 21% effective 1 September 2020 until 1 March 2021. There had been some speculation that this would be extended however the Minister for Finance has recently confirmed that the rate will revert to 23% as planned on 1 March 2021.

If you have restricted or limited VAT recovery then to take maximum advantage of the time left with the lower rate you may wish to:

i. Encourage suppliers to bill by way of the issue of valid VAT invoices no later than 28 February 2021;

ii. Settle any ‘proforma’ or other ‘non-VAT invoices’ a few days before 28 February 2021 to allow time for a February 2021 dated invoice @ 21% to issue; and

iii. Settle any overseas fees for reverse charge services no later than 28 February 2021 to align the 21% VAT rate with both the invoice date and the date of payment.

From 1 March 2021, the issue of domestic invoices, the payment of ‘proforma’ or other non-VAT invoices, or the payment of overseas VATable services could see the 23% VAT rate applied.

The rate change also means that from a supplier perspective any domestic invoices issued on or after 1st March 2021 for standard rated supplies businesses will need to revert to the 23% rate.

Update on Postponed Accounting for Irish Import VAT

Our article 'Postponed accounting for Irish VAT on imports' gave an overview of the new arrangements for postponed accounting for VAT due on imports. When that article was published the measure was awaiting a Ministerial commencement order which is now in place and the new procedure took effect from 1st January 2021.

Postponed accounting, when it is permitted by the Revenue Commissioners, means that VAT no longer needs to be paid at the time of import. Instead the VAT due is accounted for when filing the VAT return for the period. A simultaneous input deduction can be claimed in the same VAT return thus it is VAT cash neutral (subject to normal rules on VAT deductibility). VAT is therefore accounted for under the reverse charge procedure in the same way that it is for goods moving between EU Member States.

Postponed Accounting arrangements may be applied to all imports from all third countries including Great Britain, i.e. the UK (not including Northern Ireland). Goods coming from Northern Ireland are still classified as Intra Community Supplies and not ‘imports’. The use of postponed accounting for imports from outside the EU must be approved by the Revenue Commissioners therefore VAT may still need be accounted for at the time of import or through a deferred payment arrangement if that permission has not been granted.

Entitlement to use postponed accounting

Accountable persons who had existing registrations for both Irish VAT and Customs & Excise (C&E) at 11:00pm on 31 December 2020 were given automatic entitlement to use Postponed Accounting. Irish VAT registered traders who did not have a registration for C&E (i.e. hold an EORI number) at that time and now wish to import goods into Ireland should register for C&E and once done, they will be given automatic entitlement to Postponed Accounting. Until they do make such an application they will not qualify for postponed accounting and will have to pay import VAT and claim deduction in their VAT returns subject to the rules of VAT deduction.

New Irish VAT registrations & postponed accounting

Ireland currently uses a two tier VAT registration system, one for domestic only traders and the second for those involved in Intra EU trade. For new Intra EU traders, to avail of postponed accounting an Irish VAT and C&E registration must first be in place and then a request for access to the postponed accounting scheme can be submitted to Revenue.

For new ‘domestic only’ Irish VAT registrations an application to avail of postponed accounting can be submitted at the same time as the VAT and C&E applications. Supporting documentation will be required by Revenue and postponed accounting can only be used once Revenue confirm the application has been processed successfully.

Using postponed accounting

The following details should be used on the import declarations being filed;

If using AIS, code ‘1A05’ is inserted in Data Element (DE) 2/3 followed by text IEPOSTPONED. The system will check if authorised (or not) for postponed accounting, if valid, the declaration will progress as normal. VAT is calculated and indicated with tax type 1B2 in the message back to the declarant. The amount of VAT under 1B2 is not included in the total liability for collection and should be included in the VAT return.

Where using AEP, code ‘1A01’ is inserted into SAD Box 44 followed by text IEPOSTPONED. The system will check if postponed accounting is authorised and if so the SAD will progress as normal. AEP will calculate the correct VAT liability but the VAT amount will not be collected. The VAT amount will not be included in the message back to the declarant – it should be declared in the VAT return.

For Section 56 holders (13B Authorisations) the use of code 1A01 is unchanged. The relevant authorisation number should still be declared in both AIS and AEP.

VAT returns have been amended to include an additional field/box ‘PA1’ which is to capture the value of goods imported under Postponed Accounting (net plus carriage, insurance and freight). The VAT is then accounted for at Sales (T1) and input deduction claimed in Purchases (T2) subject to the usual rules of deductibility. The VAT Annual Return of Trading Details (ARTD) has also been amended to include additional fields/boxes PA2, PA3 & PA4 to capture the value of goods imported under Postponed Accounting.

Annual Return of Trading Details

All VAT registered persons are required to file a Return of Trading Details (RTD) following the end of their accounting period (which is usually aligned to the financial year). The RTD is a statistical return summarising the net values of the actual sales and purchase figures, the VAT on which was included in the less detailed periodic VAT returns during the accounting period.

The RTD should be filed on the 23rd of the month following the end of the accounting period. Therefore, if you have an accounting period which ended on the 31st of December 2020, your RTD was due to be filed by the 23rd of January 2021. However, the RTD on ROS only had boxes for including details of transactions at the 23% VAT rate and not at the temporary 21% rate. On 22nd January 2021, Revenue issued a guidance note stating that they were granting an extension to the filing date as they were updating ROS for revised VAT Return of Trading Details (RTD).

The revised RTD became available on 10 February 2021 and the filing date of the RTD was extended to 10 March 2021. The only change to the RTD is that the boxes previously labelled ‘23%’ are now called ‘Standard Rate’ and therefore all transactions either at the 21% or 23% rates should be included in the same boxes called ‘standard rate’.

As the RTD is a statistical return it does not of itself carry an obligation to pay any VAT liability. Essentially, the RTD is used as an audit tool to assist Revenue in verifying the accuracy of your periodic VAT returns filled during the accounting period. Failure to file an RTD can affect the cash flow of your business as tax refunds, under any tax head, can be withheld until the RTD has been filled. Also, Revenue may refuse to issue tax clearance certificates or Section 56 Authorisations until such time as the RTD has been filed.

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