In the sixth of our eight articles leading up to Budget 2020, we discuss VAT.

VAT is an EU tax, meaning that all EU Member States must broadly align their rules for VAT within an agreed legal framework that sets out minimum and maximum rates; this ensures that VAT does not affect competition within the Single Market.

While Ireland has discretion as to exactly what VAT rate to apply within the agreed legal framework, we can’t fundamentally change how VAT is applied. As such, Ireland has quite limited discretion in using VAT to stimulate the economy. With this in mind, along with the unknowns of BREXIT, we don’t anticipate that there will be any momentous changes to VAT in Budget 2020.

There is a distinct possibility that the Budget will bring in measures to apply the 23% VAT rate to all food supplements. The area has been the subject of a public consultation in recent months considering the views of industry, stakeholders and the general public on the appropriate VAT treatment.

In our view, it would be wrong to standard rate these products. Food is generally subject to the zero rate of VAT with a number of exceptions. In recent times, there has been a huge increase in the range and type of food supplement products on the market, ranging from meal replacements to energy tablets, which are now an essential and routine form of sustenance for many in society and should therefore continue to benefit from the zero rate.

Another area where measures could be introduced would be in the residential housing sector. A temporary targeted reduction of the rate of VAT to 9% on new, affordable houses and apartments, both public and private, could stimulate supply and alleviate some of the housing availability issues currently being experienced.

We also anticipate there will be some technical changes to bring Irish VAT law into line with recent EU changes, known as the “the four quick fixes.” These changes will have considerable implications for businesses making intra-Community supplies, but insignificant monetary impact.

You can learn more about our Tax Department here.

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