Finance Bill 2012 – VAT Update

The purpose of this Tax Briefing is to outline the principal amendments to the Value Added Tax Consolidation Act 2010 arising from Finance Act 2012. Detailed Notes for Guidance on Finance Act 2012 are available on the Revenue website.

Where appropriate, existing leaflets and guidance notes will be amended to reflect these amendments.

Standard VAT Rate

From 1 January 2012 the standard rate of VAT was increased to 23%. For full details of the implications of this increase see Rate change 2012 - standard rate increase.

Reverse Charge on Supplies of Construction Services - New Rules from 1 May 2012

From 1 May 2012, a supply of construction services in the State by an accountable person to a connected person is subject to a reverse charge. Therefore, the recipient of the construction services should calculate the VAT on the amount charged by the supplier with whom he/she is connected and account for the VAT directly to the Revenue Commissioners through his/her VAT return. The recipient will be entitled to claim a simultaneous input credit in respect of that VAT, subject to entitlement under normal deductibility rules.

For further details on how the reverse charge works in practice please see the Annex below.

Travel Agent's Margin Scheme

The Finance Act removed a provision whereby a travel agent supplying margin scheme services that includes qualifying accommodation in connection with attendance at a qualifying conference could issue to the business delegate, for deductibility purposes, a document setting out the VAT element of the cost of that qualifying accomodation. Revenue understands that this document was rarely used. This provision (introduced in Finance Act 2010) was deemed to be inconsistent with the VAT Directive.

District Heating

From 1 March 2012, the rate of VAT applying to district heating is the reduced rate of 13.5%. This is the rate which already applies to supplies of electicity, gas and home heating oil.

Definition of Bread

The Finance Act updates the definition of bread for the application of the zero rate of VAT in line with Revenue practice. Breads subject to the zero rate include loaves, rolls, batch bread, certain bagels, baps, blaas, wraps, naan bread and pitta bread that meet the bread definition.

Certain bakery products with high levels of sugar and fat, such as brioche and croissants, remain outside the definition of bread and are liable to VAT at the 13.5% rate. In general, bakery products containing eggs are not considered bread.

Admissions to Open Farms & Built and Natural Heritage Facilities

These admissions were previously treated as exempt lettings. A review of this exemption was carried out in the context of a number of decisions of the European Court of Justice with the result that the standard rate of VAT should apply to such admissions. The Finance Act provides that admissions to open farms and built and natural heritage facilities are taxed at the reduced rate of 9%. This rate applies with effect from 1 January 2012.

Annex – Reverse Charge for supplies of construction services between connected persons

What is the reverse charge?

The reverse charge is a method of accounting for VAT which places the onus on the recipient, rather than the supplier, to account for and pay VAT to Revenue.

Who must account for VAT on supplies of construction services between connected persons?

From 1 May 2012 a recipient of construction services from a connected person within the State must account for the VAT.

It should be noted that the reverse charge for construction services provided by sub-contractors to principal contractors introduced in September 2008 remains in place.

What is meant by construction services for the purpose of a reverse charge?

Typically construction services in relation to immovable goods would include construction, extension, alteration and demolition services and engineering work or other operations that adapt immovable goods for materially altered use.

Who is a connected person for the purpose of the reverse charge?

Whether a person is connected with another person will be determined in accordance with section 97(3) of the Value-Added Tax Consolidation Act 2010.

Who is responsible for issuing the reverse charge invoice?

The supplier normally issues the invoice but, if both the supplier and the recipient agree, the recipient may issue the invoice and provide a copy to the supplier. Agreed procedures must be in place for the acceptance by the supplier of the validity of the invoice issued by the recipient (e.g. reverse charge invoice drawn up by the recipient is signed by both parties).

What information must appear on the reverse charge invoice?

The invoice (whether issued by the supplier or the recipient of the construction services) must contain the statement "VAT on this supply to be accounted for by the Recipient", as well as all the information that must appear on a valid VAT invoice. However, the VAT rate and the VAT amount must not be shown on the invoice.

How does the recipient of the construction services show the reverse charge VAT on the VAT 3?

The recipient must include the VAT due on supplies from the supplier with VAT on Sales under T1. If the recipient is entitled to a deduction s/he should claim a simultaneous deduction for the VAT on the supplies from the supplier in T2 (VAT on Purchases).

How should the VAT Return of Trading Details (RTD EUR) form be completed?

The recipient should enter the value of the construction services in Column 1. A recipient who is entitled to input credit in respect of these services should make a corresponding entry in Column 4 at the appropriate rate. The supplier should enter the value of supplies of the construction services to recipients in Column 1 at 0%.