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Tourism Services Increase in the rate of VAT from 9% to 13½% with effect from 1 March 2023

PSC Accountants & AdvisorsFeatured Tourism Services Increase in the rate of VAT from 9% to 13½% with effect from 1 March 2023

Tourism Services Increase in the rate of VAT from 9% to 13½% with effect from 1 March 2023

This alert sets out the invoicing and system change issues which may arise on foot of this measure.  The change of VAT rate relates mainly to certain tourist services.

 

  1. Where the supplier accounts for VAT on sales on an invoice basis.

 

  • To VAT registered customers

A person who is accounting for VAT on the invoice basis must charge VAT at the rate which is in force at the time the invoice is issued, or should have issued, to other VAT registered persons.

 

On completion of a supply to VAT registered customers, an invoice must issue no later than the 15th of the following month.  Thus, if a supply is completed in (say) February 2023, there are two options:

  • Issue an invoice in February 2023 with VAT at the old rate of 9% or
  • Issue an invoice on or after 1st March 2023 with VAT at the increased rate of 13½%.

In summary, all VAT invoices issued “business to business”/B2B on or after 1st March 2023 should show VAT at 13½%, unless the invoice should have issued before this date.  This is the case even if the services were supplied before the changeover date.

 

  • To Non-VAT registered customers

 

VAT legislation does not require the issue of a VAT invoice to unregistered customers. A liability arising in respect of supplies to an unregistered person is normally related to the date of supply and not to the date of issue of the invoice, if one is issued.

 

Services which are supplied to unregistered persons prior to the date of a change in VAT rates are taxable at the rate in force when they are supplied, notwithstanding that they may be invoiced on or after the changeover date.

 

  • Credit Notes

 

A credit note issued to a VAT registered trader in respect of a supply of services, which contains a VAT adjustment, must show VAT at the rate applicable when the original invoice was issued.

 

  1. Where the supplier accounts for VAT on the cash receipts basis

 

  • To VAT registered customers

 

A person accounting for VAT on the cash receipts basis is required to issue an invoice to a VAT registered person. The VAT rate applied must be the rate in force on the date of the supply regardless of when the invoice issues.

 

 

  • To Non-VAT registered customers

 

A person who is accounting for VAT on the cash receipts basis must account for VAT at the rate in force at the time of the supply. Where a change in rate has taken place the person who is accounting for VAT on the cash receipts basis is liable for VAT at the rate applicable at the time the goods or services are supplied and not at the rate applicable when payment is received.

 

  • Credit Notes

 

A credit note issued to a VAT registered trader in respect of a supply of services, which contains a VAT adjustment, must show VAT at the rate applicable when the original invoice was issued.

 

  1. Payments in Advance

 

  • From VAT registered customers

 

Where payments are received (including deposits) from VAT registered businesses before 1st March 2023 in respect of services not supplied until on or after that date, they are subject to VAT at the rate effective at the time the invoice relating to the payment is issued or should have been issued (i.e. by 15th day of the month following the month in which the payment was made), whichever is the earlier.

 

  • From Non-VAT registered customers

 

Monies received from unregistered persons are subject to VAT by reference to the rate in force at the time of payment and not the date of supply.

 

  1. Systems Changes

Businesses will have to adopt their systems to ensure that VAT is charged at the correct rate from 1st March 2023, which may not be straightforward in all cases.

 

The immediate issues for businesses will revolve around the systems changes necessary to cope with the 1st March 2023 change, which will include:

 

  • New tax codings
  • Invoice codings
  • In-house reporting tools
  • Credit note systems

If you need assistance with these issues, please ring your usual PSC contact