VAT Snapshot - September 2022

In our September Snapshot, we focus on the Indirect Tax measures introduced in the recent Irish Budget.

In addition, we focus on the rapid advancements in technology and data solutions that has accelerated disruptive technological change and as such greatly impacting tax functions.

Finally, we cover the upcoming deadline for the renewal of VAT 56 authorisations, and the 13th Directive and UK foreign VAT reclaim mechanism.

1. Indirect Tax measures introduced in Budget 2023

Issue

Whilst the reduced rate applicable to the hospitality and tourism sector will be restored to its former VAT rate of 13.5% from 1 March 2023, the Minister has set out a number of Indirect Tax measures as part of Budget 2023 that Businesses should consider.

Relevance

• Hormone Replacement Therapy (HRT) medicine - The supply of non-oral hormone replacement therapies are to be subject to the zero rate of VAT from 1 January 2023.
• Period products - Period products currently subject to the 9% rate of VAT will be subject to the zero rate of VAT from 1 January 2023.
• Nicotine replacement products - The supply of nicotine replacement therapies will be subject to the zero rate of VAT from 1 January 2023. This, in conjunction with the 50c increase in the price of a pack of 20 cigarettes with pro-rata increase on other tobacco products from tonight.
• Newspaper publications - VAT rate of 9% applied to newspaper publications (both paper and digital format) to be abolished such that sales will be zero rated from 1 January 2023.
• Defibrillators - Defibrillators will also be subject to the zero rate of VAT from 1 January 2023.
• The 9% VAT rate on electricity and gas to be extended to 28 February 2023.
• The farmers flat rate addition will decrease from the current 5.5% to 5.0%. This change will be introduced from 1 January 2023.
• Carbon tax rate increase from €41 to €48.50 per tonne/CO2, however the Government has offset the impact of this year’s carbon tax increase with a reduction to zero of the National Oil Reserves Agency (NORA) levy.
• The temporary reduction in the excise duties charged on petrol, diesel and marked gas oil will be extended at current rates until 28 February 2023.
• A grant up to 50% excise relief to independent small producers of cider and pear cider.

How EY can help

We can assist Businesses with understanding how these measures may impact their supply chains and ERP systems.

2. Tax transformation in disruptive times

Issue

It has been well documented how rapid advancements in technology and data solutions have accelerated disruptive technological change, greatly impacting tax procedures. Globally, Tax Administrations are increasingly embracing digitalisation for indirect taxes with tax compliance fundamentally shifting to direct submission of data by taxpayers in real time.  As an example, we see a significant global adoption of mandatory E-Invoicing anticipated between 2022 and 2027 with over 20 countries already announcing implementation. 

In response to the disruptive technology environment and the expectation to do more with less, many organizations have initiated the next wave of investment in their finance operations including Shared Service Centers, Business Process Outsourcing, and ERP upgrades.  Many organizations have not included the tax function within the initial transformation wave, but it is now seen as a strategic participant in these initiatives.

In parallel, while organizations and underlying business process are changing at an unprecedented rate, tax functions need to develop an operating model that is adaptive to a high degree of change. The model adopted will need to accommodate acquisitions, divestitures, entering or exiting markets and restructurings In addition it must increasingly be capable of operating within a digital economy underpinned with new tax legislation, technology platforms, operating models and contractual playing fields.

Many organizations do not have adequate human or technology resources to monitor, evaluate and respond to new tax legislation from governments across the world and at the same time deliver value through investing in the most appropriate technology solutions.

Relevance

Tax functions are under extreme pressure to comply to the elevated digital and real time compliance requirements while, at the same time ensuring, they create value as business a partner within the organization and perform efficient tax risk management.

We see many tax functions responding to the compliance pressure and internal management expectations in a reactive manner and subsequently making uninformed technology and recruitment investment decisions, which often result in failed transformation projects.

The above expectation gap is addressed by identifying the true root cause of existing tax and technology challenges and defining a fit for purpose and well-defined tax technology strategy. This approach allows for a new and informed way of planning, obtaining, processing and managing data It will also create the right blend of talent, optimal and technology enabled processes and future proof technology solutions.

How EY can help

We specialise in assisting organizations to achieve a digital transformation of the tax function by creating a clearly defined and risk-focused framework and strategy supported by a future proof technology business case.

We empower organizations to formulate a transformation strategy and roadmap which activates tax transformation outcomes underpinned by an operating model and technology investment that results in best in class and best in cost outcomes through the tax life cycle process.

In order to achieve the above we utilise our experienced tax, business, and technology professionals to empower organizations to get optimal tax transformation outcomes focusing on:

• Fit for purpose and informed tax technology investment decisions aligned to overall finance and management strategy and digital tax administration requirements
• Defining and documenting a clear tax transformation business case and strategy
• Understanding the organization existing tax and technology landscape and creating visibility of data and control touch points and quality dependencies through the tax lifecycle
• Planning and key design decisions
• Data input, quality, and controls
• System tax determination, gaps and determining the “what is possible”
• Continuous monitoring and controls
• Reporting Quality and Automation
• Process Automation and efficiencies
• Data insights, management reports and audit defense
• Controversy
• Compliance
• Overarching control frameworks and operating procedures
• Future proofing
• Talent and people including training, skills recruitment, team compositions
• Technology and operational models including insourced, outsourced, co-sourced.
• Value creation and key performance areas identification and management.
• Risk Management Optimization
• Workflow Optimization

3. Upcoming deadline for renewal of VAT 56 Authorisation

Issue

Do you currently hold a VAT 56 Authorisation? If so, this authorisation may be due for renewal by 31 October 2022.

Relevance

A business from which 75% or more of its turnover derives from the intra-community supply or export of goods from Ireland may obtain a VAT56 authorisation. Such authorisation allows businesses the cash flow benefit of acquiring “qualifying goods and services” (effectively most goods and services) at the zero rate of VAT.

The application for this authorisation must be submitted through Revenue and is typically granted for a period of between one and three years. It is important to note that the certificate is not automatically renewed by Revenue and upon expiration, VAT should be charged as normal by the supplier until the certification has been successfully renewed. It is therefore important to submit the renewal in advance of the deadline to ensure that the new authorisation is in place so that a gap does not arise between the termination and renewal of the authorisations which would necessitate that the suppliers charge VAT on their invoices. 

How EY can help

EY can provide assistance with the renewal process and liaise with Revenue to make the renewal process as efficient as possible. 

4. UK Foreign VAT reclaim

Issue

Did your business incur UK VAT, and does it wish to make a foreign VAT reclaim?

Relevance

If an EU established company has incurred VAT on purchases of goods and services or goods imported into England, Scotland or Wales (“GB”), you must apply for a foreign VAT reclaim no later than six  months after the end of the ‘prescribed year’ in which the VAT was incurred. The prescribed year is the 12 months from 1 July to 30 June of the following calendar year, therefore an application must be made no later than 31 December 2022. HMRC states that it will refund the claim within six  months of receiving a satisfactory application.

VAT incurred on goods purchased in Northern Ireland can continue to be reclaimed through the EVR system, provided the trader has used the “XI” prefix for its VAT number.

How EY can help

• EY can assist businesses in assessing/reviewing their eligibility for UK Foreign VAT reclaim
• EY can assist clients with calculating the relevant VAT amounts for UK Foreign VAT reclaims for the VAT incurred in 2021 and 2022 tax periods and assist with the compilation and submission of these claims.