From SortMyBooks: www.sortmybooks.com 

The Revenue Commissioners have made another change to the VAT – do you know that this is the 3^rd change within 18 months?? Firstly they changed the VAT periods from being 2 months to being either 2 months, 4 months or 6 months, then they brought in new rules for sub-contractors and principal contractors which mostly impact the construction industry and now they have changed the VAT rate from 21% to 21.5%.

The timing of this is a little odd in that the Revenue normally give us some time to implement changes but in this case they’ve pushed it through halfway through a VAT period which suggests they’ve done it deliberately to cash in on the Christmas season.

Read on to see how the change in the VAT rate affects your business:

VAT Registered and selling exclusively to businesses

Anything you have been selling at 21% is going to go up because you now need to charge 21.5%. If you usually quote VAT exclusive prices then all you need to do is start charging VAT on your sales invoices at 21.5% from 1^st December. Download the SortMyBooks upgrade and from 1^st December start using the 21.5% VAT rate.

VAT Registered but do not sell anything at 21%

You do not need to do anything to your prices but you are going to start being charged 21.5% by your suppliers from 1^st December so you need to download the new VAT Rates file so that you are reclaiming the correct amount of VAT.

VAT Registered and selling to consumers

You are going to have the most work to do because you have to raise your prices now in time for 1^st December 2008. Everything that you sell currently at 21% is going to have to be increased to include 21.5% VAT. See the example below:

If your till is programmed to calculate the VAT then you’re going to have to change those rates to 21.5% also. Download the SortMyBooks upgrade so that you are reporting and reclaiming the correct amount of VAT.

I am on cash receipts basis for VAT does this mean I now have to pay over 21.5% even though I only invoiced at 21%?
No. You sent out your invoice at 21% so your customer will reclaim only 21% therefore you are entitled to pay over that VAT at 21%. If you are using the Lodgments Wizzard in SortMyBooks then it will be handled automatically for you. If you are using the All Lodgments Bookkeeper then choose the same VAT rate that you sent the invoice out as. If in doubt about how to handle it for your own business then please get clarification from the Revenue Commissioners. Here is the quote from page 92 of their VAT guide ‘A trader who has been authorized to account on the moneys received 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.’ http://www.revenue.ie/leaflets/vatguide_2008.pdf 
 

Other things to consider:

If you have printed price lists around the place then remember to change those also.

If you are using spreadsheets to calculate pricing and margins remember to change any of those formulas for the 21.5%.

From SortMyBooks: www.sortmybooks.com 

My summary of this initiative: Easier for subbies (sort of), a pain in the arse for main contractors. Yet another example of getting principal contractors to handle onerous admin issues so the Revenue doesn’t have to chase down subbies for money. I think this is unfair as there are lots of small building contractors without the resources to handle this stuff and its unfair that they be penalised.

But all puffing and blowing aside, here is what it means to those affected:

The actual revenue guides are here, and in fairness they did try to make the literature straightforward with pics and checklists and everything.
New VAT rules for Principal Contractors and Sub-contractors 

“I am a subbie, what does it mean to me?”
Well, when invoicing your principal contractor customers, you need to remove the vat rate and amount from your invoice and add the statement “VAT on this supply to be accounted for by the principal contractor” (If you are a SortMyBooks customer on support, this special format invoice will be available to you, we will let you know when you can download the patch.)
You still continue to collect VAT from any customer who is not a principal contractor, and return it in the normal way.
This might mean a smaller vat payment for you, or even that you will get a refund every two months, because it does not affect your right to reclaim VAT on business purchases. If you are paying your VAT by regular direct debit, you might want to reduce it.
 
Two Thirds rule 

The literature says “The two-thirds rule does not apply where the reverse charge applies.” I asked for an explanation, and my understanding is this:
If you are selling goods only with no element of labour involved, then you send a 21% invoice. But if there is some element of labour, even if only 10%, then you can do the special reverse charge invoice with no VAT. I can see this being open to abuse, and I pointed that out, but they don’t seem to mind.

“I am a long suffering principal contractor, what does it mean to me?”

1. VAT changes
Your subbies will be giving you an invoice with no VAT rate or amount on it and this statement: “VAT on this supply to be accounted for by the principal contractor” You need to process this invoice in a similar way to UK purchases - calculate the VAT that you would have been charged if you weren’t a principal contractor, and add it to both your T1 box and your T2 box. The net effect to you is zero. It’s a reporting thing. So if your subbie used to charge you €1,135 (1,000 + 13.5% VAT) he will now charge you €1,000. You pay no VAT and reclaim no VAT but you need to fill the pretend amount (€135 in this case) onto your VAT return, as I said, on both the T1 and the T2 boxes. (If you are a SortMyBooks customer on support, this is taken care of for you, we will let you know when you can download the patch.) If you are on direct debit for  payment of VAT, you might want to look at it because you will not be claiming back as much VAT. (cause you didn’t pay it out to the subbies to begin with)

2.RCT changes
There is not really a change here, it’s just that if you have to withold 35% from a subbie, you can go ahead and calculate it on the actual amount your were billed, so now, instead of 35% of 1135, you will be withholding 35% of 1000. Do you see?
 

Everyone - Annual Return of Trading Details
“And what happens with the ROTD form?” I asked. “I don’t think that’s been thought through…” replied the Revenue source, “but I will find out and get back to you.” You will know when I do so watch this space… (22 August, still no word, I wait…)

Note: If you were thinking of trying out SortMyBooks, the trial download version will also be updated with the new process. The guys and girls on the support line are happy to answer your questions too!

Hope this helps!