Strong exchequer returns should provide a great opportunity for the new Minister for Finance to provide measures to help businesses while also tackling some of the most pressing challenges of housing and climate. That is irrespective of politics and an expected general election in the coming months. A reduction in VAT rates would provide a quick and positive bounce through a reduction in costs of consumer spending. However, economists warn about the impact of fuelling inflation and the wider economic impact. Achieving the benefit of any VAT rate reduction relies on operators being able to pass on the reduced charge through lowering prices. That is down to the market rather than something the Minister can (directly) control.
Changes to the standard rate of VAT are relatively infrequent. Other than a temporary reduction to 21% (from 1 September 2020 to 1 March 2021), the current 23% rate has been in place for 12 or so years. Prior to that, 21% was the rate for most of the preceding 20 years.
While a reduction in the standard rate of VAT would be significant, there is nothing to indicate that is in the offing. However, an extension of activities within the 13.5%, 9% and even zero rates, may be more feasible and realistic. Last year’s budget reduction (from 13.5% to 0 %) for the supply and installation of solar panels for domestic homes is a case in point. The market forced the benefit of the savings to be passed on. Similar adjustments could be rolled out to support other environmental initiatives, e.g. other renewable energy devices, domestic home retrofitting and insulation upgrades, home vehicle charging installations, etc.
As mooted previously, a reduction in the VAT rate on new homes from 13.5%, even to the 9% rate, would be positive. However, the concern voiced in last year’s summer economic statement of that saving being passed on, is likely to remain.
For residential rental properties, upfront VAT recovery for property owners on their purchase or development of properties for rental would provide an immediate funding cost reduction. That should have enduring benefit, even where such VAT was to be repaid to Revenue “on the drip”. That would be a version of VAT measures that existed up to early 2007 and other VAT measures introduced after 2008 to assist residential property developers left with unsold stock at that time. Such measures and VAT recovery unblocking would help other businesses who may be considering the purchase of residential accommodation for rent or use by their staff.
A re-introduction of the 9% rate for the hospitality sector is getting massive press at the moment. Its introduction is reported as being strongly resisted by the Department of Finance. It remains to be seen how this or a variation to support the sector might be announced, conscious of the numerous asks on the Minister from very many business groups outside the leisure and hospitality sectors.
In terms of “VAT administration”, the process for businesses of being set up and registered for VAT can be onerous, with a consistency of approach for registrations not always present. In addition, the support sought from intending traders in advance of the commencement of their activities, is not always reasonable and often leads to delays and additional costs for businesses trying to meet their obligations. As a “no cost” action for the exchequer, this and the related processes for VAT registration applications have to be updated to streamline further what should be a straightforward process. Last year’s budget speech announced a consultation process for certain VAT topics. Something similar around the VAT registration process would be of benefit to businesses working to get and stay VAT compliant.
Over the next few weeks in the lead up to Budget 2025 #RBKtax will look at potential tax measures that the Government could consider and provide insights into Budget 2025.
Budget Briefing Hybrid Event
RBK will be holding its annual Breakfast Budget Briefing as a hybrid event in person at the Athlone Springs Hotel in Athlone and streaming live online on Wednesday, 2nd October. Mike Scanlan, Tax Director, RBK will be analysing the tax measures announced in Budget 2025 and David McNamara, Chief Economist with AIB will look at the economic outlook.
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