Energy costs have plunged in the UK and Ireland over the past few years. Managing utility costs has become extremely difficult for households and businesses in both countries. To combat these problems, the Irish government reduced the VAT on energy bills. The new legislation opposes the 2019 law, which enforced heavy VAT on electricity and gas bills.
The reduced VAT policy came to effect in 2022 and is extended till October 31, 2022, in the UK. However, the Irish government, which adopted this policy quite later, has extended it till March 31, 2027.
If you want to know further about the reduced VAT on energy bills, then the following guide is here to help you! Read the following context to learn extensively about the current VAT utility laws in the Ireland.
In 2019, the Irish government passed legislation that increased the electric VAT rate to 23%. But after several protests and petitions, the VAT was reduced to 13.5%.
However, the average electric costs plunged throughout Northern Ireland after the pandemic. It became difficult for people to pay off their soaring electricity and gas bills. Many people could not even pay off their expenses owing to the high rates.
Thus, To support the public, the government decided to reduce the VAT on utility bills. According to the new legislation, Ireland's revised electricity VAT rate is 9%. This law came into effect on March 31, 22022. The Minister of Finance, Paschal Donohoe, states that the new legislation will help an average household save around 70 euros on annual electric bills.
Contrary to what many people think, VAT is not charged on a single electricity unit. Instead, it is added to the overall utility expense. The VAT rates are separately mentioned above the total costs. You can calculate the VAT amount by dividing the total amount by its percentage, i.e., 9%. Use our VAT Calculator to get vat amount more accurate by just a single tap.
Vat amount= Total bill Amount / 9%
or
Vat amount= Total bill Amount * 0.09 (i.e. 9/100)
The Irish government didn’t only reduce the electricity VAT rate, but they also decreased the charges for gas bills. The new VAT on gas bills is 9%. It was reduced from a whopping 13.5% to facilitate the public financially.
A cut in VAT on gas bills will make utility expenses more manageable for the public. With the new VAT rates, a small business or an average household can save up to 50 euros on annual gas bills.
Like the previous one, the VAT on gas is present above the total amount of the bill. You can calculate the charged percentage by dividing the sum by the average 9% VAT rate.
Energy-saving materials play a crucial role in reducing electric bill costs and, thus, can help improve the energy crisis. Due to their utmost importance, the government reduced the VAT on energy saving materials.
On April 1, 2022, a zero-rate VAT policy on energy-saving materials (ESMs) was imposed throughout Great Britain. But at that time, the policy could not be adopted in Northern Ireland.
But, from March 1, 2023, the zero-rate policy is extended to Ireland. This means that all the ESM manufacturing companies will be charged 0% VAT in Ireland. The policy is applicable till March 2027, implying that manufacturers can sell VAT-free ESMs for the next four years.
With zero VAT on energy-saving materials, the overall price of ESM reduces. As a result, they will become more accessible to the public. And if people can buy ESMs easily, they will be able to save further on their electricity bills.
Also Read, Everything You Need to Know About VAT as a Sole Trader.
The VAT on energy bills has been massively reduced in Ireland. Until Oct 2021, the water bills were charged VAT according to the 2013 policy. However, recently the government has reviewed the VAT on water bills.
According to the new legislation, the VAT on utility bills, including water expenses, is charged at a zero rate. This policy applies throughout Northern Ireland, except for Leachate, Sludge, and Tankard Waste.
The businesses supplying water from all the regions except for the above three notable mentions are charged 0% VAT. But the wastewater collection services of the excluded regions will still be charged a typical 13.5% VAT on utility bills.
The above terminologies might have confused you regarding VAT on energy bills for businesses. That is why we have scrutinized this section separately for business people so that they can analyze how much VAT they should charge on different utility bills.
The VAT on electricity for businesses is the same as for common households. Local electricity units are charged 0% VAT on utility bills. As a result, these businesses can provide VAT-free electric supply to the public.
Similarly, the VAT on gas bills is also 0% for businesses. If you run a gas facility or manufacture gas-filled cylinders, then you must provide a VAT-free supply to the public.
The Irish government has increased VAT on house-heating items due to the increasing greenhouse effect. Businesses selling coal, oil, and heaters are obliged to charge 13.5% VAT on the overall price.
Businesses that provide wastewater collection services from Sludge, Tankard Waste, and Leachate are charged 13.5% VAT on water bills.
However, areas except for these three are zero-rated. This means that businesses supplying water or collecting wastewater from other than the excluded regions cannot charge VAT.
Final Verdict
The new rates of VAT on energy bills may make a lot of people confused. If you are still puzzled regarding different VAT rates, you can check your bill. Above the total due amount, you will find the included VAT.
Moreover, you can even consult the respective websites to determine the current updates on VAT rates. Due to certain policies, the VAT on energy bills may alter from time to time. Besides, you can also visit our website if you don't know how to calculate VAT and what its legalities are.
FAQs
Water supply and wastewater collection facilities are exempted from VAT for now. However, if your business operates among the Leachate, Sludge, or Tankered Waste areas, then a 13.5% VAT on total servicing becomes mandatory.
The VAT on electricity and gas bills decreased from 13.5% to 9%. The ESM manufacturing is also zero-rated, which means that its costs do not involve VAT. Moreover, there is no VAT on water bills (except for a few areas). But if your business sells house-heating items, you must include a 13.5% VAT in the overall costs.
Rían Doyle
I'm a VAT professional with years of experience helping businesses with compliance and reporting. My goal is to simplify VAT calculation and provide valuable insights through my engaging writing style and clear explanations of complex concepts.
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