Paschal Donohoe (Dublin Central, Fine Gael)
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I am advised by Revenue that the VAT rating of goods and services is subject to the requirements of EU VAT law, with which Irish VAT law must comply. In general, the EU VAT Directive provides that all goods and services are liable to VAT at the standard rate, unless they fall within the categories of goods and services specified in Annex III of the VAT Directive, in respect of which Member States may apply a lower rate of VAT. The supply of hire or rental of clothing is not specified in Annex III and is therefore, liable to VAT at the standard rate, currently 23%.

Consequently I am not in a position to reduce the VAT rate on clothing rentals.

Paschal Donohoe (Dublin Central, Fine Gael)
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I am advised by Revenue that the VAT rating of goods and services is subject to the requirements of EU VAT law, with which Irish VAT law must comply. In general, the EU VAT Directive provides that all goods and services are liable to VAT at the standard rate (currently 23% in Ireland), unless they fall within the categories of goods and services specified in Annex III of the VAT Directive, in respect of which Member States may apply a lower rate of VAT. Ireland is also permitted to retain some historic VAT arrangements, under strict conditions.

Following amendments to Annex III of the VAT Directive, agreed in April 2022, it now includes a category for "the supply and installation of solar panels on and adjacent to private dwellings, housing and public and other buildings used for activities in the public interest." This does not include agricultural buildings.

Outside of the above category in Annex III, the supply of solar equipment, including rooftop solar photovoltaic, is liable to VAT at the standard rate, currently 23%. However, if these goods are supplied as part of a “supply and install” contract, they may be subject to VAT at the reduced rate of 13.5%. A “supply and install” contract is where installation services are provided in conjunction with the goods for example, solar panels. As a result, if solar panels were supplied on agricultural buildings as part of a “supply and install” contract, then the contract may be subject to VAT at the reduced rate of 13.5%, provided that the value of the goods supplied does not exceed two thirds of the total value of the contract.

The Deputy should also note that in accordance with the EU VAT Directive farmers may register for VAT or be treated as an unregistered flat rate farmer for VAT purposes. Farmers that are not registered for VAT are not entitled to recover VAT incurred on their expenses. However, these farmers are compensated for the VAT incurred on goods and services used in the course of their farming business through the flat rate addition which they receive on payments for their supplies of agricultural produce and services.

Unregistered farmers may also be able to avail of a VAT refund on certain expenses allowed for under the Value-Added Tax (Refund of Tax) (Flat-rate Farmers) Order 2012 (S.I. No. 201/2012). This provides for a refund of VAT to unregistered farmers on “the construction, erection or installation of qualifying equipment for the purpose of micro-generation of electricity for use solely or mainly in his or her farming business”. The equipment that qualifies under this Refund Order includes a wind turbine system, photo-voltaic system, and equipment ancillary to these systems.

Alternatively, farmers may elect to register for VAT and will have an entitlement to reclaim VAT on costs incurred in relation to their farm business. A VAT registered farmer would be entitled to reclaim VAT incurred on the purchase and installation of solar panels used for their farming business through their VAT returns.

Paschal Donohoe (Dublin Central, Fine Gael)
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At the outset, the Deputy should note that recent Government policy has focused on strengthening the environmental rationale behind company car taxation. Until the changes I brought in as part of the Finance Act 2019, Ireland’s vehicle benefit-in-kind regime was unusual in that there was no overall CO2 rationale in the regime. This is despite a CO2 based vehicle BIK regime being legislated for as far back as 2008 (but never having been commenced).

In Finance Act 2019, I legislated for a CO2-based BIK regime for company cars from 1 January 2023. From that date the amount taxable as BIK remains determined by the car’s original market value (OMV) and the annual business kilometres driven, while new CO2 emissions-based bands will determine whether a standard, discounted, or surcharged rate is taxable. The number of mileage bands is reduced from five to four. EVs will benefit from a preferential rate of BIK, ranging from 9 – 22.5% depending on mileage. Fossil-fuel vehicles will be subject to higher BIK rates, up to 37.5%. This new structure with CO2-based discounts and surcharges will incentivise employers to provide employees with low-emission cars.

I am aware there have been arguments surrounding the mileage bands in the new BIK structure as they can be perceived as incentivising higher mileage to avail of lower rates, leading to higher levels of emissions. The rationale behind the mileage bands is that the greater the business mileage, the more the car is a benefit to the company rather than its employee (on average); and the more the car depreciates in value, the less of a benefit it is to the employee (in years 2 and 3) as the asset from which the benefit is derived is depreciating faster. Mileage bands also ensure that cars more integral to the conduct of business receive preferential tax treatment.

I believe that better value for money for the taxpayer is achieved by curtailing the amount of subsidies available and building an environmental rationale directly into the BIK regime. It was determined in this context that reforming the BIK system to include emissions bands provides for a more sustainable environmental rationale than the continuation of the current system with exemptions for electric vehicles (EVs). This will bring the taxation system around company cars into step with other CO2-based motor taxes as well as the long-established CO2-based vehicle BIK regimes in other member states.

In addition to the above and in light of government commitments on climate change, Budget 2022 extended the preferential BIK treatment for EVs to end 2025 with a tapering mechanism on the vehicle value threshold. This BIK exemption forms part of a broader series of very generous measures to support the uptake of EVs, including a reduced rate of 7% VRT, a VRT relief of up to €5,000, low motor tax of €120 per annum, SEAI grants, discounted tolls fees, and 0% BIK on electric charging.

This new BIK charging mechanism was legislated for in 2019 and was announced as part of Budget 2020, therefore providing a sufficient lead in time to adapt to this new system before its implementation in 2023. There are no plans to review it.