Government urged to extend zero VAT rate on PPE to businesses

The Government is effectively profiting from the maintenance of public health by charging businesses VAT on the purchase of personal protective equipment (PPE), the Irish Small Medium Enterprise association (Isme) has claimed.

But the Department of Finance insists a VAT exemption on PPE purchases already applies to State operators, hospitals, GPs and care homes as per an EU-wide decision in April and that it is prohibited from extending this exemption further by EU law.

Nonetheless Isme chief executive Neil McDonnell said the Government's failure to extend the exemption to businesses was heaping further pressure on an already struggling sector.

“The costs of cleaning materials and PPE for Covid-19 will remain a substantial drag on businesses for some time to come, especially those businesses which cannot recover their VAT,” he said.

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A zero rate of VAT for purchases of PPE and other equipment used to combat Covid-19 was brought by Revenue in April following a request by Minister for Finance Pascal Donohoe.

It applies only to the Health Service Executive, hospitals and other healthcare settings, including GP practices.

The Department of Finance said that under the EU’s VAT directive, with which Irish VAT law must comply, the supply of PPE by other operators and businesses is liable to VAT at the standard rate (currently 21 per cent).

VAT ‘flexibility’

In April the European Commission indicated that member states may apply flexibility on a temporary basis in relation to the rate of VAT applied to certain supplies “specifically connected” to the current crisis.

“The commission also adopted a decision permitting the application of the zero rate of VAT to the importation of goods needed to combat the effects of the Covid-19 outbreak by state organisations, charities and philanthropic organisations,” the department said.

It said the scope of this relief “on the importation of these goods by the bodies specified in the commission decision” had been applied here and that it was effectively prohibited from going further.

“Technically, the VAT situation is inflexible by virtue of Irish and EU law,” Mr McDonnell said.

“However, the ease with which all rules (especially state aid rules) have been thrown under the bus in ‘Covid world’ suggests that VAT laws are not a material impediment to zero-rating PPE,” he said.

Employers’ group Ibec has also called for the VAT exemption to be extended.

“In recognition of the significant administrative and cash flow implications of PPE VAT it was confirmed that the zero rate of VAT may be applied, on a concessional basis, to the supply of PPE in healthcare settings for use in combating Covid-19,” it said.

“This concessional treatment of PPE should be extended to all supply for use in the workplace but will require change at a European level,” it said.

As well as PPE, the zero VAT rate also covers equipment such as thermometers, hand sanitiser, medical ventilators, other specialist respiratory equipment, and oxygen.