# Two-Thirds Rule: Motor Industry



## jokerini (23 Mar 2017)

I've seen invoices where garages charge VAT at 13.5% for parts and labour e.g Labour €100, Parts €100, VAT €27, Total €227.

I was under the impression that the two-thirds rule only applied to construction and did not apply to the motor industry. Shouldn't the garage charge 23% for the parts and 13.5% for the labour?


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## T McGibney (23 Mar 2017)

It applies generally.


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## srase (23 Mar 2017)

Two thirds rule does not apply to car repairs by concessional treatment by Revenue.

[broken link removed]


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## Purple (27 Mar 2017)

srase said:


> Two thirds rule does not apply to car repairs by concessional treatment by Revenue.
> 
> [broken link removed]



So the tourism sector, which employs people in Ireland and brings in money from abroad, get a small reduction in their rate and it's a massive deal but the car industry, which sells imported products and pumps money out of the country, gets special treatment and nobody says a word. That seems strange. I must be wrong. Can someone explain it to me please?


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## jjm (27 Mar 2017)

Up to a few years ago people were not able to see links like the ones above.Looking at it from a positive point of view people can now seeing what really was going on.Lobby groups got special treatment the pay as you earn taxpayer got screwed it did not matter which party the voted for .Lobby groups control the political parties .The fight election after election on what the are going to do in the future .We should be voting on there past record in office and opposition .The only time the pay as you earn  taxpayer had any say was when the troika were in ireland.


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## srase (27 Mar 2017)

The concessional treatment is for car repairs - not the sale of cars.

This treatment means car repairs will be subject to VAT at 13.5% rather than 23%.  I think the reasoning is if the two thirds rule applied a lot of car repairs would be subject to 23% VAT as the parts would be more than 2/3rds of the value of the contract.


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## Purple (28 Mar 2017)

srase said:


> The concessional treatment is for car repairs - not the sale of cars.
> 
> This treatment means car repairs will be subject to VAT at 13.5% rather than 23%.  I think the reasoning is if the two thirds rule applied a lot of car repairs would be subject to 23% VAT as the parts would be more than 2/3rds of the value of the contract.


Yes, that was clear. The fact remains that they pay a lower VAT rate than they should for one of the three main revenue streams within their industry (the other two being selling cars and selling finance).


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## T McGibney (28 Mar 2017)

Purple said:


> The fact remains that they pay a lower VAT rate than they should for one of the three main revenue streams within their industry (the other two being selling cars and selling finance).



No they charge a lower VAT rate. It's their customers who pay it.


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## Purple (28 Mar 2017)

T McGibney said:


> No they charge a lower VAT rate. It's their customers who pay it.


The customer gets a lower bill. The State is out of pocket. VAT is a tax in business transactions so it amounts to a subsidy, just like the tourism sector. 
I'm in favour of low taxes but for everyone.


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## T McGibney (28 Mar 2017)

Purple said:


> The customer gets a lower bill. The State is out of pocket. VAT is a tax in business transactions so it amounts to a subsidy, just like the tourism sector.
> I'm in favour of low taxes but for everyone.



The two-thirds rule is extremely messy to implement for relatively small transactions, and is generally counterproductive for consumer transactions. If it extended to motor repairs, it would incentivise and reward overcharging for labour.


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## Purple (28 Mar 2017)

T McGibney said:


> The two-thirds rule is extremely messy to implement for relatively small transactions, and is generally counterproductive for consumer transactions. If it extended to motor repairs, it would incentivise and reward overcharging for labour.


My invoice for car servicing gives an itemised breakdown of costs. I don't see why adding individual VAT rates would be an issue.


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## T McGibney (28 Mar 2017)

Purple said:


> My invoice for car servicing gives an itemised breakdown of costs. I don't see why adding individual VAT rates would be an issue.



I'm not sure you understand how the two-thirds rule works. It doesn't compel the application of individual VAT rates, but allows that where an invoice is raised with a mixture of supply of goods and provision of services, and the charge for goods exceeds two-thirds of the invoice cost (and conversely where the charge for services (here, labour) is less than one-third of the invoice cost), the VAT rate for goods (generally 23%) must be charged on the entire sum.

It can be avoided by inflating labour charges to ensure that they amount to more than one-third of the invoice cost.  This would not be in the interests of consumers.


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## Clarkey (28 Mar 2017)

The two third's rule refers to the cost of goods to the supplier, not the customer.


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## Clarkey (28 Mar 2017)

*13. Services taxable at the rate of goods (the two-thirds rule)*
*Where the VAT-exclusive cost of goods to a supplier exceeds two-thirds* of the VAT-exclusive price charged to a customer the supply is taxable as a supply of goods. Where the VAT-exclusive cost of goods to a supplier does not exceed two-thirds of the VAT-exclusive price charged to a customer the supply is taxable as a supply of services. This is known as ‘the two-thirds rule’.


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## T McGibney (28 Mar 2017)

Clarkey said:


> The two third's rule refers to the cost of goods to the supplier, not the customer.


Indeed. A supplier can't circumvent the two-thirds rule by selling goods below cost.


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