# Avoid "2/3 rule": Raise 2 invoices, one for Services & another for Material.



## Josvill2010 (17 Feb 2010)

Is there any problem to raise two invoices, one for Services and another for Materials, to avoid 2/3 rule?
Thanks,
jose


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## Graham_07 (17 Feb 2010)

No problem in doing this. The following from the Revenue's VAT manual :-


*[5.2] Services taxable as a supply of goods - The "two-thirds" rule. *​
*1. Introduction
. *

In certain circumstances a transaction which at first sight appears to be the supply of a service may nevertheless be taxed as a supply of goods if the value of the goods supplied in carrying out the work exceeds two-thirds of the total charge. 



*2. Concession - allow separate invoicing of materials and labour. *
Where the "two thirds rule" is breached the supplier may get to invoice the materials and labour separately thus alleviating the impact of the provision i.e. where the labour qualifies for the reduced rate then only the materials will bear the higher rate. 

However it should be noted that the split as between materials and labour must be realistic and attempts to avoid VAT by reducing the consideration for the materials while inflating the consideration for the labour will be resisted and the total value of the supply assessed at the higher rate. The treatment whereby invoicing of separate considerations for materials and labour is concessional and attempts to use it to avoid VAT will be vigorously resisted.


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## JoeB (17 Feb 2010)

So that seems to suggest that raising two invoices only saves the customer about 1/9 of the VAT charge if invoiced together..  (still a 1/9 saving I suppose)

This is because if the service represents one third of the total charge .. then the VAT saving by doing two invoices is about one third of one third = one ninth overall.

One ninth, 1/9, is the best saving.. .. as the percentage of the material charge increases the benefit of issuing two invoices decreases, to 0% when the materials rise to 100%

(This is compared to a approx maximum saving on VAT of 2/9 overall if the materials are less than 2/3rds and one invoice is issued.)


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## Josvill2010 (17 Feb 2010)

Savings are 8,5% (21-12,5).Joe, I dont understand where you get 1/9 (11%) and 2/9 (22%)


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## JoeB (17 Feb 2010)

Yes, I'm sorry.. my post in unclear and un-neccessary.. Graham_07 always nails the accounting and tax questions.

The lower VAT rate is 13.5% rather than 12.5% by the way.

What I meant is that if materials are 67 Euro (ex VAT), and the service part is 33 Euro (ex VAT), then the VAT to be added is ..
21 Euro VAT if all on one invoice as the VAT is 21% on entire amount, due to 2/3 rule..
18.53 Euro VAT if on two invoices as VAT is 21% on materials, and 13.5% on service.. avoiding the 2/3 rule

This gives a savings of 2.47 on the VAT charge, which is about 1/9 of the higher VAT charge... (i.e. 1/9 of 21 Euro = 2.33 which is pretty close to the 2.47 actual saving by having two invoices)


When I was saying 2/9 is the maximum saving what I meant is..
Materials = 66 ex VAT, service = 34 ex VAT
If all on one invoice then the VAT is 13.50 Euros (as 2/3 rule doesn't apply, and 13.5% is applied to the entire amount)
If on two invoices howeve then the VAT is 18.45 (as materials are 21%, and service is 13.5%)
So the saving by doing ONE invoice in this situation is 4.95.. which is about 2/9 of 21 Euro. (actually 2/9 of 21 is 4.67 Euro)... the 4.95 is about the maximum VAT saving that can be gained by combining goods and services on one invoice, and charging the 13.5 VAT rate on the whole amount



ok.... so what I've said above is likely to be still confusing, .. sorry if so, just ignore it and read the info Revenue provide, which seems to say they are happy with two invoices, even if this means you avoid the 2/3 rule.. as long as the materials are accurately priced, and not artifically reduced to avoid some VAT.

Cheers 
Joe


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## Graham_07 (18 Feb 2010)

JoeBallantin said:


> as long as the materials are accurately priced, and not artifically reduced to avoid some VAT.


 
Agreed, this is definitely the most important part of this issue.


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