Services taxable at the rate of the goods (the two-thirds rule)
What is the two-thirds rule?
Goods are often supplied in the provision of a service, for example, parts in a washing machine repair job.
There are certain rules in relation to how this transaction is taxed for Value-Added Tax (VAT) purposes.
Note
All figures and costs are VAT exclusive.
If the cost of the goods used in carrying out the work exceeds two-thirds of the total price, the rate which applies to the goods then applies to the entire transaction.
If the cost of the goods used in carrying out the work does not exceed two-thirds of the total price, the rate which applies to the service then applies to the entire transaction.
This is known as the two-thirds rule.
- Example
Services taxable at the rate of the goods
| Service | Amount |
|---|
| Guitar repair job, quoted price of |
€300 plus VAT |
| Made up as follows: |
| Cost of materials at 23% (VAT exclusive) |
€220 |
| Labour, overheads, profit |
€80 |
| Total |
€300 |
Cost of materials €220 (VAT exclusive) exceeds 2/3rds of full price (VAT exclusive).
VAT chargeable is €69 (€300 @ 23%).
The following services are not subject to the two-thirds rule:
- Repair and maintenance of motor vehicles and agricultural machinery.
- Construction services where principal contractors account for VAT on the receipt of construction services from sub-contractors.
- Construction services between two connected parties.