Ireland’s hospitality industry is set to benefit from a long-awaited reduction in value-added tax (VAT) next year, as part of the Government’s upcoming Budget package. The measure, which has now been agreed, will see VAT for eligible businesses reduced from 13.5% to 9%, but it will not take effect until July 2026.
The VAT cut, first promised when the Government was formed in January, is aimed at easing financial pressures on restaurants, cafés, and other food service providers. However, hotels will be excluded from the reduction — a decision that has drawn early attention from industry stakeholders.
Despite the exclusion of accommodation providers, large franchise operators such as McDonald’s and other restaurant chains will benefit under the revised rate. The move is expected to provide a modest boost to consumer-facing businesses still grappling with rising costs and subdued post-pandemic recovery in some areas of the sector.
The VAT reduction forms part of a broader €9.4 billion Budget package that ministers are finalising ahead of Tuesday’s official announcement. Talks continued through the weekend as Government departments worked to settle details on social welfare increases, tax measures, and public spending allocations.
According to Government sources, increases in social welfare payments are expected to be approved on Sunday, but large across-the-board hikes are seen as unlikely given fiscal constraints. Officials have also ruled out any further one-off cost-of-living payments, a measure that was widely used in recent years to help households cope with inflation and energy price spikes.
Meanwhile, there will be no changes to personal taxation in this year’s Budget, with income tax rates, bands and credits all set to remain unchanged. This reflects the Government’s decision to focus resources on targeted supports and sectoral measures rather than broad-based tax relief.
The VAT cut, which will not come into force for nearly nine months after the start of the fiscal year, is seen as part of a longer-term strategy to stimulate growth in hospitality and food services. Industry groups have repeatedly called for a return to the 9% rate, which had previously been introduced as a temporary relief measure during the pandemic before reverting to 13.5%.
The decision to delay the implementation until mid-2026, however, may temper its immediate impact. Economists suggest the timeline allows the Government to balance short-term fiscal discipline with long-term support for small businesses facing margin pressures.
Further details of the Budget, including allocations for health, housing and education, are expected to be unveiled during Finance Minister Michael McGrath’s presentation on Tuesday.
