AT Rate Reduction in the Hospitality Sector Effective 1 July 2026

BDO Ireland
Insights
2026
VAT Rate Reduction in the Hospitality Sector Effective 1 July 2026

VAT Rate Reduction in the Hospitality Sector Effective 1 July 2026

The long-awaited VAT reduction for the hospitality sector came into effect earlier today with the re-introduction of the 9% VAT rate for qualifying restaurant and catering services. This development follows significant lobbying to Government over an extended period by stakeholders and will greatly assist Irish eateries in their efforts to manage their ever-increasing food, electricity, and other operational costs.

Whereas the VAT rate reduction may result in some minor reductions in the cost of eating out, the more likely outcome is that it will offer greater price stability and secure jobs in the hospitality sector.

The new 9% rate will affect restaurant and catering services, including the provision of meals in cafés, bistros, gastropubs, restaurants, and all other eateries.

However, it is important to note that the 23% standard VAT rate will continue to apply to alcoholic beverages, bottled water, soft drinks, sports drinks, and vegetable juices.

Furthermore, unlike the situation that prevailed a few years ago, the 13.5% VAT rate will continue to apply to hotel, guesthouse, and B&B accommodation, with the 23% rate applicable to hotel conference room hire.

In the circumstances, all affected businesses need to manage the new changes carefully and ensure that realistic pricing is applied to each specific element of any ‘bundled supplies (e.g. B&B etc) in addition to ensuring that the correct VAT rate is applies to each specific service supplied.

For example, a hotel providing Bed & Breakfast and an evening meal for an *all-inclusive price must account for VAT at 13.5% on the accommodation charge at 9% on the element of the charge relating to the breakfast and dinner and at 23% for any drinks supplied as part of the overall price.

*(Note the cost elements for the 3 supplies are inclusive of VAT at the appropriate rates as the overall package charge to the customer is a VAT inclusive figure)

Needless to add, Revenue will expect to see a fair apportionment of the cost element for each of the specific supplies.

In the circumstances, it is imperative that all businesses in the hospitality sector ensure that their accounting software systems have been set up to accurately capture their correct VAT liability on an ongoing basis.

Otherwise, they may find that Revenue may not be too … ‘Accommodating’

Finally, if you decide to get your hair done before heading out for a meal, you’ll be pleased to hear that the VAT rate applicable to ‘hairdoos’ has also been ‘shorn’ from 13.5% to 9%.

How BDO can help

We can assist you in assessing your business’s annual VAT recovery rate, carrying out a review of methodologies and recovery rates used, ensuring these are appropriate and reflect current business activities. Ensuring appropriate methodologies are adopted not only reduces the risk of non-compliance, but can also maximise cashflow for the business. For more information and a personalised approach to any of the above services, reach out to our team today.