Budget 2027: Key Tax Measures and What They Mean

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Budget 2027 Analysis

Budget 2027 At A Glance

Budget 2027, delivered on 6 October 2026, is best characterised as a relatively targeted budget which attempts to balance immediate cost pressures with the longer-term fiscal risks created by Ireland’s dependence on corporation tax receipts from a small group of companies.

Overall, Budget 2027 is fiscally cautious rather than transformative. It seeks to provide meaningful personal tax reliefs, cushion households against rising energy costs, and commits significant resources to housing and infrastructure but avoids spending the full benefit of buoyant revenues on permanent tax reductions. From a tax-advisory perspective, its strongest feature is arguably this combination of modest income tax reform with continued balance-sheet resilience, particularly given the unusually concentrated nature of Ireland’s corporation tax base.

Personal Tax Relief and PRSI

For taxpayers, the principal theme is reducing fiscal drag and rewarding employment rather than delivering exceptionally large tax reductions. The standard rate income tax bands are being increased by €2,500, while personal, employee and earned-income tax credits rise by a modest €125 to €2,125. Changes are also being made to the entry point for the 3% USC band.

However, the personal tax reductions need to be considered alongside PRSI increases already legislated. Employee PRSI increased to 4.35% on 1 October 2026 and is scheduled to rise to 4.50% from October 2027. Accordingly, part of the benefit arising from Budget 2027’s income tax measures will ultimately be offset by increasing social-insurance contributions.

Capital and Investment Measures

There are also important measures affecting capital and investment taxation. The increase in the Capital Acquisitions Tax (Inheritance/Gift Tax) tax exempt thresholds and the introduction of new personal investment accounts under which individuals may hold up to €50,000 tax-free, potentially represent a shift towards encouraging personal investment and capital accumulation.

Housing and First-Time Buyer Support

Housing remains a major policy priority. More than €9 billion has been announced for new housing, while support for first-time buyers is being increased and the rent-a-room exemption rises from €14,000 to €16,000 and the definition of qualifying dwellings expanded. The measures recognise that supply remains the fundamental constraint in the housing market. Their success will consequently depend less on the headline expenditure commitment than on whether increased capital allocation translates into additional completed units.

SME Incentives and Employment Costs

For the SME sector, the extension to various tax incentive schemes and enhancements to the Research & Development Tax Credit regime are welcomed. However, the package nevertheless has an important employment cost dimension. The national minimum wage is increasing to €14.94 per hour. For businesses, therefore, the benefit of stronger employee disposable income must be considered alongside rising payroll costs. This is particularly important for hospitality, retail and other labour-intensive businesses.

Conclusion

Overall, Budget 2027’s taxation strategy is incremental and employment focused. Rather than introducing substantial structural reforms to the tax system, the Government has concentrated available resources on widening income tax bands, increasing credits and alleviating household costs. For practitioners, the key issue will now be the detailed implementation of these measures, particularly the capital, investment and property provisions, in the Finance Bill.

View the Budget 2027 highlights here.

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Budget 2027 Highlights

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Budget 2027 HighlightsTánaiste and Minister for Finance, Simon Harris, and Minister for Public Expenditure, Infrastructure, Public Service Reform and Digitalisation, Jack Chambers, delivered the final Budget today, 6 October 2026. Below we outline the highlights of Budget 2027.

Personal Tax

  • Income tax standard rate bands, standard rate cut off point for single person increasing €2,600 to €46,500, with the married single earner band moving to €55,500, and the married dual income band to a maximum of €93,000.
  • Personal, PAYE, Earned Tax credits show a slight of €125 to €2,125.
  • Home carer tax credit increasing by €100.
  • Small change to the 3% rate-band of Universal Social Charge to €30,300.
  • Threshold for tax relief on Tuition Fees will be decreased to align with the Student Contribution Fee.
  • Increase in the Childcare Service Relief income ceiling to €20,000 and remove the cap on the number of children minded.

Capital Acquisitions Tax

  • Exemption Thresholds increasing for Group A to €420,000, Group B to €44,000 and Group C to €22,000. Increased rates take effect from 7 October 2026.

 Enterprise/SMEs

  • The rate of Capital Gains Tax reduced to 31% with effect from 7 October 2026.
  • Employers will be able to choose from 1 January 2027 to report payments to employees under ERR to either real time or on a monthly basis.
  • Employer PRSI weekly earnings level increasing from €552 to €600.
  • Minimum wage increasing to €14.94 per week.
  • Corporation Tax start up relief extended to 31 December 2030.
  • Corporation Tax Preliminary Tax:
    • Preliminary tax requirements are satisfied where at least 80% of the current year liability has been paid by the final preliminary tax instalment date and a top-up payment to reach 100% of the liability is made within four months of the end of the accounting period.
    • Removal of a 45% deeming provision, such that an underpayment of the second instalment of preliminary tax does not result in a deemed underpayment of the first instalment, where the first instalment payment was not of an amount at least equal to 50% of the prior year liability.
    • An increase in the small company threshold from €200,000 to €350,000.
  • EIIS, SCI, SURE and Angel Investor Relief schemes to be extended.
  • R&D Tax Credit:
    • Subcontractor limits increasing to 20% or €200,000
    • First year payment threshold increasing to €105,000
    • Claimant companies to increase qualifying base cost by 5% for qualifying wage costs.
    • Tax Credit to be taken into account for preliminary corporation tax.
    • Science test will be met if where a clinical trial is regulated.
  • Knowledge Development Box scheme extended to end of 2031 and provide limited option to opt out of the regime.
  • PSWT is being modernised by moving to personal deduction rates rather than the current 20% rate on gross payments.

Housing Measures

  • The income exemption ceiling for the Rent-a-Room Relief scheme is increasing by €2,000 to €16,000, will now apply to newly installed auxiliary dwellings (garden rooms).
  • Rent Tax Credit increased to €1,150 per claimant.
  • Help to Buy increase in the maximum relief up to €35,000 for first time buyers
  • Residential Zoned Land Tax, scheme being amended to provide a further opportunity for landowners to request a change in zoning of land.

 VAT

  • Charity VAT Compensation Scheme fund increasing to €15m.

 Agriculture

  • Tax Credit for succession farm partnerships increasing to €10,000 and removal of the three-year holding period.
  • Accelerated Capital Allowances on farm safety equipment to 2029.
  • Farmers VAT flat rate to 4.8%.

Climate/Energy

  • Cut in Carbon Tax on home heating oil and gas back to €48.50 per tonne.
  • Carbon tax increases postponed.
  • Deferral of the phased restoration of Mineral Oil Tax on petrol/diesel/MGO to 28 February 2027, and full restoration to take place at the end of June 2027.
  • Increase to €600 in the exempted profits arising from the domestic generation of electricity.
  • Category A VRT band increasing by 1%.
  • VRT relief on electric vehicles extended to end of 2028.

New Savings Investment Scheme

  • New saving scheme commencing 1 July 2027.
  • Available to Irish resident individuals.
  • Tax rate of 1% on the value above the threshold of €50,000.
  • Maximum annual contribution limit of €12,000.
  • Current taxation treatment of retail investment, including the deemed disposal rule, will not apply to funds held in the new scheme.

Other Measures

  • The bank levy will remain for a further year.

Read our tax team’s analysis of Budget 2027.

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Three Common VAT Mistakes We See in Irish SMEs

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Three Common VAT Mistakes We See in Irish SMEs

VAT obligations often become more complex as a business grows. New products, overseas suppliers and expansion into new markets can all affect how VAT should be accounted for.

Through our work with Irish SMEs, we regularly see the same VAT issues arise. The problem is often not a lack of VAT knowledge, but rather that the business has evolved while its VAT processes and systems have stayed the same.

Here are three common VAT mistakes and how to avoid them.

  1. Applying the Wrong VAT Rate

Different goods and services can be subject to different VAT rates, and the correct rate depends on what is being supplied. Other factors, such as the customer’s location and whether they are a business or a private consumer, can also affect VAT treatment.

This can create particular challenges for businesses operating in sectors where multiple VAT rates apply. For example, businesses that fail to update their systems following a VAT rate change may continue applying an incorrect rate to sales.

How to avoid it:

Review the VAT treatment of your products and services whenever rates change, you introduce a new offering or your business model changes. Ensure the correct rates are reflected in your invoicing, till and accounting systems.

  1. Missing Reverse Charge Obligations

The reverse charge mechanism requires a business to account for VAT itself in certain circumstances rather than having VAT charged by the supplier. This commonly arises where services are received from overseas suppliers.

A common misconception is that where an Irish VAT number has been provided to an overseas supplier and no VAT is charged on the invoice, no further VAT action is required. In many cases, however, the recipient may be required to self-account for VAT under the reverse charge mechanism.

Failing to identify these transactions can result in under-declared VAT and potential exposure to interest and penalties.

How to avoid it:

Keep track of overseas suppliers and review the VAT treatment of their invoices. Your accounting system should also be configured to identify transactions that require reverse charge accounting.

  1. Treating Cross-Border Transactions as Domestic Irish Sales

Selling goods or services outside Ireland introduces additional VAT considerations. The correct treatment can depend on the nature of the supply, where the customer is located and whether the customer is a business or consumer.

Applying Irish VAT to all overseas transactions without considering the relevant VAT rules can lead to incorrect VAT treatment. In some cases, businesses may also trigger VAT registration, reporting or payment obligations in other jurisdictions.

Incorrect treatment can result in invoicing errors, inaccurate VAT returns and avoidable compliance risks.

How to avoid it:

Before making regular sales into another country, establish the relevant VAT rules and determine whether any registration, reporting or invoicing requirements apply. Customer location is only one factor. The correct VAT treatment also depends on the nature of the supply and the customer’s VAT status.

What Does This Mean for Your Business?

A VAT review can help identify issues early, reduce compliance risks and ensure your VAT treatment remains appropriate as your business develops.

Our Accounting & Financial Advisory team helps Irish businesses review VAT compliance, address risks and strengthen VAT processes. If you would like a review of your VAT position or have questions about your current VAT treatment, please contact us. We would be happy to discuss your circumstances and identify any areas that may require attention.

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SURE Relief: A Valuable Tax Incentive for Entrepreneurs

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SURE Relief: A Valuable Tax Incentive for Entrepreneurs

Starting a new business can require a significant personal investment. Many entrepreneurs are unaware that tax relief may be available to help reduce the cost of investing in a qualifying start-up company.

Start-Up Relief for Entrepreneurs (SURE) is aimed at individuals who leave employment to establish their own company. Where the qualifying conditions are met, the individual may claim a deduction from total income for a percentage of the amount subscribed for share capital in the new company. Alternatively, the individual may elect to claim the relief against total income in one or more of the six tax years immediately preceding the year in which the shares are issued, rather than claiming it in the current year.

The relief is available where an individual subscribes for “eligible shares” in a “qualifying company”.

Who Can Benefit from SURE?

The general conditions for SURE are that you must:

  • Establish a new company carrying on a new qualifying trading activity
  • Have mainly Pay As You Earn (PAYE) income in the previous four years
  • Take up full-time employment in the new company as a director or an employee
  • Invest cash in the new company by purchasing new shares
  • Keep the purchased shares for at least four years

There are a number of specific conditions that the individual and the company must meet in order to qualify for this relief.

How We Can Help

At Crowleys DFK, we assist entrepreneurs and owner-managed businesses in assessing their eligibility for SURE relief and ensuring that all qualifying conditions are met.  To discuss whether SURE relief may be available for your circumstances, please contact us.

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Circular 24/2026: Why Public Bodies Can No Longer Let Infrastructure Speak for Itself

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Circular 24/2026: Why Public Bodies Can No Longer Let Infrastructure Speak for Itself

Major infrastructure projects are often judged by what they cost and when they are delivered. Circular 24/2026 shifts the focus towards a different question: whether those investments deliver the benefits they were intended to achieve.

From 1 July 2026, public bodies involved in infrastructure projects are encouraged to take a more structured approach to benefits realisation and communication. The Circular introduces the Benefits Realisation Framework for Infrastructure, which builds on the existing Infrastructure Guidelines by placing greater emphasis on demonstrating that projects deliver their intended benefits throughout the project lifecycle.

What Does Circular 24/2026 Mean in Practice?

In practical terms, the Circular requires public bodies to apply the Benefits Realisation Framework throughout the lifecycle of infrastructure projects and in their public communications about those projects.

This means that:

  • Public-facing descriptions of project benefits must be derived from, and remain consistent with, the benefits identified in project appraisal documentation.
  • Public bodies should work collaboratively from an early stage of the project to ensure technical, policy and communications teams present a clear and consistent account of:
    • a project’s expected benefits; and
    • the consequences of delay or non-delivery.

Applying the Benefits Realisation Framework

The Benefits Realisation Framework supports the Infrastructure Guidelines by seeking to ensure that the benefits identified during appraisal are actively managed and assessed across all stages of a project.

In practice, this means public bodies will need to consider:

  • The economic, social and environmental benefits expected from a project.
  • How those benefits will be measured and monitored.
  • Who is responsible for tracking and reporting on benefits.
  • How the benefits of investment will be explained clearly to stakeholders and the public.
  • The consequences of delay, disruption or non-delivery.

A notable feature of the Framework is the emphasis on the consequences of delay or non-delivery. Public bodies are encouraged to consider not only the benefits of proceeding with a project, but also the economic, social and service impacts that may arise if investment is postponed or abandoned. These impacts could include reduced service capacity, continued infrastructure constraints or missed economic opportunities. The Framework also emphasises accountability by encouraging public bodies to identify who is responsible for ensuring that a project’s expected benefits are realised and reported on.

What Does This Mean for Public Bodies?

The key message of Circular 24/2026 is that infrastructure should not have to speak for itself. Public bodies should be prepared to explain not only the benefits that an investment is expected to deliver, but also the consequences of delay or non-delivery. In doing so, they will need to demonstrate how infrastructure investment supports wider economic, social and environmental outcomes for the communities it is intended to serve.

If you would like to discuss how Circular 24/2026 may affect your organisation, please contact Crowleys DFK’s Risk Consulting team.

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Capitalising Software Costs: Are You Getting It Right?

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Capitalising Software Costs: Are You Getting It Right?As more public sector bodies invest in new software systems, we are increasingly being asked whether these costs should be capitalised or expensed. The OCAG Technical Bulletin on Intangible Assets and CGAS 31 provide useful guidance in this area. The OCAG bulletin focuses on the accounting treatment of software hosted on the cloud, while CGAS 31 highlights the distinction between research and development costs. Together, they point to two key questions finance teams should consider:

  • Does the arrangement create an intangible asset or is it a SaaS contract?
  • Is the expenditure research or development in nature?

1. Does the arrangement create an intangible asset or is it a SaaS contract?

When advising clients, we first consider whether the organisation owns or controls the software asset. A growing number of public sector bodies are adopting Software as a Service (SaaS) arrangements, whereby the body pays a fee in exchange for access to software hosted and controlled by the supplier. In a SaaS arrangement, costs generally cannot be capitalised as the organisation is paying for access to software owned by the supplier rather than owning the software outright.

However, where a SaaS arrangement does not exist and the organisation controls the software, only costs directly attributable to preparing the software for use can be recognised as an asset. Determining which costs qualify requires consideration of the expenditure incurred. In our experience, the distinction between SaaS arrangements and software that creates an intangible asset is one of the most common areas of confusion.

2. Is the expenditure research or development in nature?

CGAS 31 requires organisations to distinguish between research and development activities when assessing software project costs. Costs incurred during the research phase, such as assessing needs, evaluating alternatives and determining feasibility, are treated as an expense. Development costs, such as software configuration, customisation, integration and testing, may qualify for capitalisation where they are directly attributable to preparing the software for use. Training, promotional activities and general administration costs are generally charged as an expense when incurred.

A Practical Example

A public sector body is implementing a new grants management system to help collect applications, notify applicants and manage payments. During the project, it incurs the following costs:

  • €400,000 on software configuration and customisation
  • €150,000 on system integration and testing
  • €50,000 on staff training

In this case, the configuration, customisation, integration and testing costs would generally qualify for capitalisation as they are directly related to preparing the system for use. The training costs, however, would be expensed. As a result, €550,000 may be recognised as an intangible asset, while €50,000 would be charged to expenditure.

Key Considerations

In summary, before deciding whether software costs should be capitalised, public sector bodies should assess:

  • Whether the arrangement creates an intangible asset or is simply a SaaS contract; and
  • Whether the expenditure relates to research activities or the development of the software.

It’s important to get these assessments right, as they can have a significant impact on both reported results and the value of assets shown in the financial statements.

If you would like advice on the treatment of software project costs, contact David Coombes, Partner in our our Public Sector & Government Services team.

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US Federal Estate Tax: The Hidden Tax Exposure for Irish Investors

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US Federal Estate Tax: The Hidden Tax Exposure for Irish Investors

Many Irish investors assume that US Federal Estate Tax only applies to US citizens or individuals living in the United States. However, this is not always the case. Irish residents who hold certain US assets, including shares in US-incorporated companies, may create an unexpected tax exposure for their estate.

Example

Consider the example of John, who lives in Cork and has worked for a US multinational for over 20 years. During that time, he has accumulated shares in his employer worth €100,000. He also holds a further €50,000 in US company stocks through an investment portfolio. Under the terms of his Will, John’s assets will pass to his wife on his death.

Although John is Irish resident and domiciled, his estate may still have a US tax exposure. Under the Ireland/US tax treaty, assets such as real property and shares are taxable in the country where the asset is located or where the company is incorporated. Assets such as bank accounts are taxable in the jurisdiction in which the deceased was domiciled at the date of death. This means shares in US companies are treated as US-situated assets, giving the United States primary taxing rights for US Federal Estate Tax (FET) purposes.

The current top rate of FET is 40%. While US citizens benefit from a much higher exemption threshold of $16,000,000, the exemption available to non-resident, non-US citizens is only $60,000. As a result, even a relatively modest holding of US shares can give rise to a filing requirement and potential tax liability.

The Ireland/US tax treaty applies to inheritance tax, but not gift tax, and Irish Revenue will allow a credit for the US tax paid. However, there can be a mismatch between the jurisdictions on how inheritances are treated. In Ireland, transfers between spouses are exempt, however in the US, such transfers between non-US citizen spouses are subject to FET. This means that if John leaves his estate to his wife, there is still a liability to US FET.

There can also be practical complications for executors. In many cases, registrars or brokers may not release US shares to an estate until the relevant US tax filings have been completed and formal clearance has been obtained from the IRS.

Conclusion

If you hold shares or investments in US companies, it is important to consider whether your estate could be exposed to US Federal Estate Tax. Advance planning can help identify potential liabilities, reduce delays for your executors and ensure your estate plan operates as intended.

Reach out to us if you hold US investments and would like advice on the potential tax implications for your estate.

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FRS 102 Amendments: What Organisations Need to Know

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FRS 102 Amendments: What Organisations Need to Know

The latest amendments to FRS 102, introduced by the Financial Reporting Council (FRC), are the most significant changes to financial reporting standards in years. Effective for accounting periods beginning on or after 1 January 2026, they introduce major financial reporting changes with practical implications.

Responding to these changes has proved demanding. Organisations that plan early and assess the impact in advance are better placed to avoid audit and/or financial reporting issues, delays and misstatements and are better placed to manage the transition.

Who Will be Affected?

While the impact will vary, a range of organisations reporting under FRS 102 may be impacted, including:

  • Organisations with leased offices, vehicles, equipment or other leased property;
  • Businesses operating across multiple locations;
  • Organisations with grants, subscriptions, memberships or deferred income arrangements;
  • Organisations delivering services over time or under longer-term contracts; and
  • Organisations where contracts are complex (e.g. multiple performance obligations, variable consideration, rebates, warranties, etc.)

Even where the accounting impact may be limited, updates to existing practices, processes and reporting arrangements may be required.

Lease Accounting

The revised leasing model will require many leases to be recognised on the balance sheet through the recognition of a right-of-use asset and a corresponding lease liability. While this may appear to be a calculation exercise, successful implementation requires management judgement.  Key areas requiring assessment include:

  • Determining the appropriate lease term.
  • Evaluating extension and break options.
  • Applying short-term and low-value asset exemptions.
  • Identifying lease incentives and rent-free periods.
  • Separating lease and service components.
  • Establishing an appropriate borrowing rate.

These judgements can have a material impact on EBITDA, KPIs, loan covenants, company size thresholds and must therefore be supported by analysis and documentation. Developing a complete understanding of an organisation’s lease population may be the most time-consuming aspects of implementation.

Revenue Recognition

The revised revenue requirements introduce a model based on identifying performance obligations and recognising revenue when those obligations are satisfied. While many simpler revenue streams may remain unchanged, organisations with more complex or longer term arrangements may have to revisit existing accounting treatments and challenge assumptions. Areas that require reassessment include:

  • Service contracts.
  • Grants and funding arrangements (particularly where these involve performance obligations).
  • Membership income and subscriptions.
  • Training and educational services.
  • Fundraising activities.
  • Contracts involving multiple deliverables.

Organisations should consider whether revenue should be recognised over time or at a point in time, whether a contract contains multiple performance obligations, and whether the timing of revenue recognition remains appropriate.

Other Changes to Be Aware of

These are not the only amendments introduced by the revised FRS 102, which also includes clearer fair value measurement guidance, enhanced disclosure guidance for small entities under Section 1A, and new disclosure requirements in areas such as supplier finance arrangements and going concern.

More broadly, these amendments continue the shift towards closer alignment with IFRS, particularly in areas such as leases and revenue.

What Organisations Need to Do

To respond to these changes, organisations should:

  • Build a complete lease register;
  • Gather and review lease documentation early;
  • Review revenue streams and customer contracts;
  • Assess systems and processes;
  • Engage early.

The FRS 102 amendments are a significant change in financial reporting. Crowleys DFK can support organisations with the implementation of these changes. Our team can assist with:

  • Lease identification and assessment
  • Lease registers
  • Recognition exemptions
  • Borrowing rate assessments
  • Lease liability and right-of-use calculations
  • Opening balance sheet adjustments and ongoing support

We can also help organisations manage the revised revenue requirements through:

  • Contract reviews
  • Performance obligation assessments
  • Revenue policies
  • Transition planning including opening balance sheet adjustments and / or restatement of comparatives (where applicable)
  • Financial statement disclosures
  • Implementation support

FRS 102 Webinar

As part of our client support programme, we will be hosting a webinar in October 2026, covering the practical implications of the FRS 102 amendments.

Further details and registration information will be announced soon.

Conclusion

The 2026 FRS 102 updates mark a significant shift in financial reporting. While these changes may seem demanding, our experts are available to guide you through the transition. Please contact our dedicated FRS 102 implementation support team for further information.

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R&D Tax Credit: Key Enhancements and What They Mean for Your Business

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R&D Tax Credit: Key Enhancements and What They Mean for Your Business

Finance Act 2025 introduced significant enhancements to Ireland’s R&D Tax Credit, reinforcing its position as a cornerstone of Ireland’s innovation and foreign direct investment strategy.

Increased Credit Rate

The most notable change is the increase in the R&D Tax Credit rate from 30% to 35%, the second increase in two years. This higher headline rate strengthens Ireland’s competitiveness when compared internationally and provides greater certainty for both multinational and indigenous companies making long‑term R&D investment decisions.

Improved Cash-Refund Mechanism

Finance Act 2025 also improves the R&D Tax Credit cash‑refund mechanism by increasing the first instalment threshold from €75,000 to €87,500. This allows companies with claims below this threshold to receive the full credit upfront in year one, delivering a valuable cash‑flow benefit, particularly for SMEs and early‑stage companies.

Treatment of Employee Time

In addition, where an employee spends 95% or more of their time on qualifying R&D activities, 100% of their emoluments may now be treated as qualifying R&D expenditure. This simplifies claims for businesses with dedicated R&D staff, although robust contemporaneous documentation remains critical.

Laboratory Construction Expenditure

The legislation also clarifies that expenditure on the construction of laboratories used for R&D can qualify for the R&D Tax Credit. However, exclusion of areas deemed to be “office space” may give rise to interpretation issues, particularly where desk‑based technical work forms an integral part of laboratory activity.

Instalment Payment Clarifications

The legislation also makes clear that companies must state whether each R&D Tax Credit instalment should be treated as a tax overpayment, to be offset against another company tax liability, or paid directly by Revenue, and it clarifies when the third instalment is due.

What Businesses Should Do Next

Companies carrying out R&D activities should reassess their R&D Tax Credit position in light of these enhancements, particularly around project eligibility, employee time allocation, and cash‑refund planning, to ensure they are maximising available relief while meeting Revenue expectations.

For further information, please contact us.

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Ireland’s VAT Rate Changes from 1 July 2026: What Businesses Need to Know

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Ireland’s VAT Rate Changes from 1 July 2026: What Businesses Need to Know

Revenue has confirmed a permanent reduction in VAT rates for food, catering and hairdressing services from 1 July 2026. It is designed to alleviate some of the pressure on SMEs, such as rising energy costs, higher wages and insurance, and declining sales, while also helping to maintain jobs and sector stability. The lower rate is also intended to help households manage cost‑of‑living pressures.

What’s Changing

According to the new guidance, the VAT rate will be reduced from 13.5% to 9%. A VAT rate of 9% was first introduced as a tax subsidy during the Covid-19 period, with the current rate of 13.5% re-established in September 2023.  Unlike the previous 9% rate, which was more general and applied to hotel or similar holiday accommodation, it is more targeted and specifically applies to:

  • Restaurant and café catering services (excluding alcohol, soft drinks, and bottled water)
  • Takeaway food
  • Hairdressing services

What’s Unchanged

Households and businesses will continue to benefit from the reduced 9% rate on electricity and gas bills until 2030. VAT rates on qualifying new build apartments will remain at 9%, effective from 8 October 2025 to 31 December 2030.  This intervention aims to increase housing supply by making building apartments more viable to developers grappling with rising construction costs.

What it Means for Businesses

To prepare for the VAT reduction, businesses in hospitality, catering and hairdressing sectors should focus on the following:

  1. Update your pricing systems:
    Businesses must update their Point-of-Sale (POS) and accounting systems to correctly apply the 9% rate to relevant items from July 1st, while ensuring items that don’t qualify (like alcohol or, in some cases, hotel accommodation) remain at the 23% or 13.5% rate. Miscalculating this can lead to penalties or unexpected tax debts.
  1. Improve Margins Transparently:
    Businesses will need to decide how they intend to reflect the VAT reduction in their pricing, whether by passing savings on to customers or retaining some profit margin. All menus and service prices should be updated before 1 July 2026.Some businesses will understandably see an opportunity to offset increased energy, labour and operational costs. However, businesses should be mindful that if VAT drops from 13.5% to 9% and prices remain unchanged, customers may see this as unfair or opportunistic.
  1. Adjust Cash Flow Forecasts:
    Businesses should be aware that the lower rate will mean slightly less VAT to pay to Revenue, which may affect cash flow timing. Because of the delay between collecting VAT from customers and paying it to Revenue, many businesses effectively use this as short-term working capital. A reduced VAT rate means less of this cash on hand, increasing the need for accurate cash flow forecasts to cover day-to-day operations.

Next Steps

With the 1 July implementation date approaching, businesses should take the following steps to prepare:

  1. Review product/service catalogues to identify which items will be affected by the reduced rate and update accordingly.
  2. Update internal systems, pricing labels and menus well in advance of 1 July.
  3. Ensure staff are aware of the changes and can clearly explain any pricing changes to customers.

How We Can Help

Our Accounting & Financial Advisory team are supporting clients in preparing for the upcoming VAT changes. Whether you need assistance reviewing VAT treatment, updating systems, or assessing the wider impact on pricing and cash flow, we can help ensure a smooth and compliant transition.

If you would like to discuss how these changes may affect your business, please contact us.

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