The Government is reducing the VAT rate for food and catering businesses, and for hairdressing services from 13.5% down to 9%.
The measure, which was announced in today’s Budget, will come into effect from 1 July 2026, and will cost €232m for 2026 and €681m in a full year.
This VAT reduction is in line with a commitment in the Programme for Government, with Minister for Finance Pachal Donohoe saying it will support more than 150,000 jobs across the country.
Minister Donohoe said the move “reflects the Government’s commitment to support businesses in the services sector who are facing increased cost pressures.”
Minister for Enterprise Peter Burke said that the reduction in VAT rate for the hospitality sector is a permanent move.
“It’s intended to take this argument off the table for future years,” he said on RTÉ’s Drivetime.
“We saw in the last quarter a 1.7% reduction in employment in that sector. We saw about 4.3% reduction in full-time employment, which really points to the increased costs that have been borne over the last number of months.”
Mr Burke disagreed with the labelling of Budget 2026 as a ‘Big Mac Budget’, despite the measure also applying to major restaurant chains and the Small Firms Association saying that the move will positively impact just one in four small businesses.
“It’s very clear from the evidence that I have that 75% of those employ less than 10 people, 150,000 jobs will be sustained in that sector, and those are your independent, authentic restaurants,” he said.
“When you refer to some of those bigger corporations, they are franchises operated by people in our community who employ people in our community.”
Social Democrats finance spokesperson Cian O Callaghan said the move “awards multi-national companies like McDonald’s and Starbucks millions in extra profits by reducing their VAT rate to 9%.
“Last year, McDonald’s Ireland made a massive profit of €42m. This is not a company that is struggling, unlike smaller independent hospitality businesses around the country that could have benefitted from more targeted supports.”
Watch: Minister Paschal Donohoe announces a VAT reduction for food and catering businesses, as well as for hairdressing services
Chief Executive of the Restaurants Association of Ireland Adrian Cummins has welcomed the reduction.
“We’re thankful to the government for their reduction in the VAT rate to 9%. We’ve lobbied since the budget of last year around this issue,” he said on RTÉ’s Drivetime.
“They can see where we’re coming from now in terms of the viability of our industry, the profitability, and what this gives our sector now is stability into the future, where businesses can now plan in terms of where they’re going to go in terms of growth of their business.”
Mr Cummins said that given the new measures won’t be implemented until July 2026, it may pose problems for some businesses next year.
“It’s going to be a problem for many, many businesses that are labour intensive when they will have an extra 6.5% payroll cost on the 1 January,” he said.
“But in saying that, we’re very thankful to the 9% from the government… But it’s important to point out that there’s a lot of businesses now across the State that will find it very, very difficult next year in terms of extra costs from that wage inflation.”
However, Social Affairs Officer with the Irish Congress of Trade Unions Laura Bambrick has described the VAT reduction as a “grossly inflated subsidy”.
Speaking on RTÉ’s Drivetime, she said the move was “unjustified”.
“If we look at this sector and the sector overall, that’s not to take away that there may be individual businesses that are struggling, but this is a sector-wide measure that was announced today,” she said.
“We’re talking about €681 million. And when we’re talking about big figures, it can be difficult for people to get their head around it.
“What it equates to is every worker in this country, what the minister described as the backbone of the economy, it’s equivalent to every one of those workers handing every food service business and every hairdressers € 250 euros.
“That’s without getting a meal served, that’s without getting a blow dry out of it.”
The Irish Hairdressers Federation (IHF) welcomed the move. Spokesperson Lisa Eccles said: “We welcome the Minister’s commitment to reducing VAT within the hairdressing industry to 9%, which is indeed good news for our sector.
“However, this decision comes with a strong sting in the tail, as the measure will not take effect until July. Many politicians assured us during our meetings in the run-up to the Budget that this VAT change would become a reality, and while it is, the delay leaves our members in a precarious position.
“There are 267 days between now and July, and I fear for our members’ futures,” she said.
The Licensed Vintners Association, which represents publicans in Dublin, said it was “delighted” that the decision was taken to put the rate cut on a permanent footing.
Donall O’Keeffe said the introduction of the measure is “later than we would like, but it is from the 1st of July, and critically, it is now a permanent measure.”
“It’s crucial to boost the viability of pubs that serve food and the entire food sector,” he added.
The Irish Tourism Industry Confederation also said it had hoped the rate reduction would have come into effect at the start of next year.
That said, the chief executive of ITIC welcomed the move, describing is as “an acknowledgement from Government that things are tough for the tourism, hospitality sector out there, and that certain measures are needed from government to help mitigate against costs.”
Eoghan O’Mara Walsh said tourism is the largest indigenous industry and the biggest regional employer.
“If you look across swathes of the wild Atlantic wave, there’s very little other show in town, but for tourism, they’re all under a lot of pressure. Demand is very mixed. Margins are being squeezed. So, the restoration of the VAT rate to 9% is certainly going to be a help.”
