Overview of the VAT Cut
The government has announced a VAT reduction for eligible hospitality businesses, with the new rate set to come into effect from July 2026. The measure reduces VAT from 13.5% to 9% for qualifying operators, part of a broader budget package under discussion this week.
Crucially, the relief applies to the hospitality sector but excludes hotels. Large franchise operators, including international fast-food chains such as McDonalds, are expected to benefit. The adjustment aligns with years of policy moves designed to support consumer demand and stimulate growth in the sector.
Scope and Exclusions
Under the plan, eligible hospitality businesses – typically those engaged in food and beverage service, casual dining, and related activities – will see their VAT bill reduced. However, hotel operators will not qualify for the lower rate, underscoring a nuanced approach that aims to bolster dining and take-away services while maintaining a distinct treatment for accommodation providers.
The exact eligibility criteria and transitional arrangements are still being finalised as ministers continue weekend meetings to seal the Budget package worth about €9.4 billion.
Why Hotels Are Excluded
Policy-makers argue that hotels operate with different cost structures and regulatory considerations, including room taxation and tourism-specific incentives. Keeping hotels out of the VAT cut ensures the reform targets the broader, higher-volume dining and food-service segment where price sensitivity is strongest.
Impact on Businesses and Consumers
The VAT reduction is designed to ease inflationary pressures for consumers dining out and ordering in, which in turn can support turnover for restaurants, cafes, and takeaway outlets. For large franchise operators, this relief could translate into more competitive pricing and improved margins during the 2026 rebound period.
Businesses will need to align their pricing and accounting systems with the new rate ahead of the July 2026 implementation date. Industry groups are expected to offer guidance on how to apply the 9% rate to affected goods and services while maintaining compliance with tax regulations.
Budget Context and Complementary Measures
As part of this year’s Budget discussions, ministers are negotiating a package estimated at €9.4 billion. While some welfare measures are under review, early signals indicate there will be no across-the-board one-off cost-of-living payments. There is also an expectation that personal taxation will remain unchanged, with current rates, bands, and credits kept intact.
The VAT cut is the standout reform for the hospitality sector, representing a targeted intervention expected to lower operating costs for many businesses while leaving other tax instruments unchanged.
What’s Next for Stakeholders
Business owners, industry associations, and accountants will be watching closely as final details are released. The government has promised final decisions on the Budget package over the coming days, with July 2026 set as the key milestone for the VAT change. Operators should begin planning for the transition, including adjustments to supplier contracts, pricing strategies, and bookkeeping practices to ensure a smooth rollout.
Bottom Line
The hospitality VAT cut to 9% from July 2026 marks a significant shift for the sector, aimed at stimulating consumer spending on dining and related services while hotels remain outside the relief. As talks continue on the broader €9.4 billion Budget package, industry players should prepare for the sooner-to-come implementation and monitor how the policy interacts with other fiscal changes.
