VAT Rate Reduced to 9% from July 2026: What Food, Catering and Hairdressing Businesses Need to Know
The Irish Government has announced that the VAT rate for certain food, catering, and hairdressing services will be reduced to 9% from 1 July 2026.
The measure is intended to support businesses facing rising operating costs and ongoing economic pressures.
While the change will be welcomed by many businesses, it is important to understand exactly what is changing, which businesses qualify, and what practical steps should be taken before the new rate comes into effect.
In this article, we explain what the VAT rate reduction means for SMEs and how businesses can prepare.
What Is Changing?
From 1 July 2026, the VAT rate for qualifying food, catering, and hairdressing services will reduce from 13.5% to 9%.
This represents a significant reduction in the amount of VAT charged on eligible services. For affected businesses, the change may impact pricing, cash flow, invoicing, and accounting systems. As a result, business owners should begin preparing well in advance of the implementation date.
Which Businesses Are Affected?
The reduced 9% VAT rate will apply to qualifying food, catering, and hairdressing services.
Examples may include:
- Restaurants
- Cafés
- Certain takeaway food businesses
- Catering businesses
- Hairdressers
- Barber shops
Many SMEs operating in these sectors will therefore benefit from the reduced VAT rate.
However, businesses should confirm that their specific activities fall within the qualifying categories before applying the new rate.
Businesses supplying both qualifying and non-qualifying items may also need to apply different VAT rates to different elements of a sale. For example, alcohol generally remains subject to the standard VAT rate.
What Is Not Included?
One area that often causes confusion is accommodation.
The reduced 9% rate does not apply to hotel accommodation, guest accommodation, or similar lodging services. These services continue to be subject to the 13.5% VAT rate.
Similarly, businesses that supply both qualifying and non-qualifying goods or services may need to apply different VAT rates depending on the nature of the sale.
As a result, businesses should carefully review the VAT treatment of each element of their sales before applying the new rate.
What Does This Mean for SMEs?
For many businesses, the VAT reduction may create opportunities to improve competitiveness, support margins, or offset rising operating costs.
However, the commercial impact will depend on the individual business.
Some businesses may choose to:
- Reduce prices
- Maintain current pricing levels
- Offset increasing costs
- Reinvest savings into the business
There is no single approach that suits every business.
Instead, decisions should be based on commercial objectives, customer demand, profitability, and long-term business goals.
Pricing Considerations
One of the first questions business owners are likely to ask is:
Should I reduce my prices when the VAT rate falls?
The answer depends on a variety of factors.
Businesses facing increased labour, rent, insurance, utility, and supplier costs may decide to maintain existing pricing structures.Others may choose to pass some or all of the VAT reduction on to customers.
Before making any changes, businesses should review their margins and consider the long-term financial impact.
A reduction in VAT does not automatically mean a business should reduce prices.
Accounting and Invoicing Changes
Businesses will also need to ensure that their accounting systems are updated correctly before the new rate takes effect.
This may include:
- Updating accounting software
- Reviewing VAT codes
- Updating invoicing systems
- Training staff responsible for billing
- Checking point-of-sale systems
Applying the wrong VAT rate can create compliance issues and may require corrections at a later date.
For this reason, businesses should review their systems well in advance of 1 July 2026.
Cash Flow Considerations
Although VAT is collected on behalf of Revenue, changes in VAT rates can still affect business planning.
Businesses should consider:
- Future pricing decisions
- Expected sales volumes
- VAT return obligations
- Working capital requirements
- Profitability forecasts
Forward planning can help businesses understand the wider impact of the change and avoid unexpected issues.
What Businesses Should Do Before July 2026
With the implementation date approaching, businesses should consider taking the following steps.
Review Your Services
Confirm whether your goods or services qualify for the reduced 9% VAT rate.
Review Your Pricing Strategy
Assess whether any pricing changes are appropriate for your business and customers.
Update Your Systems
Ensure accounting software, invoicing platforms, and point-of-sale systems can accommodate the new VAT rate.
Speak to Your Adviser
Professional advice can help ensure the correct VAT treatment is applied and that any commercial decisions are based on accurate financial information.
How We Help
At Richard OShea Consultancy, we support businesses with VAT compliance, accounting, and financial planning.
This includes:
- VAT registration and compliance
- VAT return preparation
- Accounting system reviews
- Financial forecasting
- Ongoing business advisory support
For many SMEs, tax changes are also a good opportunity to review pricing strategies, profitability, and overall business performance.
Our Monthly Accounting Services can help ensure your business remains compliant while providing the financial information needed to make informed decisions.
Final Thoughts
The reduction of the VAT rate to 9% from July 2026 will be welcome news for many food, catering, and hairdressing businesses.
However, the change involves more than simply applying a new percentage.
Businesses should take time to review their services, pricing strategies, accounting systems, and compliance processes to ensure they are prepared.
Planning ahead can help businesses take advantage of the change while avoiding unnecessary administrative issues.
This article is intended for informational purposes only and should not be considered a replacement for professional advice. The author(s) disclaim any liability for actions taken or not taken based on the content of this document. It is recommended to seek tailored advice before making any decisions related to the topics discussed in this article.
Frequently Asked Questions
The reduced VAT rate is scheduled to take effect from 1 July 2026.
The reduction applies to qualifying food, catering, and hairdressing services. Businesses should review Revenue guidance to confirm whether their activities qualify.
No. Hotel accommodation and similar lodging services continue to be subject to the 13.5% VAT rate.
Yes. Businesses should ensure their accounting and invoicing systems are updated before the new VAT rate takes effect.
Not necessarily. Pricing decisions should be based on your costs, margins, customer demand, and commercial objectives.
