Five reasons why the 9% VAT rate won’t save Irish hospitality

The change to the hospitality VAT rate effective from June 2026 might seem to offer relief to the sector, but its positive impact may be limited. John Russell explains why

People eating in a restaurant

Ireland’s hospitality sector is still under immense pressure, and the long-awaited VAT rate cut announced in Budget 2026 won’t change the fundamentals. Here are five reasons why the measure offers far less relief than it may first appear.

1. The real problem isn’t tax, it’s cost

Energy bills, wages, insurance, rent, supplies—the cost of everything has risen faster than the sector can pass on to customers.

A VAT cut affects what you charge, not what you pay. It offers short-term relief, but not structural support.

Many operators will simply use the VAT saving to absorb rising costs rather than lower prices.

Understandable, but it means the consumer won’t feel it and the potential benefit quickly disappears.

2. It’s too little, too late

The cut isn’t expected to kick in until mid-2026. By then, hundreds of small operators could already be out of business.

Margins are wafer-thin, and cash flow is the killer. Relief in July won’t pay January’s bills.

3. Uneven and unfair

Hotels have been excluded from this VAT rate, creating an uneven playing field within hospitality itself.

Restaurants will get help, but hotel dining rooms and pubs serving food may not. This complexity doesn’t help an already over-regulated sector.

4. Short-term thinking creates long-term uncertainty

The industry has endured years of rate changes: nine percent, then 13.5 percent and now back to nine percent.

Businesses can’t plan pricing, investment or hiring with this kind of instability. What’s needed is predictability, not ping-pong policy.

5. The real levers of competitiveness lie elsewhere

The hospitality sector needs:

  • Employer cost reliefs – PRSI and auto-enrolment supports;
  • Energy and insurance reform – to make costs more sustainable;
  • Targeted grants and digitalisation incentives – to modernise operations; and
  • Stable multi-year tax policy – to build confidence and plan ahead.

The bottom line

Ireland’s hospitality sector doesn’t just need temporary relief; it needs a path to stability, competitiveness and growth. VAT changes can buy time, but only real structural support will secure the future of one of Ireland’s most important SME sectors.

John Russell is Partner at Baker Tilly Ireland