Hospitality VAT cut to 9%: what it means for cash flow

Revenue's guidance notes on the Finance Act 2025 say the second reduced rate of 9% now applies to food and drink for human consumption supplied as part of a restaurant, catering or hot takeaway service. This includes hot teas, coffees and fruit juices. It also applies to hairdressing services.

Some drinks are excluded, even when they are served with a meal:

• alcoholic drinks
• bottled water
• soft drinks and sports drinks
• vegetable juices

The Department of Finance said the measure will not apply to hotel accommodation but will apply to the food and catering provided by hotels. Revenue's VAT rates database now lists meals in hotels at the second reduced rate, while guest and holiday accommodation remains at the reduced rate of 13.5%. The standard rate is 23%.

The Department of Finance said the measure is expected to support more than 150,000 jobs and estimated that about 85% of the benefit will go to SMEs. Unlike earlier temporary reductions, it described the new rate as having no sunset clause.

A separate change took effect earlier, on 1 January 2026. Hiring a hotel or guesthouse room for a purpose other than accommodation, such as a conference, wedding fair or trade event, is now taxed at the standard rate.

For a restaurant, café, takeaway or caterer, the VAT you pay over to Revenue on food sales is lower from July onwards. Whether your company keeps that difference depends on what you do with your prices. If you hold menu prices, more of each sale stays in the business. If you pass the cut on, your customers benefit and your cash position is broadly unchanged.

Hotels need more care. Accommodation is still at 13.5%, food and soft drinks served in the hotel now sit at different rates, and room hire for events is at 23%. Packages that bundle a room, dinner and drinks must be apportioned correctly between the rates. Getting this wrong can lead to an underpayment, with interest and penalties if Revenue finds it later.

Cafés and takeaways that sell a lot of soft drinks or bottled water will see a smaller gain than the headline rate suggests, because those items did not move to 9%. Hairdressing salons operated through a limited company benefit on their service income. Pubs that serve food gain on the food side, but alcohol stays at the standard rate.

Bear in mind that your VAT bill is only one part of cash flow. Wages, energy, rent and suppliers still need to be paid on time, and the minimum wage rose to €14.15 an hour on 1 January 2026, with Budget 2027 announcing a further rise to €14.94 from 1 January 2027. See our post on auto-enrolment and the minimum wage for the payroll side.

1. Check that your till or EPOS system applies 9% to food and hot drinks and the correct rates to alcohol, soft drinks and bottled water.
2. Review meal deals and packages. Where one price covers items at different rates, apportion the price and any discount between them.
3. Hotels: separate accommodation (13.5%), food (9%), drinks (mostly 23%) and non-accommodation room hire (23%) in your invoicing.
4. Compare your next VAT return with the previous period so you can see the actual effect on your cash position.
5. Decide how you will use any margin gain: building a cash buffer, paying down expensive short-term borrowing or planning for the quieter months.
6. Ask your accountant to confirm the treatment of anything unusual, such as cold food sold alongside hot food.

If your company already owes Revenue for an earlier period, read our guide to phased payment arrangements and tax funding before deciding how to deal with it. For more on finance options for the sector, see finance for hospitality, and for ways to cover a quiet month, our guide to overdraft alternatives.

Our lender panel can consider working capital loans, merchant cash advance for companies that take card payments, and funding for a tax or VAT bill through a general business loan. No outcome is guaranteed, and each lender makes its own decision. Welcome Finance is a commercial finance broker, not a lender, and is not regulated by the Central Bank of IrelandIreland's financial regulator and part of the Eurosystem.. We work only with companies registered in Ireland (LTD, DACA type of Irish private company under Part 16 of the Companies Act 2014 that keeps an objects clause in its constitution, limiting what it can do, and uses the suffix DAC., PLCA company type under Part 17 of the Companies Act 2014., ULCA company under Part 19 of the Companies Act 2014 whose members have unlimited liability for its debts.) and are paid commission by lenders. We do not charge your company a fee and never ask for payment upfront.