Many food businesses will not survive until the VAT rate is reduced to 9 per cent as “one measure cancels out the other”, hospitality business owners have warned.
The long-awaited Budget 2026 announcement to reduce VAT on restaurants, food-serving businesses and hairdressers from 13.5 per cent to 9 per cent has been met with concern from business owners.
The measure – which will cost €681 million in its first full year – will be come into effect on 1st of July 2026, six months after a planned increase to the minimum wage and the commencement of auto-enrolment.
“One measure cancels out the other,” said Michael Magner, the owner of the Vienna Woods Hotel in Cork, but noted the industry has to welcome the Government standing by its word to reduce the VAT rate.
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He raised concerns that the VAT rate cut would be “crossed out” by the increase to the national minimum wage planned in January.
Mr Magner, who is also the president of the Irish Hotels Federation, said he has “no objection” to the increase to the minimum wage but is concerned it will have a “knock on effect to other roles within the organisation” which would expect reviews to their wage rates combined with the effect of auto-enrolment.
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“There are many food operations that, from now until the July 1st, just won’t make it. They will go out of business.”
He welcomed the Minister for Finance Paschal Donohoe acknowledging the high cost of food for the public and said food businesses are also paying these high prices.
“We’ve seen it, not just in my own business, but right across our industry. Our members say that food costs are still extraordinary high and outpacing the general pace of inflation.”
He also welcomed the commitment to increasing funding for Fáilte Ireland in noting that increased tourism is of benefit to hotels as well as other food businesses.
“This is a good thing for restaurants,” said Seán Collender, the co-founder of Dublin restaurant group Kinara, “but the word of caution is that it is not for another nine months.”
“On the one hand, you’ve got something that is positive but the reality is, there are many issues still facing this industry.”
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Mr Collender, who is also the as president of the Restaurants Association of Ireland, said the restaurants will now review their prices
He the cut to the tax rate will allow them to “stay ahead of every increasing cost hikes”.
“We have to thank the Government for recognising and honouring their commitment [to reducing the VAT rate],” he said, “But it is a shame they couldn’t have committed to the first of January.”
The Irish Hairdressers Federation welcomed the announcement but also said its members are disappointed by the delay to the introduction of the VAT rate cut.
“Our industry needs support now, not months from now,” said Lisa Eccles of the IHF.
“There are 267 days between now and July, and I fear for our members’ futures. How many businesses will need to close before action is taken sooner?”
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The hairdressing body welcomed the commitment to reducing the VAT rate, but said the delay in it coming into effect is a “strong sting in the tail”. It said the delay leaves its members in a “precarious position.”
John Russell, an insolvency partner at Baker Tilly Ireland warned the changes “will make headlines – but for many cafes, restaurants, and bars across Ireland, it won’t change the real story on the ground”.
He said the measure is a “sticking plaster on a deep wound” caused by input costs such as energy bills, wages, insurance, rent, supplies, which have “risen faster than the sector can pass on to customers.”
“ It offers short-term relief, but not structural support,” he said.
