Indirect tax (VAT)

Key measures

The main VAT change in the Budget is an extension, until 30 April 2025, of the 9% VAT rate that applies to gas and electricity. The rate was due to revert to 13.5% after 31 October 2024.

Effective from 1 January 2025 the 9% VAT rate will also apply to the supply and installation of heat pumps (currently chargeable at the 23% VAT rate), to incentivise homeowners to install heat pumps as part of the measures to support climate action.

The flat-rate addition, which compensates non-VAT registered farmers for the VAT they cannot reclaim on their expenses, will be increased from 4.8% to 5.1%, effective from 1 January 2025.

The turnover threshold limits for goods and services at which businesses have to register for VAT will be increased from €80,000 and €40,000 respectively to €85,000 and €42,500 respectively.

A VRT amendment will be made to enable electric commercial vehicles to qualify for the VRT rate of €200.

An emission-based approach to VRT for category B commercial vehicles will be introduced, offering a lower 8% rate for vehicles with CO2 emissions of less than 120 grams per kilometre.

A new excise duty on e-cigarettes is being introduced on public health grounds, following a significant rise in their use. The tax will apply to all e-liquids at a rate of 50 cents per millilitre. This tax will take effect from mid 2025, subject to a commencement order.

Excise duty on a packet of 20 cigarettes will be increased by €1, inclusive of VAT, with a proportional rise on other tobacco products, bringing the price of cigarettes in the most popular category to €18.05, as part of efforts to support public health and reduce smoking rates in Irish society.

The excise relief for independent small producers of cider and perry will be extended to include other fermented beverages, such as mead and non-grape wines like elderberry and strawberry wine, as well as higher strength cider and perry.

Who will be affected and when?

Households and businesses will benefit from the extension of the 9% VAT rate on gas and electricity until 30 April 2025, which will cover the winter months when demand is at its highest. Homeowners will benefit from a price reduction on heat pump with VAT rate being reduced from 23% to 9% starting 1 January 2025.

Non-VAT registered farmers will receive increased compensation through the flat-rate addition, at 5.1% effective from 1 January 2025. Additionally, small businesses will face a reduced administrative burden for VAT registration due to the increased VAT registration thresholds.

Commercial vehicle owners will benefit from a reduced VRT rate for electric and low-emission vehicles.

The increased excise duties on cigarettes and the introduction of a new e-cigarettes tax will raise product prices for consumers and potentially lead to tax reporting requirements for suppliers.

Our view

We welcome the extension of the 9% VAT rate on electricity and gas, the reduction in VAT rate for the supply and installation of heat pump, the increase in flat-rate addition for non-VAT registered farmers and the reduced VRT rate for electric and low-emission commercial vehicles.

The increase in the turnover threshold for VAT registration reflects the government's commitment to support small businesses.

The new e-cigarette tax of 50 cents per millilitre and the increases excise duty on cigarettes will raise product prices for consumers. Suppliers should monitor the commencement order to ensure compliance with prospective tax reporting requirements in respect of the new e-cigarette tax.