WEALTH October 7, 2025 0 Comments

Why The Latest Budget Could Be The Biggest Setback For SMEs—And What You Need To Know Now

Is Budget 2026 really the game-changer Irish SMEs have been waiting for—or just another polite nod to progress that falls short of bold action? After a year-long campaign by hospitality businesses, the government’s decision to slash the VAT rate on food, catering, and hairdressing from 13.5% to 9% is undeniably headline-worthy — except it won’t kick in until July 1st, not January as many had hoped. Sure, the €232 million price tag for 2026 and the anticipated €681 million next year show commitment, but is the delay a subtle kick in the teeth for small family-owned enterprises struggling to keep their doors open amid soaring costs? Alma O’Brien, head of tax at Azets Ireland, paints a picture that’s part relief, part frustration—acknowledging the benefits of VAT cuts on energy bills and R&D tax credits while warning about the cumulative pressures from wage hikes and pension changes. If we’re serious about igniting the engine of indigenous business growth in a turbulent global economy, will waiting until mid-year to lighten the tax burden be enough to fuel that fire—or just let it flicker out? Let’s dive into why Budget 2026 might just be the missed opportunity to truly empower Irish SMEs—and what needs to change if they’re to become the powerhouse the economy so desperately needs. LEARN MORE

The VAT cuts for hospitality and energy bills are the headline measures in support of SMEs in Budget 2026, but Azets Ireland has described the tax and spending package as “a missed opportunity to fully unlock the potential of indigenous businesses to grow and scale as engines of economic growth.”

After more than a year of campaigning by hospitality businesses, the government will lower the VAT rate paid by food, catering and hairdressing businesses from 13.5% to 9% from 1 July next year, rather than 1 January as hoped by affected firms.

The measure is expected to cost €232m in 2026 and €681m in its first full year.

Alma O’Brien, head of tax at Azets Ireland, said the cut, as well as the reduction in VAT on gas and electricity bills to 9% will help to alleviate higher operating costs for retail, hospitality and family-owned SMEs.

“However, the delayed introduction of the new hospitality VAT rate to July 1^st 2026 is disappointing. Bringing forward its implementation to January 1^st 2026, is crucial if we are to avoid a growing number of small and family-owned businesses in the hospitality sector closing their doors in the months ahead,” she added.

O’Brien also noted that the 65 cent increase in the national minimum wage to €14.15 and the introduction of pension auto-enrolment in January would “heighten the cumulative cost pressures facing many small and mid-sized businesses.

“Deferring the planned increase to 2027 would ease the rising cost burden on business and support more effective financial planning for firms that can ensure they continue to thrive into the future.”

O’Brien was positive on the value of the R&D Tax Credit being raised to 35% and the first-year payment threshold being increased to €87,500, as well as the increase in the lifetime limit of the capital gains relief for entrepreneurs to €1.5m.

“However, the timing of its introduction may lead to a delay in mid-sized transactions until the new measures come into effect on 1 January 2026.”

“Despite some positive measures, Budget 2026 missed the opportunity to fully unlock the potential of indigenous businesses to grow and scale as engines of economic growth.

“As we navigate an uncertain and volatile international environment, there is an urgent need to reshape our economic model and create a more resilient economy, powered by a thriving SME sector,” O’Brien continued.

SMEs VAT — The campaign for the VAT cut for hospitality has been going for more than a year.

“Reducing the current rate of Capital Gains Tax, which is among the highest in Europe at 33%, would have encouraged greater investment in mid-sized businesses, accelerating their growth potential, as well as supporting the successful transition of businesses from one generation to the next.”

A total of €1.3bn has been allocated to the Department of Enterprise in Budget 2026 to fund state enterprise agencies, establish a National AI Office for the promotion of transparent AI in Ireland, and the delivery of government action plans on market diversification, competitiveness and productivity.

(Pic: Getty Images)