Service Charge on Hotels and Restaurants

Withdrawals of VAT Concession

For a number of years, The Revenue has operated a concession, whereby service charges on hotels and restaurants were not regarded as part of the taxable amount if they were distributed in full to staff.

In March 2001, the European Court of Justice, in a case taken against the French Government, ruled that this type of concession was not valid and did not meet the obligations under the EU VAT Directives. As a result France withdrew their concession in October 2001.

The Irish Revenue has now decided to withdraw the similar concession, in Ireland, with the effect from 1 September 2008. From this date, hotels and restaurants will have to account for VAT on all amounts included on bills to the customer, including service charges. This applies whether service charges are distributed to staff in full or in part.

Voluntary payment (tips) made by customers and not included in the bill present to the customer will continue to be outside the scope of the VAT.

From 1 September 2008, all service charges included in the hotel and restaurant bills will be subject to VAT at 13.5%.

We would advise all Members to check carefully their billing and VAT accounting systems to ensure that, where they apply a service charge, they will comply with the revised requirement with effect from 1 September 2008.