What does Budget 2026 mean for businesses?

This year’s budget is a lot less generous than other recent budgets in terms of direct benefits to businesses, and for the income taxpayer.

With significant economic uncertainty, due to US tariffs and the potential impact on Irish exports, the government has decided to take a more cautionary approach.

This is despite the Irish economy still being in good shape.

As such, most spending in 2026 will be on public services and sectors such as housing, with an eye on protecting jobs.

On the plus side, this means that there are significant opportunities for any businesses connected to sectors such as construction.

Here’s what we’ll cover:

Increase in minimum wage

For small business owners in particular, a further increase in the minimum wage is not welcome.

From January 2026, it will increase by 65c to €14.15 per hour, a nearly 5% increase. There will also be equivalent pro rata increases for other age-related rates.

This increase is a challenge for small businesses, which will also have to deal with a new payroll cost in the coming year, as pension auto-enrolment is in effect from 1 January 2026.

Considering these increasing costs, you should start to plan now as to how the minimum wage increase, as well as the new pension charges, will affect payroll and consequently cashflow.

This should give you an understanding of whether you’ll be able to absorb the costs, or if you will have to pass on some of the costs to your customer.

Changes to take-home pay

Unlike other recent budgets, there will only be a minimal increase in take-home pay, with all tax bands and rates remaining the same.

The main change is an increase in the ceiling of the 2% rate of Universal Social Charge (USC) by €1,318 to €28,700.

This increase will ensure that full-time workers on the minimum wage will remain outside the top rates of USC, while also giving a modest benefit to all workers whose income is above that amount.

The employer PRSI threshold will also rise from €527 to €552 per week, in line with the increase in the minimum wage.

In addition, there is an extension to the reduced rate of USC for those who have a medical card and income less than €60,000. This has been extended to the end of 2027.

You should ensure that you update your payroll software at the beginning of 2026 to ensure that these changes are implemented and nothing is inadvertently left out. 

VAT measures

Reduction in VAT rate for hospitality and hairdressers

In welcome news for the hospitality sector and hairdressers, they have got what they have been lobbying for.

The VAT rate on food for hospitality, as well as for hairdressers, will fall to 9%, from 13.5%, from July 2026.

This lower rate was introduced during the pandemic and then stopped in September 2023, and both sectors have been fighting to have the lower rate re-introduced.

There, however, has been some pushback.

Organisations such as Retail Ireland see it as unfair that one sector gets preferential treatment.

There has also been some concern about the significant cost to the exchequer.

VAT changes for construction, along with other housing measures

Housing is top priority and to boost apartment supply, the VAT rate is cut from 13.5% to 9% for the sale of new-build apartments and is effective immediately.

This is seen as one of the most significant measures of the budget and sees Ireland going back to the days of tax breaks for developers.

This is aimed at boosting apartment supply in particular, as apartments are more expensive to build than houses, due to higher structural and safety requirements, such as lifts, car parking, and fire regulations, which in turn increase construction costs.

This measure is included in a myriad of other measures that focus on housing.

For instance, there are several measures that reduce corporation tax and these also come into effect immediately.

One being rental income arising from cost rental developments (affordable rented accommodation for people on middle incomes), which will be exempt from corporation tax.

There is also an enhanced corporation tax deduction for certain costs incurred in apartment construction and for the conversion of non-residential property to residential.

This will apply until December 2030.

Other tax measures include several amendments to the Living City Initiative, which provides tax relief on refurbishment expenditure incurred on buildings in designated “special regeneration areas.”

The new measures include an extension of its duration and an increase in the total expenditure on which relief can be claimed.

Lastly, the income tax deduction for small landlords who retrofit their properties has been extended to the end of 2028.

VAT reduction on supply of gas and electricity extended

The temporary reduction of the VAT rate for the supply of gas and electricity from 13.5% to 9% is extended again and will continue until 2030.

Increase in carbon tax

There is an increase in the carbon tax of €7.50 to €71 per tonne of CO2 emitted, which is applied to petrol immediately, and to all other fuels from May 2026.

This affects businesses with high petrol costs, such as haulage companies.

To reduce costs, you could look at different approaches, such as regular vehicle maintenance, using route planning, optimising vehicle loads, and perhaps considering alternative fuels or electric vehicles.

In terms of controlling overall energy costs, simple measures can make a difference.

These include upgrading to LED lighting and training staff on energy-saving habits.

Longer-term solutions could include investing in energy-efficient equipment, building insulation, and using smart controls.

Measures targeted at businesses

In terms of businesses, some of the measures included are just extensions of supports or tax reliefs that are already in place.

However, there are also one or two tweaks.

Enhancement of Research and Development (R&D) tax credit

There is an enhancement of the R&D tax credit, which is aimed at encouraging innovation and fostering high-value job creation.

The rate of the tax credit is to be increased from 30% to 35% and there is also an increase in the first-year payment threshold from €75,000 to €87,500, which aims to support smaller R&D projects.

There is also a commitment to widening the scope of qualifying research. This is subject to EU approval.

The R&D tax credit can represent a significant saving for your business and what is often misunderstood is that the tax credit is not just for cutting-edge innovations—appreciable improvements to products and processes can also qualify for the credit.

So, there are many businesses that are undertaking eligible activities and unknowingly are missing out on the tax credit.

You should ensure your business is not one of them.

Consulting with a tax expert could give you some guidance.

Extension of Special Assignee Relief Programme (SARP)

SARP is to be extended to the end of 2030.

The programme provides income tax relief for certain people who are assigned to work in Ireland from abroad and is seen as key in attracting highly skilled and internationally mobile staff.

The minimum salary threshold increases from €100,000 to €125,000, which will reduce the pool of eligible assignees.

SARP is a very useful tool to attract highly skilled employees and boost the competitiveness of your business.

However, it is complex and it is advisory to consult with an accountant in terms of the implications.

Extension of Key Employee Engagement Programme (KEEP)

KEEP is to be extended to the end of 2028, subject to EU approval.

It is a tax efficient share option scheme aimed at helping Irish businesses incentivise and keep key employees.

KEEP is an attractive benefit for employees as it offers tax advantages over other types of bonuses.

It also benefits employers, as by offering share options instead of a cash bonus, employers can reward top performers while maintaining cash flow for reinvestment in the business.

KEEP is valuable for Small and Medium-sized Enterprises that compete with larger companies for talent.

It provides a way to reward employees, without requiring a large immediate cash outlay. 

KEEP is a valuable tool for boosting employee loyalty, and you could consult with a tax advisor to see if your company would be in a position to avail of the scheme. 

Increase in threshold for Entrepreneur Relief

Entrepreneur relief reduces the rate of Capital Gains Tax payable on sales of businesses and shares to 10%, as opposed to 33%.

In the budget, the lifetime threshold for gains qualifying for Entrepreneur Relief increases from €1 million to €1.5 million.

This will apply in respect of qualifying disposals made from January 2026.

If you are planning a disposal, discuss timing with your tax adviser, the higher €1.5m lifetime threshold applies from 1 January 2026, but transitional rules may affect whether a change in timing is beneficial.

Changes to Foreign Earnings Deduction (FED) scheme

Those who reside in Ireland for tax purposes, but who spend some time working abroad temporarily, can claim FED, under certain conditions.

This scheme is to be extended for a further five years, up to 2030.

The level of relief available also increases to €50,000 from €35,000, and will also extend to the Philippines and Turkey.

New relief under Section 481 (Film Tax Credit)

The Section 481 (Film Tax Credit) is to be enhanced to provide for a new 40% rate of tax relief for visual effects work on productions, with a minimum of €1 million of eligible expenditure, and up to a maximum of €10 million.

The Film Tax Credit already provides a tax credit of 32% on qualifying expenditure of up to €125 million on certain productions.

The new enhancement is dependent on EU approval. This applies in addition to the existing 32% credit, targeted at VFX-heavy productions.

Enhancement of digital games tax credit

There is an extension of the digital games tax credit for six years, pending approval by EU.

Eligibility also expands to include certain post‑release activities (subject to conditions).

Other measures

• Basic Income for the Arts scheme, which provides a basic income for eligible artists, is to be retained on a permanent basis, rather than as a pilot scheme.
• Various farming related tax reliefs, which were due to end, are to be extended.
• Commitment to tax simplification for businesses.

Final thoughts

This budget was framed as being pro-business, with the aim of securing jobs. In some ways it delivers.

In particular, the business lobby group Ibec is happy about the expansion of the R&D tax credit.

However, while the Small Firms Association is happy with the VAT reduction for hospitality and hairdressing, it says the reduction will only benefit around a quarter of small businesses.

For most other small businesses, the budget means further increasing costs, due to the increase in the minimum wage, the roll-out of pension auto-enrolment and the increase in carbon tax etc.

In conclusion, this is not the bumper budget of previous years, and many businesses will not feel any direct benefit. But in light of the global context, caution is needed.

Also, despite the more conservative approach, there are still significant business supports to avail of and you should ensure that you are informed and proactive about accessing these supports.  

You should also look for ways to cut costs, without losing your competitive edge.