Pa Daly (Kerry, Sinn Fein)
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349. To ask the Minister for Finance if he would consider lowering the VAT rate for domestically and sustainably produced wood pellet products, firewood stove, pellet stove and pellet boilers. [2002/25]

Jack Chambers (Dublin West, Fianna Fail)
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The VAT rating of goods and services is subject to the requirements of EU VAT law, with which Irish VAT law must comply. In general, the EU VAT Directive provides that all goods and services are liable to VAT at the standard rate, unless they fall within categories of goods and services specified in Annex III of the VAT Directive, in respect of which Member States may apply a lower rate of VAT. Currently, Ireland has a standard rate of 23% and two reduced rates of 13.5% and 9%.

A reduced rate of 13.5% already applies to firewood and other solid fuels.

It should be noted that lower VAT rates cannot be applied to domestically produced renewable and sustainable fuel. In the application of VAT rates, the Directive does not provide discretion for Member States to consider the degree to which goods or services are sourced domestically or are sourced from other countries, nor does it allow different VAT rates to apply to goods depending on whether they are produced here or are brought into the State from elsewhere.

In accordance with EU law, Member States can decide to apply a reduced rate of VAT on “the supply and installation of highly efficient low emissions heating systems”, provided that the products meet the requirements of certain EU regulations concerning emissions and energy labelling.

Further to this provision in the Directive, in Budget 2025, I announced that, with effect from 1 January 2025, the 9% rate of VAT will apply to the supply and installation of heat pump heating systems.

The purchase of all other heating systems and of heating appliances continues to be subject to the standard rate of VAT, which is currently 23% in Ireland. However, where there is a contract for the “supply and installation” of a heating system, then, under VAT law, the “two-thirds rule” may apply. The two-thirds rule provides that if the cost of the goods used in carrying out the work does not exceed two-thirds of the total price, then the VAT rate which applies to the service is the rate that applies to the entire transaction. This means that, in such cases, the supply and installation would be subject to the 13.5% reduced rate of VAT, rather than the 23% standard rate.

Finally, the Deputy should note that as with other VAT rate reductions, while the VAT charged must always be correct a company can increase the base price of a product so that the final consumer does not benefit from the VAT reduction.

Jerry Buttimer (Cork South-Central, Fine Gael)
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350. To ask the Minister for Finance if there is any plan to reform the current situation where tips are taxed in the hospitality sector as a temporary relief for employees and employers. [2023/25]

Jack Chambers (Dublin West, Fianna Fail)
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It is a general principle of taxation that, as far as possible, income from all sources should be subject to taxation. This is a well-established and broadly accepted principle.

Section 19 of the Taxes Consolidation Act (TCA) 1997, sets out that tax under Schedule E shall be charged in respect of every public office or employment of profit. Section 112 of the TCA 1997 brings into charge all salaries, fees, wages, perquisites or profits of any kind arising from an office or employment. Therefore, the long-standing position is that all tips, gratuities and service charges arising from an office or employment are chargeable to income tax under Schedule E in accordance with Section 112.

Gratuities from customers, for example service charges in hotels or tips in restaurants, paid to the employer and subsequently paid out to an employee should be included in pay for the income tax week or month in which they are paid out. These tips constitute pay for the purposes of the PAYE system. However, in a situation where an employee receives tips directly from customers, the employer is not obliged to operate PAYE and in that case, the tips and gratuities are fully taxable and should be included by the employee in his or her income tax return.

As you may be aware, the Payment of Wages (Amendment) (Tips and Gratuities) Act 2022 was enacted on 20 July 2022 and came into effect on 1 December 2022. The Act, which is under the remit of the Department of Enterprise, Trade and Employment, introduced new rules about how employers must share tips, gratuities, and service charges amongst employees. It also prohibits the practise of using tips or gratuities to top up wages/contractual rates of pay.

In addition, the legislation provides transparency to customers, as it requires businesses to clearly display their policy on how tips, gratuities and service charges are distributed. Further, any charge called a ‘service charge’ or anything that would lead a customer to believe it is a charge for service, has to be distributed to staff as if it were a tip or gratuity received by electronic means.

For the reasons I have outlined in my reply, I have no plans to amend the tax treatment of tips and gratuities.