Revenue has, for a number of years, operated a concession (see Appendix 1) whereby service charges in hotels and restaurants were not regarded as part of the taxable amount if they were distributed in full to staff. This concession operates widely throughout the hotel and restaurant sector, and was presented as a way of ensuring that staff in this sector could receive gratuities intended for them, but included on the bill presented to a customer, without these gratuities being subject to VAT. It was conditional on the hotels or restaurants not converting any part of the charges for their own benefit.
The European Court of Justice has found that any amount which a supplier (restaurant, hotel, etc.) is entitled to receive forms part of the taxable amount [1]. Therefore, service and other charges that are included on the bill presented to the customer are liable to VAT.
Revenue is withdrawing the concession with effect from 1st September 2008. From that date hotels and restaurants must account for VAT on all amounts included on bills to customers. Hotels and restaurants may continue to operate within the terms of the concession until 31st August 2008.
Voluntary payments (tips) made by customers and not included in the bill presented to the customer will continue to be outside the scope of VAT.
From 1st September 2008 all service charges included in hotel and restaurant bills will be liable to VAT at the reduced rate.
Enquiries regarding any issue contained in this Information Leaflet should be addressed to the Revenue District responsible for the taxpayer’s affairs. Contact details for all Revenue Districts.
VAT Interpretation Branch,
Indirect Taxes Division,
Dublin Castle.
January 2010
Terms of the concession:
The terms of this concession were as follows:
Where a hotel, etc. bill or price list indicates, or bears a clear statement that it includes, a specified percentage addition to cover service charges, such service charges may, concessionally, be ignored for VAT purposes, subject to what follows:
Footnote 1: Case C-404, Commission of the European Communities v French Republic