Key Takeaway: Budget 2026, announced on 7 October 2025 by Finance Minister Paschal Donohoe, is a pro-business budget worth €9.4 billion overall. It brings no changes to personal income tax rates, but delivers significant improvements for business owners through a higher R&D tax credit, a bigger CGT entrepreneur relief limit, extended employee incentive schemes, and a long-awaited VAT reduction for hospitality. Auto-enrolment also arrived on 1 January 2026, adding a new recurring payroll cost for every employer in Ireland.

What Kind of Budget Was This, Really?

Every October, accountants and business owners across Ireland sit in front of their screens waiting to see whether the government is going to make their lives easier or harder. Budget 2026 was a bit of both, depending on what kind of business you run.

The headline from a business perspective is that this was a noticeably different budget to the ones we saw in 2023 and 2024. Those were election-cycle budgets, heavy on cost-of-living supports and giveaways. Budget 2026 pulled back on that approach and focused more deliberately on business investment, competitiveness, and housing supply. Finance Minister Donohoe described it as a budget designed to protect jobs and growth in an uncertain global economy, and the measures broadly reflect that.

For most small and medium-sized business owners, the changes that will actually affect your day-to-day finances come down to about seven key areas. Let us go through each of them properly.

1. R&D Tax Credit Increases from 30% to 35%

This is probably the most significant business tax change in Budget 2026, and it is one that a surprising number of Irish SMEs are either unaware of or assume does not apply to them.

The R&D tax credit is a Revenue incentive that allows companies to claim back a percentage of qualifying research and development expenditure against their corporation tax bill. Before Budget 2026, the rate was 30%. From accounting periods ending on or after 31 December 2026, that rate increases to 35%.

What that means in practice is that for every €100,000 your company spends on qualifying R&D activities, you get €35,000 back through your tax return rather than €30,000. For a company spending €300,000 per year on R&D, that is an additional €15,000 per year.

There is also a change to the first-year payment threshold. Previously, the minimum first-year payment was €75,000. That rises to €87,500, which benefits businesses making larger R&D claims by improving the cash flow timing of when they receive the credit.

The common misconception is that this only applies to large technology companies or pharmaceutical firms. That is not the case. Qualifying R&D activities can include developing new software tools, improving manufacturing processes, creating new products, and solving technical problems where the outcome is not predetermined. Construction companies, food producers, engineering firms, and professional services businesses have all successfully claimed this credit.

If your business is investing in any form of innovation and you have never claimed the R&D tax credit, that is worth an honest conversation with your accountant. Our corporation tax service covers R&D credit planning as part of annual compliance for clients in relevant sectors.

2. CGT Entrepreneur Relief Limit Rises to €1.5 Million

The Capital Gains Tax Revised Entrepreneur Relief allows business owners to pay a reduced CGT rate of 10% on gains from the disposal of qualifying business assets, rather than the standard rate of 33%. Budget 2026 increases the lifetime cap on gains eligible for this relief from €1 million to €1.5 million, effective from 1 January 2026.

In concrete terms, a business owner who sells qualifying shares or business assets and makes a gain of €1.5 million now pays €150,000 in CGT under the relief, rather than €495,000 at the standard rate. That is a tax saving of €345,000 on a single transaction compared to what the outcome would be without the relief.

The additional €500,000 of headroom is particularly valuable for serial entrepreneurs who already used part of their lifetime limit on a previous disposal. Anyone who has used up to €1 million of the relief in prior years can now access a further €500,000 of qualifying gains at the 10% rate.

To qualify for the relief, you generally need to hold at least 5% of the ordinary shares in the company, have been a director or employee of the company, and the company must be a trading company or the holding company of a trading group. The qualifying conditions have nuance, and getting the structure right before a disposal rather than after it is critical.

If you are thinking about selling your business in the next few years, this change makes it worth reviewing your current shareholding structure and whether the qualifying conditions are met. Our capital gains tax service includes pre-disposal planning specifically for business owners considering a sale.

3. KEEP Scheme Extended to 31 December 2028

The Key Employee Engagement Programme, known as KEEP, is a Revenue-approved scheme that allows qualifying SMEs to offer employees share options with significant tax advantages. Normally, exercising share options creates an income tax liability at the time of exercise. Under KEEP, that tax is deferred until the shares are eventually sold, and the gain is taxed at the lower CGT rate of 33% rather than income tax rates of up to 52%.

Budget 2026 extends the KEEP scheme until 31 December 2028, having previously been due to expire at the end of 2025. This extension gives SMEs another three years to use the scheme as a tool for attracting and retaining key employees in a competitive labour market.

KEEP is particularly useful for growing technology companies, professional services firms, and any SME that cannot compete on base salary with large corporates but wants to offer long-term financial upside to key hires. The scheme has relatively strict qualifying conditions around company size, employee working hours, and option pricing, but where those conditions are met it is a genuinely valuable incentive.

If you employ people in a role where losing them would be disruptive and you are competing with larger employers for talent, it is worth understanding what KEEP could offer. Get in touch with us if you want to understand whether your company qualifies.

4. Auto-Enrolment Arrives: The New Payroll Cost That Is Already Running

Budget 2026 confirmed that My Future Fund, Ireland’s auto-enrolment pension scheme, launched on 1 January 2026 as planned. This is arguably the biggest structural change to the cost of employment in Ireland since the introduction of PAYE modernisation, and it affects every employer in the country.

From January 2026, employers must automatically enrol eligible employees into My Future Fund and match their contributions. The rate in 2026 is 1.5% from the employer on each enrolled employee’s gross salary, rising to 6% by 2035. Contributions are capped at an annual salary of €80,000.

For a business with ten employees each earning €40,000 per year, the employer’s pension contribution cost in 2026 is approximately €6,000 per year. By 2035, that same cost rises to approximately €24,000 per year for the same workforce. These costs are deductible against corporation tax or income tax, but they are real, recurring costs that belong in every business’s financial plan from now on.

If you are still working through what auto-enrolment means for your payroll setup, we covered it in full detail in our employer guide to auto-enrolment. The short version: if you have not yet registered on the MyFutureFund employer portal, contributions are accruing as a legal liability from January 2026 regardless.

5. PRSI Rate Increases in October 2026

This one tends to get less attention than the headline budget items, but it directly increases your employment costs from October 2026.

As part of the legislated multi-year PRSI roadmap announced in 2024, both employee and employer PRSI rates increase again from 1 October 2026. The employer PRSI rate for Class A employees earning above the weekly threshold rises to 11.40%, up from 11.25%. The employee PRSI rate rises to 4.35%, up from 4.20%.

These increases are happening every year from 2024 to 2028 as part of the government’s plan to fund long-term social insurance sustainability. Budget 2026 did not introduce them newly, but it confirmed they are proceeding on schedule.

For practical planning purposes, a business with a payroll of €500,000 in annual wages sees its employer PRSI cost increase by approximately €750 annually from October 2026 alone. That might sound modest, but it compounds with the auto-enrolment costs and the minimum wage increase that also took effect from January 2026, where the National Minimum Wage rose to €14.15 per hour.

If you manage payroll yourself or through software, ensure your system is updated to apply the new PRSI rates from the October 2026 payroll run. If you use our payroll service, this is handled automatically as part of regular compliance management.

6. VAT Changes: Hospitality, Energy, and Apartments

Budget 2026 brought meaningful VAT changes across three sectors.

Hospitality and catering from 1 July 2026: The VAT rate for restaurant meals, takeaway food, non-alcoholic beverages supplied as part of a meal, and hairdressing services drops from 13.5% to 9%. This applies from 1 July 2026. If you run a cafe, restaurant, takeaway, or salon, your VAT rate on these supplies decreases mid-year. This means your VAT3 returns for periods straddling the 1 July 2026 changeover will need to apply the old 13.5% rate to supplies before that date and the new 9% rate from that date onward.

Gas and electricity extended at 9%: The temporary 9% VAT rate on gas and electricity bills, which was introduced as an energy crisis measure, has been extended to 31 December 2030. For businesses paying significant energy costs, particularly manufacturing and food production, this is a continued relief.

Apartments at 9%: The VAT rate on the sale of newly completed apartments dropped from 13.5% to 9% from 8 October 2025 and remains at that rate until 31 December 2030. This primarily affects property developers building residential apartment units, where the reduced rate improves the economic viability of apartment construction.

For businesses affected by any of these VAT changes, it is important to ensure your accounting records correctly reflect the applicable rate for each transaction period. Our VAT return service handles the preparation and submission of VAT3 returns and accounts for mid-year rate changes of this type.

7. Benefit-in-Kind on Company Cars: New Category for Zero-Emission Vehicles

If you provide company cars to employees or directors, the BIK rules have changed from January 2026 in a meaningful way.

A new vehicle category called A1 has been created specifically for zero-emission cars. From 1 January 2026, the BIK rate on A1 category vehicles (fully electric cars and zero-emission vehicles) ranges from 6% to 15% of the car’s Original Market Value (OMV), depending on business mileage. The higher the business mileage, the lower the BIK rate.

The temporary €10,000 OMV reduction for zero-emission vehicles has been extended to the end of 2026, tapering to €5,000 in 2027 and €2,500 in 2028 before expiring.

For context: an electric company car with an OMV of €40,000 generates a BIK charge of €2,400 per year at a 6% rate (for higher business mileage), compared to significantly higher figures for equivalent petrol or diesel vehicles. The incentive to move company fleet vehicles toward electric is financially meaningful.

Petrol and diesel company cars with higher emissions face unchanged or higher BIK rates in 2026 by comparison. If your business provides company cars and you have not reviewed BIK exposure in the context of the new categories, it is worth doing that analysis before the next payroll year-end. Tax for company directors is one of the areas where this kind of annual review regularly identifies savings.

8. SARP Extended to 2030 with a Higher Income Threshold

The Special Assignee Relief Programme (SARP) is extended for a further five years until 31 December 2030. SARP provides a partial income tax exemption for highly skilled employees who are assigned to work in Ireland from abroad, by excluding 30% of income above a qualifying threshold from income tax.

From January 2026, the minimum income threshold to qualify for SARP increases from €100,000 to €125,000 per year. This narrows the programme to genuinely senior assignees and reduces the scope for broad application to mid-level hires.

For most Irish SMEs, SARP is not directly relevant unless you are bringing in senior talent from overseas. Where it does apply, it significantly reduces the effective income tax cost for the employee, making Ireland a more competitive location for senior hires from international markets.

There are also administrative simplifications from 2026, including an extended employer filing deadline to 30 June following the tax year, replacing the previous 23 February deadline.

9. No Changes to Income Tax Rates or Bands

This is worth noting clearly because it affects expectations around personal tax planning and director salary decisions. Budget 2026 contains no increases to the standard income tax rate or the higher rate. There are no changes to the main income tax credits, including the personal tax credit, employee tax credit, or earned income credit.

The only income-related change is a minor adjustment to the 2% USC band, which increases to €28,700. This was specifically sized to ensure that the increase in the National Minimum Wage from January 2026 does not push full-time minimum wage workers into the 3% USC band. For most business owners and directors, this USC change has no practical effect.

The absence of any income tax band changes means that decisions about salary versus dividend, director remuneration structuring, and the use of pension contributions as a tax-planning tool remain broadly unchanged from 2025. If you are a company director and have not reviewed your remuneration structure recently, the calculus around paying yourself efficiently has not shifted dramatically in this budget. Our article on tax for company directors covers the current framework in detail.

10. Carbon Tax Increases from October 2025

Carbon tax on petrol and diesel increased to €71 per tonne of CO2 emitted from 8 October 2025. This is part of the annual carbon tax escalator that was legislated through to 2030 and continues to increase the effective fuel cost for businesses with vehicle fleets, commercial premises heating, or manufacturing processes reliant on fossil fuels.

The carbon tax is applied at the point of fuel supply and is embedded in the pump price for petrol and diesel. For businesses that pay significant fuel costs, whether through company vehicles, HGV fleets, or heating oil, this is an operating cost that increases every year regardless of budget decisions, since the escalator is already locked in legislation.

Carbon tax paid as part of fuel used for business purposes is generally deductible as a trading expense, provided the cost is wholly and exclusively for business use. Correct record-keeping is essential for claiming this deduction accurately.

Putting It Together: What Budget 2026 Means for Your Business in Practice

The honest summary of Budget 2026 for an average Irish SME owner is this: costs are going up because of auto-enrolment, PRSI increases, and carbon tax, but there are genuine opportunities available through the R&D credit, entrepreneur relief, and the KEEP extension if you structure your affairs to use them.

The businesses that will feel the budget most favourably are those in hospitality (lower VAT from July 2026), those doing qualifying R&D activity (higher credit from year-end 2026), and founders thinking about a business exit (higher entrepreneur relief limit now in place).

The businesses that will feel it most keenly are those with large workforces of eligible employees who now face both auto-enrolment contributions and PRSI rate increases landing within the same twelve months.

Good financial planning for the rest of 2026 means two things. First, identifying which of the positive measures your business can actually access and ensuring your tax returns capture them correctly. Second, building the rising employment costs into your forward cash flow so they do not arrive as a shock in 2027 or 2028 when the contribution rates step up again.

If you have not reviewed your annual accounts and tax position in light of these changes, that review is overdue. Our annual accounts and corporation tax returns service ensures your business captures all available reliefs and meets its obligations accurately. For a broader look at how your business is structured from a tax perspective, a free consultation is a good starting point.

Frequently Asked Questions About Budget 2026 Ireland

Q1: Does the R&D tax credit increase apply to small companies as well as large ones? Yes. The 35% R&D tax credit applies to companies of all sizes provided they have qualifying R&D expenditure. For smaller companies with limited corporation tax liabilities, unused R&D credits can be carried forward or, in some cases, claimed as a payable credit from Revenue. The qualifying activities are assessed by Revenue based on whether the work involved scientific or technological advancement under conditions of genuine uncertainty, not on the size of the company.

Q2: Can I use the new €1.5 million entrepreneur relief limit if I already used part of my previous €1 million limit? Yes. The lifetime limit has been increased to €1.5 million in total across a business owner’s lifetime. If you previously used €800,000 of the old €1 million limit on a prior disposal, you now have €700,000 of remaining lifetime capacity under the new limit rather than only €200,000 under the old one. The additional €500,000 added by Budget 2026 is accessible to everyone, including those who already made partial use of the previous limit.

Q3: When exactly does the lower 9% VAT rate apply to my restaurant? The 9% VAT rate for food and catering, non-alcoholic beverages served as part of a meal, and hairdressing applies from 1 July 2026. For the period between 1 January 2026 and 30 June 2026, the rate remains 13.5% on these supplies. Your VAT3 return for a bimonthly period covering, for example, May and June 2026 will need to correctly split the sales between the two applicable rates for the portions falling before and after 1 July.

Q4: Are the PRSI rate increases in October 2026 in addition to the increase that already happened in October 2025? Yes. The increases are cumulative. In October 2025, the employer PRSI rate increased from 11.15% to 11.25%. In October 2026, it increases again from 11.25% to 11.40%. The same pattern applies to the employee rate. These annual increases continue through to 2028 as part of the pre-legislated PRSI roadmap, regardless of what any future budget announces.

Q5: Does Budget 2026 affect the tax position of a sole trader differently from a limited company? Most of the business-oriented changes in Budget 2026, including the R&D credit, entrepreneur relief, and KEEP, apply specifically to limited companies or the shareholders of limited companies. A sole trader does not pay corporation tax and therefore does not benefit from R&D credits directly. For sole traders, the main Budget 2026 impact is the USC adjustment, auto-enrolment obligations for any employees they have, and the carbon tax increase. Whether operating as a sole trader or a limited company is the right structure depends on your specific income level and plans. We cover this in detail in our article on sole trader versus limited company in Ireland.