13.5 or 23 per cent? The two-thirds rule decides Irish jobs

A plumber quotes 4,200 euro to supply and fit a heating system. Materials cost 3,000 euro. The quote says 13.5 per cent VAT. It is wrong, and the difference is 399 euro out of the plumber's margin.

The rule that did that is the two-thirds rule, and it is the single most expensive piece of Irish VAT law for small trade businesses, because it turns on a ratio nobody checks until after the job is priced.

The rates, as they stand

Revenue's current VAT rates, effective from 1 January 2026:

For construction, the everyday pair is 13.5 and 23. Which one applies depends on what you are supplying, and then on the ratio of goods to price.

What is at 13.5 per cent

Revenue's Tax and Duty Manual on the VAT treatment of construction services lists the reduced-rate items:

• "The supply of construction services which includes construction work generally; renovation and demolition of buildings; maintenance and repair of buildings; the installation of plumbing, heating and electrical services; and the supply and installation, maintenance and repair of fixtures."
• "The supply and placing in a fixed position of garden sheds, greenhouses and similar structures", subject to conditions.
• "The supply only of ready to pour concrete and concrete blocks", subject to conditions — the statutory basis being paragraph 16 of Schedule 3 to the VAT Consolidation Act 2010.
• "The installation of solar panels (subject to the two-thirds rule) if there is a separate installation contract."

What is at 23 per cent

The same manual lists the standard-rated items, and each of them is a trap in a mixed job:

• "The supply of all other building materials."
• "The supply of scaffolding, the hire of scaffolding, and the hire and erection of scaffolding."
• "The supply of fittings, the installation of fittings, and the supply and installation of fittings."

Fixtures at 13.5, fittings at 23. That single distinction accounts for a large share of Irish construction VAT errors. A fixture is attached to the building in a way that makes it part of it; a fitting is not. Getting it wrong on a kitchen or a bathroom is the difference between two rates on the same invoice.

What is at 9 per cent

Two construction-relevant items sit at the second reduced rate, per the same manual:

• "With effect from 26 November 2025 to 31 Dec 2030, services relating to the construction, until completed, of qualifying apartments."
• "The supply and installation of heat pump heating systems."

Both are narrow, both are defined by further Revenue guidance, and neither should be assumed from the description alone. The apartment measure in particular is time limited and conditional.

The two-thirds rule, in Revenue's words

If the cost of the goods used in carrying out the work exceeds two-thirds of the total price, the rate which applies to the goods then applies to the entire transaction.

And the converse:

If the cost of the goods does not exceed two thirds, the rate which applies to the service then applies to the entire transaction.

Note precisely what is being compared. The cost of the goods to you, VAT exclusive, against the total price you charge, VAT exclusive. Not your selling price for the materials. Not the labour proportion. Cost in, price out.

The worked example

Back to the heating job. Both figures VAT exclusive:

Four hundred euro of materials moves the entire job across the line, and the VAT difference is 399 euro. If the customer was quoted a VAT-inclusive price, that comes straight out of the margin.

Three practical consequences:

1. Test the ratio at quoting time, not at invoicing time. It is arithmetic you can do before the price is fixed.
2. A supplier price rise can flip a job that was priced correctly. If materials go up 10 per cent after you quoted, re-run the test.
3. Where you are close to the line, say the price is exclusive of VAT and state the rate that will apply. A VAT-inclusive quote on a marginal job is a bet on your own supplier.

Where the rule is switched off

Revenue lists three cases where the two-thirds rule does not apply:

• repair and maintenance of motor vehicles and agricultural machinery;
• construction services where principal contractors account for VAT on the receipt of construction services from sub-contractors; and
• construction services between connected parties.

The middle one is the important one for subcontractors. On a reverse charge supply there is no rate on your invoice at all, so there is nothing for the ratio to change. The principal accounts for the VAT and applies the correct rate at their end.

The consequence is easy to state and easy to forget: the same firm can be inside the two-thirds rule on Monday and outside it on Tuesday, depending on who the customer is.

Two separate questions, in order

Most rate errors come from collapsing two questions into one. Keep them apart:

Question 1: what is the correct rate for this supply? Fixture or fitting, service or goods, ordinary construction or a qualifying apartment. This is a classification question.

Question 2: does the two-thirds rule move it? This is an arithmetic question, and it only arises once question 1 has an answer.

Answering question 2 first — "it is mostly materials so it must be 23" — produces the wrong result on jobs where the supply was standard rated anyway, and on jobs where the rule is switched off.

A short checklist

1. Record the VAT-exclusive cost of materials per job. Without it the ratio cannot be tested at all.
2. Test at quote, and again if supplier prices move.
3. Classify fixtures and fittings deliberately on kitchens, bathrooms and shopfitting. It is the most common misclassification in Irish construction VAT.
4. Skip the ratio test on reverse charge jobs and connected-party jobs. The rule does not apply.
5. Check the narrow 9 per cent categories against Revenue's own guidance before pricing a qualifying apartment or a heat pump. Both are conditional.

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Position as at 29 August 2026. This article describes the law and is not tax advice. Irish VAT rates and the categories within them change in Finance Acts; Revenue's rates page and its Tax and Duty Manual on construction services are the sources checked for this article on the date shown.

What Zirko does here: a document holds the rate that applied on the day it was issued, so a rate change next year cannot rewrite last year's invoice. Zirko does not run the two-thirds test for you — it does not know your material costs unless they are on the job.