Coffee drinkers facing higher prices due to VAT increase

A rate of 9% was increased to 13.5% from January 1st

Coffee drinkers facing higher prices due to VAT increase

View of a cup of coffee at Starbucks | Image: USA TODAY Network/SIPA USA/PA Images

Daily coffee drinkers are noticing a change to their habit - it's costing them more.

Measures announced in the 2019 budget mean prices for most drinks have gone up.

A VAT increase applied to the hospitality sector is being passed on to consumers by business owners.

A rate of 9% was increased to 13.5% from January 1st.

The 9% rate was introduced initially for a three year period, following the recession.

Estimates say it cost the exchequer €490m in 2017 and €2.6bn in lost VAT revenue since its introduction.

It is thought the increase will generate an additional €466m in VAT receipts for the exchequer in 2019.

It is mainly impacting hotels, other short-term guest accommodation providers and restaurants.

But it is also applied to things like cinemas, theatres, hairdressers, museums and art galleries.

Items like newspapers and sporting facilities remained at the 9% rate.

But several coffee retailers have already put their prices up.

Starbucks has raised its prices, adding about 20 cent on to a cup of coffee.

While 3FE Coffee told its customers: "Due to the government increasing the VAT rate, we have had to increase the price of our coffee as of today.

"This is our first price increase in almost five years and is in line with the extra VAT the government are now charging."

There are also concerns the tourism sector could take a hit - with numbers visiting from the UK already falling in recent months.

Tourism Ireland said in August the number of tourists traveling from Britain to Ireland remained a concern.

This was despite the figure actually increasing for January to July last year.

According to the Central Statistics Office (CSO), arrivals from Britain were up 2.5%.

However Tourism Ireland said it was too early to say if this represented a turnaround in the long-term trend.

"The impact of Brexit on outbound travel from Britain, therefore, remains a concern", it added.

File photo

John Stewart is tax director at Deloitte: "Critically the increase in the VAT rate will not have any impact on the already high rents being charged in the residential letting market as, in contrast to holiday type accommodation, that accommodation is exempt from VAT.

"Increasing the rate impacts all VAT registered business in the affected tourism sectors regardless of their size, location or turnover as VAT rules do not allow for the increased VAT rate to only apply to certain businesses such as large hotels.

"However, the VAT rate increase will have no impact on non VAT-registered businesses including many of those in the B&B sector where over three times as many B&Bs are not VAT registered.

"Consequently, the good news for those smaller operators is that, although they did not benefit from the introduction of the reduced VAT rate, they will not suffer any financial cost as a result of the increase in the rate."

He added: "With Brexit looming on the horizon and the resulting uncertainty there is a concern that any change to the VAT rate could negatively impact the level of UK tourists coming to Ireland.

"However, it is expected that the change in the VAT rate will not have a material impact on the number of UK visitors particularly as almost half of all British tourist stays in Ireland in 2016 did not contribute to the domestic accommodation sector as they stayed with friends and family."