Do I charge 13.5 percent or 23 percent VAT as a tradesperson in Ireland?

The reduced 13.5 percent rate generally applies to qualifying construction services. If the VAT exclusive cost of 23 percent goods used in the service exceeds two thirds of the VAT exclusive total price, the goods rate applies to the whole transaction. Supply-only goods are normally taxed at the rate applying to those goods.

Does the two thirds rule apply to reverse charge construction work?

No. The two thirds rule does not apply where the VAT reverse charge applies, such as a subcontractor invoicing a VAT registered principal contractor under Relevant Contracts Tax arrangements.

VAT guide / Two thirds rule

The VAT two thirds rule, explained for tradespeople

Q: What is the two thirds rule for VAT in Ireland?

If the VAT exclusive cost of the goods used on a job is more than two thirds of the total VAT exclusive price, the rate applying to the goods applies to the whole transaction. For ordinary 23 percent materials used in a 13.5 percent construction service, that can move the whole job to 23 percent.

This is the rule that catches most plumbers, electricians, and builders in Ireland off guard, because it can quietly move a whole job from 13.5 percent to 23 percent VAT. This is general information, not tax advice. Check anything you are unsure of with your own accountant or with Revenue directly. The official Revenue guidance is linked below.

Revenue: Services taxable at the rate of the goods

What the rule actually says

Many jobs mix labour and materials into one price, fitting a door, replacing a valve, wiring a socket. Revenue's rule for pricing a mixed job like this is based on the VAT exclusive cost of the materials against the VAT exclusive total price of the whole job:

If the VAT-exclusive cost of the goods is more than two thirds of the VAT-exclusive total price, the rate applying to those goods applies to the entire transaction.
If the VAT-exclusive cost of the goods is two thirds or less of the VAT-exclusive total price, the service rate can apply, usually 13.5 percent for qualifying construction services.

The key word is entire. This is not a case of splitting the invoice, charging 13.5 percent on the labour and 23 percent on the materials. Once the two thirds threshold is crossed, the whole job takes the higher rate, labour included.

A worked example

A carpenter fits a bespoke door for a customer. The figures below distinguish the carpenter's material cost from the selling price.

Cost of door to the carpenter€800

Total price charged to customer€1,000

Goods cost as a share of total price80%

The VAT-exclusive cost of the door is €800 against a VAT-exclusive total selling price of €1,000, so the goods cost is 80 percent of the contract price. That is above the two-thirds threshold, so the rate applying to the goods applies to the whole transaction.

Compare that with a €10,000 VAT-exclusive job where the VAT-exclusive cost of the goods used is €6,000. The goods cost is 60 percent of the selling price, under the two-thirds threshold, so the service rate can apply if the service otherwise qualifies for that rate.

Where this shows up most

In practice, this rule catches jobs that are materials heavy: fitting a kitchen, supplying and fitting windows or doors, installing fitted wardrobes or flooring, or any callout where you are mostly billing for parts with a small amount of labour attached.

When the rule does not apply

Where the domestic reverse charge applies, for example a subcontractor invoicing a VAT registered principal contractor under Relevant Contracts Tax. The two thirds rule is switched off entirely in that case.
Where a job falls under its own dedicated rate instead, most notably the supply and installation of a heat pump heating system at 9 percent since January 2025, or solar PV panel installation on a private dwelling at 0 percent. Both are decided by their own rule, not by the materials-to-labour split.
Repair and maintenance of motor vehicles and agricultural machinery, which has its own treatment.
Construction services between connected parties, in certain cases.
A supply of materials only, with no labour or installation at all. That is always 23 percent regardless of the two thirds test.

Why it is worth getting right

Charging 13.5 percent on a job that should have been 23 percent means the shortfall usually comes out of your own margin once Revenue catches it, not the customer's pocket, since the quote has already been agreed. Checking the VAT-exclusive cost-of-goods to VAT-exclusive selling-price ratio before you send the quote, not after the job is done, is the cheapest time to catch it.

How this fits into a quote

For Irish general-rate jobs, JobYard now checks the two-thirds threshold using the VAT-exclusive cost you enter for materials against the VAT-exclusive price charged to the customer. If material costs are missing, or a quote mixes special-rate work with general work, JobYard flags it for review rather than guessing. You remain responsible for confirming that the selected VAT treatment fits the actual contract.