What is the two thirds rule for VAT in Ireland?

If the VAT exclusive cost of materials used on a job is more than two thirds of the total VAT exclusive price, the whole job is charged at the standard 23 percent VAT rate instead of the 13.5 percent reduced rate that usually applies to trade services.

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

Most repair, maintenance, and installation work on a home or building is charged at 13.5 percent. It switches to 23 percent on the whole job if materials make up more than two thirds of the total price, or if you are supplying materials only with no labour.

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

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.

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 materials are more than two thirds of the total price, the entire job is charged at the rate that applies to the materials, 23 percent.
If materials are two thirds or less of the total price, the entire job is charged at the rate that applies to the service, usually 13.5 percent.

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.

Door (materials)€800

Fitting (labour)€200

Total, VAT exclusive€1,000

Materials are €800 of €1,000, or 80 percent, well past the two thirds mark. The carpenter must charge 23 percent VAT on the full €1,000, not 13.5 percent on the labour and 23 percent on the door separately.

Compare that with a job where labour is €4,000 and materials are €6,000 on a €10,000 total. Materials are 60 percent, under the two thirds threshold, so the reduced 13.5 percent rate applies to the whole job.

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.
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 materials to total 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

JobYard lets you set the VAT rate on each line of a quote, so you can apply 13.5 percent, 23 percent, or the reverse charge to the job in front of you. Working out whether a specific job crosses the two thirds threshold is still something to check yourself before sending the quote, in the same way you would with a paper quote book or a spreadsheet.