Two-thirds of Irish cafes and restaurants say the return of the VAT rate for the hospitality sector to 13.5 per cent last September is the greatest threat to their business, as insolvencies across the sector rise, according to a new survey.
Over 90 per cent of 86 firms in the food-led hospitality sector surveyed last month by financial consultancy firm Interpath Advisory and the Restaurant Association of Ireland (RAI) say they expect their profits to fall over the next year.
A similar ratio said that the reduced VAT rate of 9 per cent brought in for the for hospitality sector in late 2020 “had been critical to the survival of their business”, according to the survey.
The figures come after there were 47 insolvencies in the food-led hospitality sector in the first quarter of 2024, more than double the level for the same period last year. Almost 70 per cent of respondents said that trading conditions had deteriorated for them over the past 12 months and the majority said their business had traded below expectations.
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Many in the sector had also relied heavily on a tax-warehousing facility that was introduced by Revenue during the pandemic. Companies that availed of this had to either have paid the amount owed or have agreed a payment schedule with the tax authority by that start of this month.
“Trading conditions for many consumer-facing businesses are challenging and the majority of respondents said that the market had deteriorated. Inflation has suppressed spending per head and coupled with wage increases, input prices and higher borrowing costs, margins are being squeezed and leaving little room for managing debts,” said Brendan O’Reilly, a director at Interpath Advisory in Ireland.
“The 9 per cent VAT rate for the food-led hospitality industry was a lifeline for small, independent restaurants and cafes and the reintroduction of the 13.5 per cent rate is clearly having an impact and weighing heavily on restaurateurs.”
RAI chief executive Adrian Cummins called on Government to reduce the VAT rate to 9 per cent again “before it is too late and we lose so many cherished restaurants and cafes that play a vital social role in local communities”.
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