Hospitality firms say working capital will run out when supports end

The RAI is calling for a retention of the 9pc Vat rate for hospitality, which is due to rise to its pre-pandemic level of 13.5pc in September

Adrian Cummins, CEO of the Restaurants Association of Ireland. Photo: Mark Condren

Sarah Collins

May 05 2022 02:30 AM

Bars, hotels and restaurants fear they risk going bust if Government fails to retain some Covid supports this year.

According to a survey by insolvency experts Kroll and the Restaurants Association of Ireland (RAI), more than 85pc of hospitality firms say they would not have survived without government supports.

Out of 150 companies surveyed, 42pc said they will not have enough working capital after the end of supports, such as the employment wage subsidy scheme, which will stop this month.

“My own personal view is that we are likely to see an increase in insolvencies as we go through the year, particularly in the back end of the year,” said Declan Taite, managing director in Kroll’s restructuring team.

Mr Taite said firms in the hospitality, construction and retail sector are most at risk of going bust, with the number of insolvencies across the board likely to “double” compared with last year, when insolvencies were artificially low due to Covid supports.

The RAI is calling for a retention of the 9pc Vat rate for hospitality, which is due to rise to its pre-pandemic level of 13.5pc in September.

Mr Taite also said a “reintroduction or a reconfiguration” of the tax warehousing scheme may be warranted to help ailing firms that were shuttered for most of the last two years.

However, 71.4pc of hospitality firms surveyed by Kroll want a full tax amnesty.

“I can’t see the G overnment introducing a tax amnesty or a tax write-off, particularly for specific sectors,” Mr Taite said.

“If they do it for one, they’re likely to have to do it for all, and I think the cost of that to the Exchequer would be far too great for them to consider that.”

Almost 105,000 businesses were availing of the tax warehousing scheme as of the end of January, with more than €3bn in tax debts ‘parked’ until next year.

Interest will start accruing on those debts from January 2023.

Just over 31pc of businesses surveyed by Kroll said they will be unable to pay tax debts deferred during the pandemic, with 37pc not sure if they will.

More than 94pc say they will increase prices in 2022, with 92pc saying they will have to increase wages to retain staff.

“There’s no question that staffing is now the biggest issue for our sector, with the vast majority of restaurant and hospitality businesses having to increase wages to retain staff,” said RAI chief executive Adrian Cummins.

“We now have six weeks to recruit to save the Irish summer and retain our standards.”