Rising energy costs are on the mind of every business owner, particularly in the restaurant sector. The energy package announced in the budget by Minister for Finance Paschal Donohoe is only one part of the jigsaw to stem the tide of closures, which could accelerate as business owners throw in the towel within hospitality.
Consumers may not know this but Government figures show there is just more than €900 million worth of taxes due by the restaurant and hospitality sector going back to 2019 (pre pandemic), which is described as warehoused tax.
Businesses had the opportunity to set aside this tax and pay it back over a period of time. Unfortunately, the day of reckoning is coming fast, where interest will be applied and Revenue is now issuing demand letters and threats of sheriffs and seizures if the debt is not repaid. This may include the seizure of goods to the value of the debt owed and court proceedings may be laid against those who do not pay within seven days of a notice.
So what should the Government do to support a hospitality industry that is once again on its knees?
Firstly, the Minister for Finance should extend the warehoused tax scheme for the full duration of the energy crisis, which predominantly affects low-margin small businesses. Abandon the policy of adding interest from next year for warehoused debt due, and work with the sectoral bodies around a framework for recovery and resilience for the hospitality industry by reopening the debate in relation to the 9 per cent VAT rate.
Ever since the Government’s introduction of the Scarp scheme (small companies administrative rescue process), we have seen a trickle of businesses apply for this rescue process, which is an examinership-light programme. But every business, especially in hospitality, will start to investigate this opportunity to write down debt as we head into the hard and tough winter months.
Companies that have entered into this scheme have seen their tax due written down by up to 94 per cent, which keeps the business intact, staff in place, and gives a new lease of life to the company. I can see many businesses entering in this process in order to save their companies and not face the trauma of a liquidation process. There will be those out there who say that this is an unfair system, but I have to applaud the Government for putting this in place as it gives a lifeline to many businesses.
There is no doubt about it — we will lose a substantial number of hospitality businesses over the next 12 months as the sector restructures. As a State we need to get this right in terms of putting in place a survival package or scheme for hospitality. It seems to me that we are in a continuous battle with Government to showcase the benefits of supporting our hospitality sector across the State, which is stitched into the local, regional and urban economic fabric of the State.
Pre-Covid, the restaurant and hospitality sector employed 250,000 workers. We are no different from any other sector within the economy seeking our fair share of the labour pool at the moment. In order to maintain regional and rural investment, hospitality must be part and parcel of Government policy in how to maintain an employment base in our towns and cities across the State.
Governments often have to make tough decisions, sometimes unpopular, and sometimes they need to make the right decision at the right time. The right decision for the Government to make right now would be to extend the 9 per cent VAT rate until the end of 2023 and until we get to the end of the energy crisis. We must reopen the discussion around the 9 per cent VAT rate as soon as possible to give stability and confidence to the industry ahead of extremely challenging times.
The warehoused tax debate, the 9 per cent VAT rate extension and the surrounding energy supports are the top three issues on the minds of every hospitality business and will be for the foreseeable future.
Adrian Cummins is chief executive of the Restaurants Association of Ireland