Hospitality dealt ‘complete blow’ by decision to end 9% Vat rate

The president of the Cork Business Association (CBA) has said that businesses in Cork have been given “a complete blow” in Budget 2023 by the refusal to keep the 9% VAT rate currently in place to support the tourism and hospitality sectors beyond the end of February.

In Tuesday’s budget announcement, Minister for Finance Paschal Donohoe confirmed that the 9% VAT rate will continue until February 28, 2023 but did not extend the VAT rate as many businesses had hoped.

A Temporary Business Energy Support Scheme to assist businesses with their energy cost over the winter months was also announced.

The scheme will be open to businesses that carry on a Case 1 trade, are tax compliant and have experienced a significant increase in their natural gas and electricity costs.

It will be administered by the Revenue Commissioners and will operate on a self-assessment basis, with businesses required to register for the scheme.

President of the CBA Kevin Herlihy welcomed the supports announced but said that there will be “carnage” for those businesses that are reliant on the 9% VAT rate.

Mr Herlihy, who also owns Herlihy’s Centra, particularly welcomed the new Temporary Business Energy Support Scheme.

“In Centra, our energy bill is going from €80,000 in 2021 to €200,000 in 2022 so in actual fact it’s gone up by €120,000 which is €10,000 per month.

“So, we’ll get €4,000 of that €10,000 increase so it’s really good and from a personal perspective and from the business perspective, I really welcome it.

“Also, our CBA members are certainly happy with that, particularly the cohorts who are members of businesses that are using a lot of electricity.” He said, however, that the positive announcements from the budget are “overshadowed” because members have been given “a complete blow” by the refusal to keep the VAT rate at 9%.

“There is going to be carnage on businesses, restaurants and pubs that are going to close their doors at Christmas because of this. The 9% VAT rate has been the lifeline for businesses in Cork city and indeed in Ireland and this is really really disappointing.” 

Owner of Vienna Woods Hotel in Glanmire Michael Magner also raised concerns about the decision by Government not to extend the 9% VAT rate and said that hoteliers are going to have to use this time to “demonstrate to Government and to policymakers that the 9% VAT rate is the correct VAT for our industry”.

“I think it’s important to state that there are two VAT rates for the hotel industry right now. There’s a 23% VAT rate and 9% VAT rate and nobody is actually explaining that.

“My customers pay 23% VAT for the purchases they make at the hotel for beverages and when you extrapolate it across combines with the 9% that the Government asks us to collect on their behalf, my average VAT rate is 12.2% so if that 9% VAT was to move to the 13.5% VAT rate from March 1 next year, my customers would be paying on average 16% VAT to the Government or for every euro that we take over the counter, 16 cent of it goes to the exchequer in VAT.

“When you take into consideration all the overheads and the cost of doing business, there’s very little left,” he said.

He said that hoteliers with the prospect of survival will “sink themselves further into debt assuming they can raise that debt” and that they will probably defer capital expenditure in their products and assets as hotels “can’t invest because they’re just crippled with costs of running their businesses”.

Cork city and county chairperson of the Vintners’ Federation of Ireland (VFI) and owner of The Castle Inn Michael O’Donovan said it was “disappointing” to see no extension to the 9% VAT rate beyond February.

“We will hope that in months to come, before it expires at the end of February, that it may be examined again but it will add costs, 4.5% back onto the VAT rate, which will inevitably be passed onto the consumer which makes Ireland a more expensive destination for tourists coming inbound.” Mr O’Donovan said that while he welcomes that there is no increase in excise duty, it was disappointing that there was no decrease.

He also welcomed the Excise Special Exemption Application which will halve the cost of applying for a Special Exemption Order, which late-night venues require in order to open.

Meanwhile, Carole Horgan of Best of Buds florist in Cork city said that the fact that the struggle for businesses has been acknowledged is a start.

“I think it may be finally dawning on our Government that if they don’t have us they don’t have a revenue stream of returns, employment and general welfare.

“Small businesses need to be ringfenced if we are to be sustained and I believe our ongoing survival kit in this economic landscape needs regular review in the months ahead as we all experience together first-hand what the real challenges are as they unfold.

“At times like this everyday is a school day for us and the Government,” she said.