Diners ‘will have to pay more’ if 9% VAT rate scrapped, restaurant owners warn

Restaurateurs have warned that ending the 9 per cent VAT rate for hospitality, introduced as a short-term measure in response to challenges posed by Covid lockdowns in 2020, will result in further closures in an industry already dealing with escalating energy and ingredient prices, as well as wage inflation and a labour shortage.

The sector has been lobbying for retention of the lower rate, reduced from the standard rate of 13.5 per cent, beyond its scheduled end date of February 28th. However, there is speculation that the Government will not renew the concession.

Paul Flynn, who with his wife, Máire, owns the Tannery restaurant in Dungarvan, Co Waterford, predicts widespread restaurant closures if the higher rate returns. “Only the strongest restaurants will survive an increase. It is the perfect storm. Never before have I seen a set of circumstances so adverse for the Irish restaurant industry, including the 2008 recession.”

Gina Murphy, owner of Hugo’s, on Merrion Row in Dublin 2, believes it is vital for the survival of her business that the VAT rate stays at 9 per cent. “Most restaurants had no option but to warehouse their VAT during Covid. We just couldn’t afford to pay it. So now we are paying the 9 per cent that we are collecting, plus something every month to cover the back debt.

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“At the end of the day, we only collect the tax on behalf of the Government. However, it has a direct impact on our business and our trade. A 50 per cent tax increase” – from 9 per cent to 13.5 per cent – would be a seismic shock to any business. It goes without saying there will be casualties.”

Murphy believes that many restaurants are still struggling in the aftermath of the pandemic. “Most of us are still not fully back on our feet. Our businesses have had to change fundamentally. For example, I no longer open on Mondays, as there’s nobody in the city. Everybody is working from home. There’s nobody to feed.”

She says that a tax rise will lead to higher prices on her menu. “If the VAT rate increases we will have no option but to pass it on directly to the customer. It’s a tax from the Government, not a price increase from the restaurant. The dining-out market is extremely price sensitive. An increase will have an immediate impact on us.”

Gareth Smith, chef-proprietor of three steak and seafood restaurants in south Co Dublin, says the move would “have a knock-on effect that will lead to closures and job losses.” He is “livid at the timing” of a possible restoration of the 13.5 per cent VAT rate, as the industry is still in recovery mode. “We’ve all just come out of wave after wave of crises.”

“Operators simply cannot absorb this cost without passing some or all of it on to the customer. It’s absolutely the wrong call at the wrong time,” says Shane Mitchell of Lennan’s Yard, in Dublin 2, and Asador, in Dublin 4.

He believes restaurants are facing unprecedented challenges. “The working-from-home phenomenon has damaged lunch trade in the city. Businesses are also saddled with legacy debt from the lockdown. All of these factors are squeezing the sector to a point of no return.”

JP McMahon, who owns the Michelin-starred Aniar and the tapas restaurant Cava Bodega, both in Galway city, also believes that any increase in the 9 per cent VAT rate would have to be passed on to diners. “I don’t think we can absorb any more increases,” he says.

“Most small restaurant businesses are walking a tightrope,” says Niall Sabongi, owner of the Seafood Cafe in Dublin 2 and the wholesale business Sustainable Seafood Ireland. “Restaurants have already faced wage, energy and food-cost increases, all while trading out of the pandemic.”