Hotel companies say working capital will run out when brackets end

Bars, hotels and restaurants fear going bankrupt if the government fails to retain some Covid support this year.

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

Of 150 businesses surveyed, 42% said they will not have enough working capital after aid, such as the Employment Wage Subsidy Scheme, ends this month.

“My personal view is that we’ll probably see an increase in insolvencies as the year progresses, particularly at the end of the year,” said Declan Taite, managing director of Kroll’s restructuring team.

Mr Taite said companies in the hospitality, construction and retail sectors are most at risk of bankruptcy, with the number of insolvencies across the board likely to ‘double’ from to last year, when insolvencies were artificially low due to Covid backers.

RAI is calling for the 9% VAT rate for hotels to be maintained, which is expected to reach its pre-pandemic level of 13.5% in September.

Mr Taite also said a “reintroduction or reconfiguration” of the tax warehousing regime might be warranted to help struggling businesses that have been closed for most of the past two years.

However, 71.4% of hotel companies surveyed by Kroll want full tax amnesty.

“I don’t see the government introducing tax amnesty or tax deduction, especially for specific sectors,” Taite said.

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

At the end of January, nearly 105,000 companies benefited from the tax warehouse regime, with more than 3 billion euros in tax debt “parked” until next year.

Interest will begin to accrue on these debts from January 2023.

Just over 31% of companies polled by Kroll said they would not be able to pay deferred tax debt during the pandemic, with 37% unsure if they would.

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

“There is no doubt that staffing is now the biggest issue in our industry, with the vast majority of catering and hospitality businesses having to raise salaries to retain staff,” said RAI’s chief executive, Adrian Cummins.

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