May 1st, 2024: it’s a date looming in the psyche of the Irish hospitality industry. That is the deadline Revenue set for paying back tax debt (VAT, PAYE-related tax across income tax, PRSI, USC, and wage subsidy overpayments) warehoused during the pandemic. Those with warehoused tax debt need to – at the very least – have 20 per cent ready to pay back, and a payment plan for the remaining 80 per cent. In the coming weeks and months, news stories about cafes, bars, pubs, and restaurants closing down will go from a drip to a flood.
The hospitality industry was propped up during the pandemic through wage supports, but it was also the most challenging time most business-owners ever traversed. Many businesses took the warehousing opportunity. The scheme was introduced at the height of the pandemic in May 2020 to provide “a vital liquidity support to businesses”.
How could they not? Many were discerning about this, not warehousing a large amount, and understood that putting a few hundred grand on the never-never would come back to haunt them. These weren’t magic, interest-free loans. They must be repaid. The clock is ticking.
Many business-owners need time they don’t have, and there’s also resentment over the government effectively encouraging debt warehousing at the time, matched with the aspirational – and now, obviously foolhardy – spin of a “strong recovery”. Plenty of places never re-opened, and publicans in particular are leaving the market in alarming numbers. More than 150 pubs a year have closed permanently in Ireland since 2019. This is part of a longer story, because since 2005, 22.5 per cent of pubs in Ireland have closed. This rate is accelerating.
To be brutally Darwinist about it, businesses that haven’t found their groove – those for whom the fundamentals of their offering aren’t sound, or a concept hasn’t landed, or have failed to market themselves well, or build a compelling, quality brand and attract a sustained and loyal customer base – will go first. But this is not merely a wheat from the chaff moment. Excellent places are also closing, and more will fall.
Things are so tight right now in the sector that if you’re not flying, you’re drowning. If you have a lot of debt, “ticking along” isn’t enough. The wiggle room is evaporating, and that May 1st date is both sledgehammer and scythe. There are plenty of other elements at play hitting hospitality. Take the Friday Factor. The collapse in office attendance on Mondays means a lot to cafés in areas with a high density of offices in Dublin city centre, but less so to restaurants and pubs. It’s Friday that matters. But the era of after-work drinks and meals at scale on Fridays has changed. Thursdays can be busy enough, Saturdays too, but working from home is not just an irreversible trend, it’s an embedded reality.
In terms of scale, Dublin city centre will suffer the most. “Town” is competing with suburbs and urban villages in a way it never really has. Pre-pandemic, what was on offer in terms of going out in the city centre had already broadly pivoted to a tourist and suburban crowd, because that’s where the money was. But the habit people developed socialising “local” in Dublin, stuck. “Why would you go in to town?” has become something of a catchphrase amongst many people in their thirties upwards who live outside the centre. The reality is that the offering of bars and restaurants in Dublin’s villages and towns has improved, and the city centre often struggles to compete. Some of the best new and relatively new pubs, restaurants and cafes in the capital aren’t in its centre, they are neighbourhood spots in adjacent urban villages.
Dublin’s bad press regarding safety and street crime is also a complete turn-off. Some of this is hyperbolic scaremongering from commentators who spend very little time in Dublin city centre. But a lot of it is legitimate. There was a riot, after all. Corporate bookings – particularly from tech companies who can’t be seen to splash the cash on staff one day while laying them off in their droves the next – are also down. This falloff is not isolated to tech companies.
[ Revenue urges business to pay €1.8m in warehoused Covid debtOpens in new window ]
Warehoused debt is not the only contemporary squeeze on hospitality. The VAT rate recently reverted from 9 per cent to 13.5 per cent. Minimum wage increased. Take your energy and weekly shop bills, and multiply them by running a premises based on food. All of this has to be passed on to the customer, and the more expensive a menu gets, the less frequent dining out becomes for people also contending with the cost of living. This is a perfect storm. January tends to be a white knuckle ride for the hospitality sector, but now many are barrelling towards the cliff of May 1st.
By the end of last summer, around 60,000 businesses (including around 2,500 individuals) owed a combined total of €1.9 billion to Revenue in warehoused debt. Around nine per cent of this is hospitality, equating to over 5,500 pubs, restaurants, cafes, and other hospitality businesses owing around €280 million in warehoused tax debt. Revenue’s advice to any business that will struggle is to actively engage with the tax authority “to agree upon a mutually agreeable solution”. But it seems inevitable that we are going to see a return to the recession-era streetscape of shutters down in Dublin city centre in particular. If you’re thinking of going out for dinner, I’d do it now.