Cost increases will see 1,000 small businesses close this year

In Cork alone, four high-profile restaurants have closed in recent days
Cost increases will see 1,000 small businesses close this year

Profile Is Close Cork To Forced Nash One On Prince's Cummins Its 19 Recently Street, Doors Larry High Business Picture:  

The cumulative impact of a series of cost increases, as well as the looming deadline to pay off warehoused tax debt, could lead to 1,000 business insolvencies this year, according to business consultants PwC.

Businesses who warehoused tax debt during covid restrictions must have it paid or have a payment plan in place by May 1, with around €1.75bn still outstanding from around 60,000 businesses. However, around 85% of that total is held by just 10% of those firms, leading to warnings that "hundreds" of businesses could close their doors.

Government sources said that changes to the arrangement have not yet been discussed, but one high-level source said that the situation would be "monitored" in light of a spate of high-profile closures in the hospitality industry. 

In Cork alone, four high-profile restaurants have closed in recent days. White Rabbit Bar and BBQ on MacCurtain St announced on social media on Saturday that it would close, following Nash 19 on Princes St, the Tung Sing restaurant which operated on St Patrick’s St for 60 years, and Pigalle, which operated on Barrack St for just over five years.

Accounting firm PwC recently predicted that the number of business insolvencies would grow to 1,000 this year with the retail, hospitality, and construction sectors coming under particular pressure. These areas are also likely to be the hardest hit by the increase to the minimum wage to €12.70 along with a raft of other increases.

According to the Revenue Commissioners, there is currently €1.756bn in debt under the warehousing scheme, €158m of which is covered by payment plans. Of all the businesses in the scheme, 69% have an outstanding balance of less than €5,000.

Sinn Féin spokesperson on Enterprise Louise O'Reilly said that she had been warning of an impending crisis since 2021 and that individual businesses needed now to be protected. Picture: Damien Storan
Sinn Féin spokesperson on Enterprise Louise O'Reilly said that she had been warning of an impending crisis since 2021 and that individual businesses needed now to be protected. Picture: Damien Storan

Small Firms Association director David Broderick said that although it might seem small, €5,000 is an “awful lot of money” for his organisation's members when it is combined with all the other recent cost increases.

He added that the cumulative effect of having the warehoused debt along with all the other cost of business increases means that “unfortunately, some businesses are going to close”.

Sinn Féin spokesperson on Enterprise Louise O'Reilly said that she had been warning of an impending crisis since 2021 and that individual businesses needed now to be protected.

She said that the €1.3bn Temporary Business Energy Support Scheme (TBESS) returned €1.1bn to the exchequer because of how it was structured, rather than a lack of appetite for support. She believes the level of warehoused tax debt will see hundreds of smaller businesses go out of business.

"You're talking about hundreds of extra businesses and a lot of jobs. It's about finding those viable but vulnerable businesses, those whose difficulty is temporary. Businesses have to be dealt with on a case-by-case basis — those who could have benefited from TBESS and didn't get it, for example."

ISME chief executive Neil McDonnell said there are a lot of businesses in the hospitality sector in particular that are going to have to make some difficult decisions by May 1.

“It’s not the warehouse debt that is going to tip you over the edge, the fact that you are trying to work a 36 month schedule to repay the thing but you can’t afford your overdraft and your latest cost of finance is gone through the roof,” he said.

ISME estimates that there will be a 15.1% increase in costs for businesses just on wages alone. This is between the 12% increase in the minimum wage, 1% in additional payroll it will cost to cover two additional sick days, the 1.5% increase from the pension auto-enrolment and the 0.1% expected increase in employer PRSI — both of which are expected later this year.

“The service industry is going to be really affected,” Mr McDonnell said.

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