The rate of VAT on room sales was put up to 13.5% for 2019, having been at 9% for the previous seven years. Weakening market conditions in 2019 actually meant that hotels were not able to pass on the higher VAT cost and had to absorb a drop of €4 on their average room rates, which had a direct hit on their operating profits.
Many hotels have had to defer capital reinvestment projects and hotels now fear that the scheduled increase in VAT to 13.5% at end of February 2023 will be challenging to pass on, and will damage their recovery prospects and reduce investment in the sector.
The cost inflationary pressures, challenges with recruiting and retaining staff in a tight labour market and their high consumption of energy means that hotels need to double down on investments in energy-saving initiatives, technologies for making the business less labour-intensive and reinvestment in annual upgrades to resolve normal wear and tear so hotel facilities meet the expectations of guests.
The VAT increase at this time will curtail the rollout of these initiatives as less funding will be available to invest in the business. This regressive measure will curtail the potential of the hotel sector to achieve attainable efficiencies and combat some of the effects of this period of very high inflation and labour shortages.
For a summary of the content from the 2022 Irish Hotel Briefing and to download the presentations from Crowe and JLL (our co-hosts), visit: 2022 Annual Irish Hotel Market Briefing.
For more information about how Crowe’s dedicated hotel, tourism and leisure team can assist you with any hotel or hospitality project, contact a member of our HTL team.