Lisa Lokasto

With Budget 2026 set to be announced on 7 October 2025, the hospitality industry is holding its breath…

The Reality Facing Irish Hospitality

The Irish hospitality sector is facing financial stressors from all sides that are increasingly threatening the sustainability of businesses. Between persistently low profit margins, spiralling operational costs, staffing shortages, VAT rate uncertainty and auto enrolment pension costs on the horizon, many operators are at a breaking point.

So what’s going on?

According to the Restaurants Association Ireland (RAI), food led hospitality businesses reported an average net profit margin of just 0.8% in Q1 2024 leaving virtually no cushion [RAI, 2024]. In my experience working with clients, this figure often excludes the considerable unpaid hours contributed by owners, meaning the true profitability could be even lower than reported.

In any case, at that level of profitability, even a small dip in sales or a slight cost increase can push a business over the edge.

Restaurants, cafes, and bars have already raised prices post covid to offset soaring energy and wage costs. But the sector is competitive and saturated in places, and in the midst of a cost of living crisis, customers are more price sensitive than ever. Its not very easy to push prices upwards, and costs like wages, energy, and ingredients etc. are dictated by the market. With limited room to cut costs and little scope to increase prices, many businesses are now facing an impossible choice, and for some, there may be no viable path forward.

RAI analysis shows that an average of two food led hospitality businesses closed every day in 2024, highlighting the scale of the crisis. [RAI Report, 2024]

Cost Pressures: Labour, PRSI, and Auto Enrolment (Pension)

Rising payroll costs:

Labour shortages are causing upward wage pressures increased further by increased PRSI, statutory sick pay and now upcoming auto enrolment pension contributions

The planned rise in statutory sick pay days was also postponed in 2025, but an increase in 2026 is still on the cards.

Auto enrolment starts 1 Jan 2026:

Initially the employer contribution is 1.5%, phasing up to 6% over 10 years. This can apply to part-time and seasonal workers (if they meet the requirements), a major component of hospitality staffing.

With net profit margins at just 0.8%, even a 1.5% increase in payroll costs could erode what little profit margin there is, a potential tipping point for many businesses. With auto enrolment due to begin in January 2026, while speculation abounds of a possible VAT reduction later in 2026, this creates added uncertainty around timing.

VAT: Major Threat to Viability

The VAT rate for hospitality was temporarily reduced to 9% during COVID-19 to support the sector but was restored to 13.5% on 1 September 2023. This increase has added significant pressure on businesses already struggling with tight margins.

A joint survey by the Restaurants Association Ireland and Interpath Advisory found that almost 69% of hospitality operators see the return of the 13.5% VAT rate as the single biggest threat to their survival. [Interpath Advisory, 2024]

A proposed reduction back to 9% could offer relief, but, the timeline is uncertain. It’s possibly postponed to mid-2026 to suit budget balancing needs. The previous temporary cuts (2011–2018 and 2020–2023) cost €3.6 billion but showed limited long-term consumer benefit. Political support is mixed, adding to the uncertainty.

The trouble is that businesses trying to assess their future viability now. They’re operating in uncertainty, as it’s still unclear whether the applicable VAT rate will be 9% or 13.5% and whether the change will come in January 2026, June 2026, or at all.

Accommodation Constraints & Tourism Impact

A portion of hotel capacity has been diverted to accommodate asylum seekers and refugees, reducing the availability of beds for tourists and, in turn, displacing tourism-related demand.  While nationally this accounts for closer to 10% of accommodation rather than a third, the impact is uneven and in regions like the Wild Atlantic Way, where whole hotels have been repurposed. This has displaced tourism demand and reduced visitor spending, adding to pressures on local hospitality. [PA Media Fact Check]

At the same time, immigrant workers play a vital role in sustaining hospitality employment, helping businesses address chronic labour shortages and maintain service levels in a tight labour market.

Bottom Line:

The hospitality sector is caught in a perfect storm,  crippled by rising costs, limited pricing power, labour shortages, and policy uncertainty. Immigration has been a double-edged sword: while migrant workers are essential to keeping businesses staffed, the reallocation of accommodation to house refugees has strained tourism capacity in key regions.

Add in unclear VAT policy and the looming costs of auto enrolment, and many businesses simply can’t plan ahead. The uncomfortable question now for many is  whether survival is even possible.

From the Accountant’s Perspective: How to Support Hospitality Sector Clients

With rising costs, uncertain VAT, and auto enrolment on the horizon, hospitality owners need someone who can help them see around corners. It’s not easy.

5 Ways Accountants Can Support Hospitality Clients Right Now

• Monthly Management Accounts & KPI Tracking
  Help clients monitor performance closely . When margins that tight, they need to be able to spot the issues before they get too far down the line.
• Scenario Planning & Forecasting
  Build financial models that factor in rising costs, VAT changes (9% vs. 13.5%), and auto enrolment contributions. This gives clients a view on future viability and helps guide decisions today.
• Break-Even & Pricing Analysis
  Identify what level of sales is needed to break even under different cost structures. Help clients understand whether their current pricing and staffing models are actually sustainable.
• Cost Review & Margin Analysis
  Offer structured reviews of overheads, supplier contracts, and operational inefficiencies. Even small savings can move the needle when margins are under 1%.
• Financial & Lease Review Support
  Many clients are locked into leases or facing upcoming reviews. Accountants can support rent discussions by providing credible financial data that strengthens the case for temporary reductions or restructuring.
• Carrying out a broader financial review, with backing from our corporate financing department, including debt, loan facilities, and cash flow, to ensure businesses understand their true obligations and options.

If you’re in hospitality and feeling the pressure, you’re not alone.

Need clarity on where your business stands? Reach out and let’s talk about what’s possible, and what’s next.

Lisa