Calls for Tax Cuts in NI Hospitality Amid Rising Costs
Businesses across Northern Ireland are urging for reductions in taxes within the hospitality sector, citing escalating costs and higher VAT rates as increasing challenges on already narrow profit margins.
Cafe owner Tiffany McKay highlighted the difficult decisions business owners like herself are compelled to make.
"Whether that means we change portion size, whether we prepare fewer things in house from scratch...maybe we trim our hours a little bit to cut off the least profitable 30 minutes at the end of the day,"
"Maybe that means we go down to three days a week, which we do for six weeks in the winter.
"But whenever we cut the hours down, that wage increase that our staff members got this year is effectively negated.
"We're doing everything we can within our zone of control and yet it still doesn't feel like it's enough."
She emphasized the difficulty in competing for visitors against destinations just across the border where VAT rates are lower.
In the UK, VAT is charged at 20%, whereas in the Republic of Ireland it stands at 13.5%, with the gap expected to widen as the Republic plans to reduce the rate for food-led hospitality to 9% this summer.
Northern Ireland's finance minister has advocated for a system enabling businesses to compete effectively in an all-island economy. However, the UK Treasury has expressed concerns that reducing VAT regionally would introduce complexity.
Businesses argue that a lower VAT rate would help keep hospitality prices more affordable for consumers.
McKay, who owns a cafe in Carnlough, described the additional measures she has taken to manage costs.
"Whether that means we change portion size, whether we prepare fewer things in house from scratch...maybe we trim our hours a little bit to cut off the least profitable 30 minutes at the end of the day,"
"Maybe that means we go down to three days a week, which we do for six weeks in the winter.
"But whenever we cut the hours down, that wage increase that our staff members got this year is effectively negated.
"We're doing everything we can within our zone of control and yet it still doesn't feel like it's enough."
She also expressed concern about passing increased costs onto customers.
"Passing costs on to customers also felt a little bit like a moral crisis because we don't want to be unable to be afforded by our customers and we know they're feeling the squeeze as well with the cost of living being what it is."
Competitive Disadvantage Due to VAT Differences
Selina Horshi, a hotel owner in County Londonderry, described the competitive challenges posed by lower tax rates just a few miles away in County Donegal.
"That difference in the tax rate makes a huge difference to your competitiveness,"
"A customer looking at where they might want to spend a night, where they might want to celebrate their wedding is not looking at a different tax policy, they're looking at the final price and the final prices can be significantly cheaper in the Republic of Ireland than in Northern Ireland simply due to that tax policy."
She noted the significant impact this has on hospitality businesses in Northern Ireland.
"Whether that is somebody who's booking a single event or whether that is a big multinational tour company who brings thousands of tourists in on buses,"
"Imagine if they're making the decision as to whether they stay in Derry where it's more expensive, or they stay in Donegal where it's cheaper.
"Suddenly our city just becomes a day trip. They walk the walls which are beautiful, they go to the Guildhall but essentially they haven't spent a penny in this city.
"They aren't spending money in local retail, in local pubs and they're not putting money into local taxi drivers' pockets."
Hospitality Ulster Highlights Impact of VAT on Competitiveness
Colin Neill from Hospitality Ulster stated that the higher VAT rate in the UK places Northern Ireland at a significant competitive disadvantage.
He pointed out that visitors from the Republic of Ireland constitute the largest tourism market for Northern Ireland.
Many hotels, bars, and restaurants depend on cross-border trade for weddings and functions, and the planned reduction to a 9% VAT rate in the Republic this summer will affect them.
"If your wedding is going to be 11% cheaper, where are you going to go?"
Neill added that businesses have already begun reducing hours and days of operation, contributing to a reported loss of 2,000 jobs in Northern Ireland's hospitality sector.
"We've already started losing businesses, we've seen them cutting hours, cutting days and indeed the headline of 2,000 jobs reduced in the hospitality sector in Northern Ireland is because we're just not viable now."
Hospitality Ulster is advocating for a UK government pilot scheme to demonstrate how reduced VAT can quickly generate returns.
"Over a period of time it builds to create more jobs, more employment and the taxes generated by the extra sales,"
Government Responses on VAT Reduction
The UK Treasury acknowledged the importance of hospitality and tourism to regional economies but cautioned against regional VAT reductions.
"However, reducing VAT for hospitality, on a regional basis, would introduce complexity for businesses and reduce the revenue available to fund vital public services like schools and health,"
a spokesman said.
"The Northern Ireland Executive received a record 3bn settlement in 2025-26 6 and they can provide further support to hospitality and tourism should they choose to."
A Department of Finance spokesperson noted that the authority to alter VAT rates lies solely with Westminster.
"The finance minister is acutely aware of the challenges facing local industry particularly in relation to the impact of higher VAT rates here and has repeatedly made the case to the Westminster government for a tax system which allows our businesses to compete on a level playing field in the all-island economy,"
"It is disappointing that the British government continues to show no willingness to substantively consider this issue and has failed to take the decisive action needed to provide meaningful support to the hospitality sector here."
