TAX IN THE RESTAURANT TRADE

THIS business is notorious for its short lifespan. While fitting out of a modern restaurant kitchen can cost well over €100,000 it is possible to rent premises already fitted out without that much capital.

If there is a reasonable footfall in the area, then the cash flow will be positive with credit from food and drink suppliers and a delay in paying PAYE and VAT to Revenue makes people think that they have a profitable business.

However, when the accounts are done and provision is made for the creditors and for the Revenue, then the situation is often too little information too late.

Restaurants tend to be operated by either a ‘ front of house’ person or a chef. In my experience, the ‘ front of house’ person can be a hopeless business person, with a failure to keep records being a frequent problem. Chefs tend to be much better and their businesses are more durable – but attention to business record maintenance can also be poor

The average life expectancy of a Dublin city restaurant is less than five years and sudden closure of the restaurant is common. Typically, they are leaseholders. Outside of Dublin there is greater longevity and also less leaseholds.

The reduction in the VAT rate to nine per cent has been a great boost to the trade. VAT can be tricky with cold takeaway food being entitled to zero per cent VAT rate unlike hot takeaway food. Soft drinks and alcohol served with meals do not get the nine per cent rate, instead there is a 23 per cent VAT rate charged on them.

Wages are an important cost item in the restaurant trade and one should make sure to operate PAYE on staff. I have seen Revenue officials check delivery dockets and find that the person who signed for goods is not a member of staff.

Also, what happens frequently in the trade when the business fails is that the staff claim redundancy and arrears of wages from the liquidator based on wages levels well ahead of those in the records. The difference is usually due to additional payments coming out of the till. It is saving VAT on sales and PAYE on wages but it is fraud and Revenue will prosecute if they have good evidence.

Some upmarket restaurants can claim that it’s all credit card sales and they have no cash sales. If this is true, then opportunities to dodge taxes are much reduced and the business in turn, if properly run, may have real longevity.

Traditionally the wine suppliers and the Revenue had to take a hit when restaurant companies closed. However, in recent years both have tightened up their operations.

Wine often is only cash on delivery while Revenue has a Phoenix List of businesses that fail and reappear with the same management. They may request a bond before agreeing to VAT registration.

If you want to be a restaurant owner, then a course in bookkeeping might be just as useful as one in cookery.