Debt Warehousing Scheme – what you should do now

Debt Warehousing Scheme

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Xeinadin Group

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Businesses using the DWS have been given an extra year’s grace – but interest starts accumulating now.

In light of the continued economic challenges surrounding businesses last year, the Revenue postponed the start date for mandatory repayments to the Debt Warehousing Scheme (DWS) from 1 May 2023 to 1 May 2024. This has given businesses with warehoused debts an extra year without pressure to repay those pandemic-era debts, and to plan for ultimately entering a phased payment agreement with the Revenue.

Significantly, however, as of 1st May this year, the interest-only period is over. While you don’t have to start repaying DWS debts until May 2024 you’ll still be accruing interest at a rate of 3% (reduced from Revenue’s usual 8%), and so you might want to think about starting to pay it down now if you have the cash.

The Debt Warehouse Scheme was introduced to help businesses with their liquidity during the pandemic, and according to the Revenue, 7,500 taxpayers availed themselves of it to the tune of nearly €2.6bn – of which €2.2bn is still owing.

They’ve given these businesses until 1 May 2024 to agree a Phased Payment Arrangement (PPA) but you can make interim payments at any stage to reduce your interest exposure. In any case, if you have warehoused debt, the Revenue will write to you in December to explain how the outstanding liabilities are to be repaid, and you can expect to be asked for a minimum down payment of 25% or 40% of the outstanding liabilities before you can enter a PPA.

In the meantime, there are a few Legal Considerations you’ll need to consider before engaging with the Revenue:

  1. Analyse your current financial position – It’s important to establish that your company is solvent and able to discharge its liabilities as and when they fall due. To expedite a settlement with the Revenue, you may need to re-negotiate credit and payment terms with other creditors so that the company can continue trading as a going concern;
 
  2. Does it breach any loan arrangements? – Banks usually impose obligations on a borrower to keep tax payments up to date. So deferring your tax liabilities under the DWS may technically be a breach of these obligations, and failing to repay or agree a PPA within the timeframe would definitely be a breach – which may entitle your lender to declare you’re in default and call in any loans.
 
  3. Your Duties as Directors – If the company is in financial distress, you must consider the interests of your creditors as a whole and whether the company can continue as a going concern before you can agree a settlement with the Revenue. If the company goes into liquidation and it’s deemed that those payments should not have been paid, you will face personal liability consequences as Directors and the payments to Revenue could be clawed back;
 
  4. Restructuring Options – If you’re not in a suitable financial position to enter an arrangement with the Revenue, it’s worth considering formal restructuring options. If this is the case, chat to your Xeinadin partner. As always, the sooner you get in touch, the more we can do to help.

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