The government has announced that businesses with outstanding liabilities under the Debt Warehousing COVID-19 support scheme will no longer pay any interest on the money they owe – and that all interest on debts already repaid will be refunded.
In addition, Revenue has announced new ‘flexibilities’ in the repayment schedule for warehoused debts, including payment breaks and changes to terms for any businesses struggling to make monthly instalments.
The moves come amidst growing concern about the financial pressure some companies face as they struggle to pay back money they borrowed during the pandemic.
Debt warehousing was a central pillar of the Irish government’s COVID-19 business support strategy. Under the scheme, any businesses experiencing cash flow and trading difficulties were permitted to defer certain tax payments. It applied to VAT and Employer PAYE, plus certain self-assessed income tax liabilities, and Temporary Wage Subsidy Scheme and Employment Wage Subsidy Scheme overpayments.
While tax owed accrued as debt, the scheme gave thousands of businesses vital financial breathing space while trade was severely hampered by the pandemic.
But while there was initially no interest charged on the debts, the period of grace ran out on 1st January 2023, after which interest was added at a rate of 3%. The expectation was that most businesses would have been able to pay back the tax they owed before this date.
Treating businesses fairly
More than 57,000 businesses still owe tax from the COVID period under the scheme. Some of the debt liabilities are severe. Just 10% of the companies still in debt owed a combined €1.7bn as of May 2023. More than 200 large companies are believed to still owe in excess of €500m. With interest being added on top of these significant debts, there have been genuine concerns that the scheme could lead to a spate of high-profile insolvencies.
The actions taken by the government and Revenue are clearly aimed at avoiding that outcome. Interest on all outstanding debts will now revert back to 0%. Announcing the intention to pay back all interest already paid, Minister for Finance Michael McGrath T.D. said that this was to “ensure that all taxpayers are treated fairly.
“This Government is acutely aware of the ongoing cost pressures faced by businesses and is determined that viable businesses are given every chance to succeed in a challenging trading environment.”
Businesses still face a final payment deadline of May 2024. However, the government has been keen to stress that there will be ‘no cliff edge’ come May. If debts cannot be repaid in full by that date, there is the contingency of agreeing a legally-binding Phased Payment Arrangement with Revenue.
Though it remains to be seen what the “more pragmatic” approach promised by Revenue means in practice, there are likely to be favourable terms on offer under PPAs, and a reduced threat of being ‘removed from the warehouse’ and subject to enforcement action for temporary defaults.
Having come under fire for the 700+ insolvencies linked to warehoused debts so far, the government will be keen to keep any more to an absolute minimum. It will be equally keen to give businesses every chance to repay money to a scheme that has already lost tens of millions of euros.