Navigating the Debt Warehousing Scheme: Essential Insights from the SFA and LEO Webinar in partnership with Revenue

On January 17, 2024, the Small Firms Association (SFA) and Local Enterprise Office (LEO), in collaboration with Revenue, hosted a crucial webinar for Irish small businesses. Focusing on the Debt Warehousing Scheme, the session featured expert insights from Maureen Marray and Davena Lyons of Revenue's Collector General's Division. Close to 200 attendees joined the webinar, indicating the significance of this subject for Ireland's business landscape.

Purpose and Importance of the Webinar

This session was designed to provide clarity and guidance on the Debt Warehousing Scheme, particularly as the May 1st deadline approaches. It highlighted the urgency for businesses to understand and take action on their warehoused debts.

Understanding the Debt Warehousing Scheme

The scheme, introduced at the pandemic's start, allowed businesses to defer VAT, PAYE (Employer), and certain self-assessed income tax liabilities at 0% interest until December 31, 2022. With the looming deadline, businesses must now prepare to settle or arrange for Phased Payment Arrangements (PPA) by May 1, 2024.

Key Topics Covered

The webinar provided a detailed overview of the scheme, emphasizing the need for small businesses to stay current with their taxes. It also explored various repayment options available in the run-up to the May deadline, underlining the importance of proactive financial management.

The high level of participant engagement was a testament to the relevance of the topic. The webinar offered a platform for businesses to gain practical advice and clear guidance on managing their warehoused debt, which they did. A few of the topics raised can be found on the FAQ below.

Engaging is Key

If you haven’t started preparing your PPA and have no clue where to start or are looking for financial advice on how to structure the payments in the best way possible for your business, we encourage you to contact your LEO. They will be able to support you, offering valuable information on financial mentoring and other available resources.

As the deadline nears, it's crucial for businesses to engage with Revenue to explore suitable payment arrangements. The importance of early engagement cannot be overstressed as there is flexibility in repayment options offered to those who contact Revenue.

Questions and Answers around Topics Raised during the Webinar:

1 - I am a small business, already struggling to pay current taxes when due, it will be very difficult for me to repay warehoused debt, what are my options?

Firstly, very important to keep up to date with your current taxes as this is a key condition to remain in the scheme and maintain benefit of the warehouse, and avoid immediate collection of this debt, retain tax clearance and preferential interest rates.

If you are struggling with current taxes - most likely received demands for payment from us so you need to engage with us. We appreciate that businesses continue to experience cashflow difficulties impacting their ability to pay other non-warehoused debt, or their ability to meet ongoing tax obligations on a timely basis – where business is finding it difficult to meet current tax payment obligations - the advice remains, as always , to engage with Revenue as soon as such difficulties start to arise so that an agreed solution can be found. We have a proven track record in supporting business through cash flow difficulties through flexible payment arrangements.

When you engage - we will discuss how you can address all of your debt including non/warehoused debt, our PPA facility allow for consolidation of all debt into a realistic payment arrangement suitable to your circumstances, to give you certainty regarding the management of all your tax debt.

To apply for a PPA online, all returns must be up to date.

And once PPA is agreed very important that future taxes are maintained to avoid cancellation of the agreed PPA.

2 - What repayment period is available to me for the repayment of my warehoused debt?

Each application will be assessed on its own merits, no 2 business will be the same, there is sufficient flexibility built into the PPA facility to facilitate tailored arrangements and agree a payment schedule suitable to the business. All PPAs must be realistic and sustainable, otherwise the PPA will fail, and the business will be worse off as they risk losing the warehoused benefits altogether.

The online PPA facility on ROS allows for a duration of up to 5 years (60 months) with a low downpayment amount, required to activate the PPA.

The final payment agreement will have to consider a number of factors such as the debt value including all other debt that needs to be addressed, compliance history and previous PPA record, current tax compliance, evidence of ability to support monthly payment schedule.

If a longer duration beyond 5 years is requested, need to consider why the business needs a PPA of such duration and evidence that that the business can sustain and support the PPA for its duration in terms of solid cash flows/income streams, otherwise PPA won’t be sustained and will fail, business will be worse off. Where that evidence is lacking a longer duration may not be agreed

3 - What downpayment amount will I have to pay to agree a payment arrangement with Revenue?

Pre the pandemic this amount was 25% /40% if tax clearance required, now flexibility built in, a cleared downpayment is required to activate the PPA, and the downpayment % will vary and depend on the circumstances and the payment proposal. The online system allows for a minimal downpayment to activate the PPA as low as .1%). However, need to be mindful that the lower d/p, can result in higher monthly payments and longer duration. Where there is evidence to us from supporting documentation that there is an ability to pay a higher amount, this will be discussed during the PPA negotiations.

We know that 70% of business have DW debts less than €5k,

Below table is what a sample PPA might look like for a business with DW €5k - so assume business has no other tax debt, for now just look at repayment of tax debt, not including the 3% interest

Business A - €5k warehoused debt, up to date current taxes

Business B - €5K warehoused debt, current debt €2k, other debt €3k = total €10k

Business C – total debt of €25k – warehoused and non-warehoused debt

4 - Once a payment arrangement is agreed with Revenue, and if my financial circumstances worsen, can I adjust my payment arrangement?

Once PPA is up and running, if payment difficulties arise then options are available for a payment deferral, payment break, change in payment dates.

Also, it is very important that you maintain all current taxes for the duration of the PPA, if not you risk cancellation of the PPA, and all the debt in the PPA will be subject to immediate collection at full interest rates, loss of tax clearance if outstanding debts.

Also be mindful of missed payments – if you miss a payment, system will try collection again 21 days later, if misses again, then the PPA is cancelled automatically, cannot reinstate the PPA, must start the application again, history of failed PPAs will impact the terms of future PPA.

So very important to take action ang engage with us if not able to meet the scheduled payments.

5 - In recent media reports there was calls for the Government to extend the repayment of warehoused debt or possibly write down some of the debt, given current cost pressures on SMEs, any update on this?

This will ultimately be a policy decision for Government/Department of Finance, the debt remains outstanding, at some stage this debt will have to be paid as the scheme was a deferral of payment of the debt, not the deferral of the debt itself.

Revenue does not want to burden business with tax debt for longer than is necessary, very few business can have that level of certainty of their business model and cash flows for next 10 years, we have agreed some payment arrangements for longer than 5 years on exceptional basis - 3-5 is standard and suits most businesses, would be the norm across EU tax admins also.

The flexible payment facility that is available should allow most business to address their debt over a reasonable period of time.

A write down of the debt is deemed to be unfair to those businesses who have repaid all or some of their warehoused debt including those who have agreed payment arrangements, also many businesses eligible for the scheme did not avail of it , or availed of it for a short period of time to deal to with difficult trading conditions, and have since paid their debt.

6 - What happens after 1 May 2024 if I haven’t agreed a payment arrangement with Revenue?

If after 1 May your debt is not paid in full or in a PPA, this debt will lose the warehousing benefits and become standard debt and subject to immediate collection, any interest on that debt will be at full standard interest rates of 8/10%, and you risk losing/refusal of tax clearance if debts remain outstanding.

7 - How do I know what warehoused debt I currently have?

This will be available on ROS, as a general rule of thumb any debt arising in years 2020 and 2021 for VAT and Employers PAYE will be warehoused, including overpayment received from the TWSS and EWSS schemes, also if you elected for IT warehousing. In advance of 1 May 2024, Revenue will write to all businesses with debt in the warehouse at that time, providing a schedule of their debt with reminder of repayment options available.

8 - Does Revenue expect a rise in insolvencies in 2024 due to deadline for warehoused debt?

Revenue will make all efforts to agree payment arrangements suitable to the business circumstances, however where this is not possible as the overall debt of the business is substantial, the onus is on the business and its Directors to seek independent advice and consider restructuring options that are available in terms of SCARP, examinership etc. These schemes allow restructuring and write down of some of the debt. Must have a viable business model and reasonable prospect of survival, future tax compliance is essential going forward.

9 - Small businesses were automatically included in the DW scheme in 2020 without requesting it, and now have to repay debt that is over three years old, is this fair?

In March 2020, businesses experienced unprecedented cashflow and trading difficulties arising from the impacts of the virus, with some businesses ordered to close immediately or their trade severely restricted. To provide immediate support to business, Revenue suspended debt enforcement, interest on late payments for certain liabilities, allow the retention of current tax clearance status along with a message to taxpayers to continue to send in tax returns on time, on a best estimates basis where necessary.

These measures were in line with overall government direction and policy at the time to optimise support for business in what was an unprecedented challenge to many businesses, one which fundamentally threatened their viability and the livelihood of their employees. The challenges were of a scale that required an immediate and agile policy response which had to be aligned in real time to the trajectory of the virus and its impacts on public health.

During 2020 and continuing into 2021, the Government introduced the various Covid-19 support schemes which were administered by Revenue; TWSS followed by EWSS, the Debt Warehousing Scheme, the Covid Restrictions Subsidy scheme (CRSS) and the Business Resumption Subsidy scheme (BRSS). These schemes enabled taxpayers to avail of vital financial and tax deferral supports throughout the pandemic, mitigating the risk of significant business closures and threats of redundancy for their employees.

The Debt Warehousing scheme was announced by Government on 2 May 2020 to provide a vital liquidity support to businesses suffering downturn due to the COVID-19 pandemic, It was a part of the coordinated suite of financial and other supports put in place across government departments and agencies to protect business and the livelihoods of their employees. The scheme allowed compliant taxpayers to temporarily park their tax debt for the period during which their trading conditions were severely impacted due to public health restrictions. Given the uncertainty arising from the crisis and changing public health restrictions, many businesses were not in a position to carry out day-to-day work that would ordinarily ensure they could meet their tax obligations on time. This included difficulties with meeting agents, completing tax returns and making tax payments in a time when cash flow was key to maintaining the business, employment and paying business running costs.

The scale of the challenge was so vast and unprecedented, some businesses were closed and could not trade. So, to address immediate issues for business, the only practical option was to automatically allow all business managed by our PD/BD divisions access to the scheme and on application for others. Many businesses continued to pay their debt even though their debt was eligible for warehousing. This approach provided immediate practical support to those businesses.

In case you have further questions, or you are a small business in the Debt Warehousing Scheme and still haven’t submitted a PPA, contact Revenue’s Collectors General’s Division today on 01 - 7383663. More information on Debt Warehousing and PPA can be found directly on Revenue’s website here.

If you wish to watch the webinar and know more, please find the recording here. The slides can also be downloaded below.