Two years and one month after it first met, the National Public Health Emergency Team (Nphet) is to be disbanded. Remaining pandemic restrictions are being eased. Workers are returning to offices. Wage supports are being phased out. The country is finally escaping the grip of the pandemic. Ireland is preparing to move on.

For many businesses, however, the real challenge is just beginning. For much of the past two years, businesses have been shielded from the pandemic by state supports and subsidies. We have witnessed an unprecedented intervention by the state into the economy; it has been both a stimulus and a saviour.

Much of the attention, rightly, has focused on the various wage subsidies that allowed companies to maintain employment and remain solvent. But the Debt Warehousing Scheme has greatly assisted firms also. 

Essentially, the scheme allows tax to remain “parked” on an interest-free basis in the “debt warehouse” for a full 12 months before it becomes collectable. After that period, an interest rate of 3 per cent applies. It was designed to provide vital cash flow to businesses, and that is exactly what it achieved.

However, unlike the various wage supports, this money is repayable. It has not gone away. And troublingly, the number of companies availing of it continues to creep up. 

At the end of August 2021, 92,000 firms were availing of the scheme. By the end of December, the number has increased to 98,000 firms. By the end of December, the number stood at 105,000. 

Of those, 3,200 are considered large or medium sized enterprises. As such, the overwhelming number of businesses warehousing their taxa debt are small or micro businesses, who essentially used the money as cash flow.

And the level of debt is increasing also. Last March, the overall figure was €2.1 billion. It jumped to €2.4 billion in May and to €2.7 billion in September. At the end of the year, the figure was €2.9 billion. Most recent figures to the end of January put the number at €3.2 billion.

Of this, some €1.4 billion related to Vat with a further €1.5 billion in employers’ PAYE (this includes €570 million in PRSI).

Clearly, not all of this money will ever be repaid. Some of the businesses will simply pull down the shutters and call it a day. Niall Cody, the chairman of the Revenue Commissioners, acknowledged as much in an interview in July 2020, when he told me: “Obviously some of the debt, like any debt, won’t be collected but I think that as a support – and we all hear about the importance of the cash flow and liquidity – I think that it is a practical support to businesses.”

The Department of Finance is estimating that 25 per cent of the warehoused tax liabilities might not be repaid, and that 25 per cent of the businesses to have availed of the scheme will never be able to repay.

However, tens of thousands of companies will have to dig into their coffers and pay back the money. Some lobby groups have proposed the idea of a debt write-off. 

I think it would be inconceivable that the state would offer an amnesty as it would be prejudicial to companies who opted to pay their taxes and not avail of the scheme. Indeed, in the case of Vat, it is not even the company’s money in the first place.

Plus, many of the companies that availed of it remained profitable but used it as a cash buffer. Instead of write-offs, I think it is far more likely that the tax authority will agree to individual payment plans with companies on an individual basis.  

Other companies are likely to avail of the new Small Companies Administrative Rescue Process, which is essentially a low frills court-sanctioned restructuring process for small businesses. The Revenue could theoretically object to a write down during the process, but, based on its track record, the authority is far more likely to take a neutral approach.

The scheme was designed to provide a lifeline of cash to companies. But even officials in the Department of Finance are concerned by the fact that the volume of debt, and the numbers availing of the scheme, continues to rise. 

As we enter the post pandemic period, the level at which that warehoused tax is repaid will give a real insight into the true state of the Irish economy.


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