Contributing Firms:
Tax Debt Warehousing
In early February the Minister for Finance announced changes to the Tax Debt Warehousing scheme. Can you outline these changes, the Revenue Commissioners’ renewed approach and the implications for companies that have availed, or continue to avail, of the scheme?

Jim Kelly, Director, Tax, Grant Thornton: Debt Warehousing was introduced in response to the Covid-19 crisis and allowed businesses to defer the payment of certain taxes –principally Employer PAYE and VAT – interest-free until 31 December 2022 (or 30 April 2023 for those eligible for the extended deadline). A 3% rate of interest applied thereafter and businesses had a 1 May 2024 deadline to either repay the debt or enter into a Phased Payment Arrangement (PPA) to clear the debt.
Jim Kelly
Jim Kelly

On 5 February 2024 the Minister for Finance announced a number of key changes: The interest on outstanding warehoused liabilities was reduced from 3% to 0%; and Businesses who had already paid interest at 3% would be able to claim a refund of that interest.

Minister McGrath also noted Revenue’s commitment to a flexible approach to PPAs including:
• The level of initial down-payment, if any, required when commencing the PPA;
• Possible extension of the duration of the payment arrangement beyond the typical 3-5 year period on a case by case basis; and
• The availability of payment breaks/deferrals if temporary cash flow difficulties arise during the PPA term.

Overall, with €1.7bn warehoused by 57,500 businesses, these changes are to be welcomed as an acknowledgement of the unique challenges faced by firms with such debt and the need for Government to support viable businesses.

However, to avail of the flexible approach outlined, businesses must file current tax returns on time, meet current tax liabilities as they fall due and engage with Revenue to initiate a PPA prior to 1 May 2024. Revenue will be writing to businesses that have not engaged but tax agents will not be copied on final reminders so cases within the scheme need to ensure they engage by the deadline.

Failure to do so could result in warehousing being revoked, the application of 10% interest rates and the immediate enforcement of all outstanding debt, including interest.

Lee Kavanagh, Assistant Manager, Financial Services Tax, BDO: On 5 February 2024, the Minster for Finance announced significant changes to the Tax Debt Warehousing Scheme. The Tax Debt Warehousing Scheme was originally introduced to allow businesses who experienced trading difficulties during the Covid-19 pandemic to defer paying certain PAYE and VAT liabilities until they were in a better position financially. Originally, the scheme allowed for businesses to defer these liabilities on an interest-free basis for a certain period of time, and thereafter at a reduced 3% interest rate. More than €3 billion of debt belonging to more than 105,000 businesses has been deferred during the lifetime of the Debt Warehousing Scheme.
Lee Kavanagh
Lee Kavanagh

The key change announced on 5 February in relation to the scheme was that the Government were reducing the interest rate applicable on the warehoused debt from 3% to 0%. They have also confirmed that they will issue refunds of any interest at 3% that had already been paid by businesses on their warehoused debt. The legislation to effect the recently announced changes to the Debt Warehousing Scheme will be brought forward shortly. However, Revenue have confirmed that they will operate the 0% interest rate on an administrative basis pending the legislative change.

It is important to note that although the interest rate on the warehoused debt has been reduced to 0%, businesses must still engage with Revenue on addressing the warehoused debt by either paying the warehoused debt in full or agreeing a Phased Payment Plan with Revenue in relation to the debt by 1 May 2024. Revenue have signalled that they will take a flexible approach in relation to the repayment of the warehoused debt which will include the possibility to extend the duration of payment plans beyond the typical three-to-five-year period on a case-by-case basis.

In order to remain in the Debt Warehousing Scheme and benefit from the 0% interest rate, businesses must continue to file their current tax returns and pay current tax liabilities as they fall due. Where a business does not meet these conditions, they will be removed from the Debt Warehousing Scheme and the tax liability for periods which had been warehoused will become payable immediately, may be subject to debt collection enforcement action and will be subject to interest charges of 8% or 10% per annum.

The recently announced changes will provide a welcome boost for the circa 58,000 businesses who remain in the Debt Warehousing Scheme. However, it is critical that businesses continue to satisfy the conditions to qualify for the Scheme in order to avail of the 0% interest rate.

Sarah Parker, Manager, Private Clients, Deloitte: The availability of the debt warehousing scheme for qualifying taxpayers has allowed many taxpayers to pay their outstanding tax liabilities subject to reduced interest. An amendment to the scheme, as announced in February 2023 by the Minister for Finance, has reduced the interest payable on such debts to 0%.
Sarah Parker
Sarah Parker

On the establishment of the scheme, where a taxpayer met the conditions to avail of debt warehousing, Revenue set out 3 periods, which had varying interest rates. These rates were as follows:
Period 1 – A 0% interest rate applied to tax liabilities warehoused during the period. The commencement date of period 1 varies dependent on the tax type of the warehoused debt however the earliest period ran from 1 January 2020 – 31 December 2021*.
Period 2 – An interest rate of 0% applied on tax liabilities paid or arising during this period which were debt warehoused in either period 1 or 2. This period ran from 1 January 2022 – 31 December 2022*.
Period 3 – This period ran from 1 January 2023* until such date that the warehoused debt was paid in full to Revenue. Where a repayment of a debt relating to period 1, 2 or 3, has been paid during period 3 (i.e. between 1 January 2023 – present) with an interest rate of 3% applied, this rate has now decreased to 0%. Revenue are operating this new interest rate on an administrative basis pending legislative change. Where a taxpayer previously discharged an interest payment during period 3, Revenue will arrange to issue a refund to the taxpayer of this amount. No action is required by the taxpayer to claim this refund.

The deadline of 1 May 2024 for engaging with Revenue to discuss repayment of warehoused debt, as extended in October 2022 remains and in this regard, taxpayers with unpaid warehoused debt must discharge the debt in full or engage with Revenue to agree a payment arrangement prior to 1 May 2024. Payment arrangements with Revenue can result in taxpayers receiving a period of up to 5 years to repay their debts. Where a payment arrangement for warehoused debt had already been agreed with Revenue and an interest rate applied, this interest rate will be updated to 0%.

*These periods could be extended where a taxpayer had additional undisclosed liabilities arising and met the necessary steps to avail of an extension.

This article appeared in the March 2024 edition of the Irish Tax Monitor.