Tax Debt Warehousing Scheme – Government Cuts Interest Rate to 0%

The Covid-19 pandemic had a wide range of implications for businesses in Ireland. During the periods when businesses were significantly impacted by public health restrictive measures the Irish Government (the “Government”) introduced a Tax Debt Warehousing Scheme (the “Scheme”), a scheme brought in to protect Irish businesses from going bankrupt during a period of economic uncertainty and volatility.  

The Scheme allowed businesses to park unpaid VAT and PAYE (employer) tax debts that arose during the Covid-19 pandemic for a period of 12 months after a business had resumed trading. The Scheme was introduced to allow businesses who experienced cash-flow and trading difficulties to pay back at a later date, or ‘warehouse’, certain tax debts owed until they were in a financial position to make repayments.

At the time, the Government had agreed to suspend interest accruals during this period and charge a 3% interest rate per annum on repayments after this period. However, on 5 February 2024 Minister Michael McGrath announced that the interest rate on tax debt frozen under the Scheme will now be reduced to 0%, providing more flexibility to those who availed of the Scheme during the pandemic.

The decision is set to benefit more than 57,000 companies with outstanding tax, which according to the Irish Revenue Commissioners (“Revenue”) has accumulated to €1.72 billion. Almost 70% of this cumulative value was for amounts less than €5,000. The bulk of the debt, approximately €1.47 billion arose from 5,265 businesses, whose outstanding balances are greater than €50,000.

Additionally, as of 5 February 2024, Revenue has confirmed that, where a business has already paid interest on warehoused debt, which was previously subject to interest at 3%, it will receive a full refund of that interest. Moreover, Revenue will provide additional flexibilities to businesses in relation to the repayment of warehoused debt, which may include payment breaks and changes to monthly payments for businesses experiencing cash flow difficulties. The driving force behind this announcement, according to Minister Michael McGrath, was the Government’s recognition of the ongoing cost pressures facing businesses in 2024, and their determination to give viable businesses every chance to succeed in a challenging trading environment.

In October 2022, the Revenue extended the date for repayment of warehoused debt from 1 January 2023 to 1 May 2024. There are a number of payment options available for the repayment of warehoused debt depending on circumstances and debt outstanding, as outlined below;

1. Pay now in full, or in part, through online payment channels:

   This payment route is most suitable if the business has low value debts outstanding.

2. Commence payments now via a Phased Payment Arrangement (“PPA”)

   There is a minimal down-payment requirement to activate a PPA. As of 5 February 2024, there will be no additional interest charged for this payment option.

3. Agree a payment arrangement now with monthly payments to commence from the 1st of May 2024:

   There is a minimal down-payment required to activate the PPA under this option. Businesses which avail of this payment route can apply for a payment break until the 1st of May 2024. Notification of first payment will issue 14 days in days in advance of May 2024.

4. Apply for a PPA consolidation now if you have an existing PPA for other taxes:

   This option eases the administration burden and includes warehoused and non-warehoused debt  (which is subject to the applicable interest rate) under one payment arrangement.

5. Request to offset repayable claims such as Value-Added Tax (VAT) against warehouse debt on an ongoing basis:

   Where a customer is due a refund, they may request that the refund be offset against warehoused debt.

   Key Take Away

   In his statement to the public, the Minister stated that; “the key message is that businesses should engage with Revenue: Businesses availing of the Tax Debt Warehousing scheme need to engage with Revenue prior to 1 May 2024. To avail of the flexible approach to tax debt warehousing, businesses must also file their current tax returns on time and meet their current tax liabilities as they fall due.”

   For further information on the operation of the Tax Debt Warehousing Scheme, or to find out how Cafico International can help you, please reach out to Yolanda Kelly or Henry Barrett.