Ireland’s Debt Warehousing Scheme (DWS)

Ireland’s debt warehousing scheme was introduced initially in response to the Covid pandemic and then extended, will be extended no more.

On 1 May 2024, the Revenue is calling time on the debtors – and if your business is one of them, there could be a cliff edge coming.

How is your business going to deal with this? It’s no small ask. Businesses in Ireland have been buffeted not only by Covid, but by a “perfect storm” of energy price hikes, minimum wage increases, and pension contribution uplifts, plus powerful background inflation (set to hit 20% this year).

In the wake of all this, settling a significant retrospective tax bill may seem like a bridge too far.

But this is where our team of outsourced, part-time Finance Directors and other Finance professionals at EFM Ireland come in.  So, let’s take a look at the reality of the situation, your options, and how we can work proactively with you and your accountant to help.

What was DWS about – and what’s happening to it?

Ireland’s Debt warehousing scheme was introduced to enable businesses to defer the payment of tax in the Covid years – primarily 2020 and 2021.

It covered mainly VAT and Employers’ PAYE, but also, in some instances, income tax and the Employment Wage Subsidy Scheme (EWSS). It was set to remain interest-free until the repayment date of 1 January 2023, with a heavily reduced interest rate of 3% (compared to the standard 10%) thereafter.

The repayment date was then later extended to 1 May 2024 – which, at the time of writing, is now just a little over three months away.

A condition of the Scheme has always been that you continue to keep up to date with your current tax payments in the meantime, but even so, it’s hit the Revenue hard. Total warehoused debt is now running at around €1.7 billion, across 58,000 businesses.

How hard a deadline is 1 May?

To quote recent media coverage, the Revenue “isn’t budging” on this extended payment date.

However, in reality, there is a degree of flexibility on offer.

The interest rate has now been reduced to 0%, and payment doesn’t have to be made in full by the extended payment date.

Instead, if your business has over €500 of warehoused debt, you can contact the Revenue, or apply online, to enter into a Phased Payment Arrangement (PPA), which enables you to reimburse the debt and its interest over time according to an agreed payment schedule, with an initial down-payment.

The arrangement and down payment must be fully in place by 1 May, and the application may require supporting documentation, so getting started on this sooner rather than later is advisable.

And whilst we’re not writing this piece as tax advisers, our dealings with the Revenue have indicated that they are ready to negotiate on down-payment amounts, regular repayment amounts, and repayment schedule duration.

All of which is better than a final demand for immediate payment dropping through your company letterbox on 1 May – but that’s little comfort if your business just can’t front the cash for either the down payment or the regular outgoings.

Or can it?

Optimise cash flow, diminish debt

This is where the Revenue has, arguably, fundamentally misunderstood small businesses and their lack of cash reserves.

But it’s also where we at EFM Ireland can turn the situation around, by managing your cash flow more effectively and freeing up funds to make the repayment of debt both more feasible and less painful.

Working closely with you, your EFM Ireland Associate from our team of outsourced Finance professionals will focus on the key actions that will help you to optimise your cash flow. These include, amongst others:

• Timely invoicing, payment collection, and credit control
• Renegotiating payment terms to help ensure your customers pay before supplier bills fall due
• Preparing VAT on a cash or accruals basis, for more payment flexibility where needed
• Invoice factoring, to increase short-term cash availability
• Price adjustment to deliver consistent profitability

Every business is different, and we tailor an approach to each client’s circumstances and operating model, but you can learn more about cash flow issues in general, and how EFM Ireland helps you to solve them, here.

What’s the alternative to repaying Debt warehousing scheme debt?

Inevitably, some businesses in the sectors hardest hit by recent economic difficulties in Ireland – wholesale and retail, accommodation and food services, restaurants and pubs, and construction – might be tempted to simply let the business fold and leave the debt unpaid.

However, it’s important to understand that the Revenue is taking a hard line on this.

Disqualification as a Director, previously rarely enforced, is now a very real prospect, and its consequences are not trivial. It could mean you can’t take up another post as either Director or manager without a court’s express permission. If that permission isn’t forthcoming, it could see the end of your career, or force you to return to employed work.

Disqualification as a Director can also:

• Cause damage to your reputation, as the disqualification is information in the public domain
• Result in a personal liability to repay company losses
• Negatively impact your credit rating
• Result in criminal sanctions – including prison – if you breach the disqualification order

The Revenue is also promising, as one media source put it, that non-paying firms “could be liable for unpaid taxes and penalties, as well as subject to intrusive audits and exclusion from schemes such as tax debt warehousing and energy subsidies.”

In short, payback is an obligation, not an option, and the Revenue is ready to bear its teeth. But the combination of negotiable terms on its part and better cash flow management thanks to EFM Ireland on yours, means you’re well placed to avoid their bite.

For more information on how EFM Ireland can help you improve your cash flow management to repay your DWS debts viably, compliantly, and manageably, get in touch today.