Tax warehouse losses hit €50m
Revenue has lost €50m on warehoused taxes owed by companies that have gone into liquidation, according to figures provided by Minister for Finance Michael McGrath.
To date, a total of 510 companies who were eligible for the tax debt warehousing scheme have been put into liquidation with collective tax debts of just over €55m, according to the minister’s response to a parliamentary question from Sinn Féin TD Louise O’Reilly.
Most of that amount - €50m - was incurred during the Covid-19 emergency but parked in the tax warehouse for future collection and is now considered foregone.
The losses are the first sign of risks materialising from the warehousing programme, which was put in place to help keep businesses afloat during the pandemic with the expectation that they would pay back liabilities once the economic situation had stabilised.
Mr McGrath said in his response that Revenue was not in a position to specify how much tax revenue would be lost due to future liquidations or administrations, which typically involve writedowns of a firm’s debts.
But initial estimates by his own department in 2020 put potential tax losses from the scheme at up to 25pc of the total. Currently €2.25bn sits in the warehouse after Revenue agreed late last year to extend its demand for payments to May 2024.
Most businesses enrolled in the warehousing scheme have opted to start accumulating interest on their debts rather than start repaying them.
According to the most recent figures, just under 2,000 firms with €68m owing have agreed phased payment arrangements (PPA) with tax officials to clear their debts, according to the latest Revenue data.
That means the vast majority of the 65,000 companies still in the scheme are taking advantage of the repayment extension and adding 3pc in annual interest charges to their unpaid balances.
Businesses in the scheme were originally required to set up a PPA by January of this year, with participating firms expected to pay lump sums of 25pc to 40pc up front.
But Revenue extended that date in October until May 1, 2024 after the Irish Tax Institute and accountancy bodies lobbied for leeway on behalf of their business clients.
While the deadline extension was granted to “minimise business failure”, according to a Revenue spokesperson, it will also delay the repayment of substantial Government financial support, add to the final amount owed, and lengthen the period that public funds are at risk.
Most firms that used the warehousing scheme owe relatively small amounts, with almost nine in 10 carrying a balance of less than €5,000.
But 7,500 companies in the scheme account for the bulk of all the remaining debt, at more than €2bn, meaning the average amount due to be repaid by these companies is approaching €300,000 – a much heavier burden and a bigger risk if any of these firms go bust before paying.
Meanwhile, tax officials have warned firms in the debt warehouse they must file and pay their current liabilities on time or risk losing access to the scheme, which would result in balances being demanded in full, with backdated interest at 10pc tacked on.