Tax Warehousing

During Covid-19, the Government introduced a range of supports to help businesses negatively impacted. One of those was to allow affected businesses to warehouse their tax obligations to the end of 2021 (or April 2022 depending on the sector) interest free to the end of 2022. Any business with outstanding Revenue warehousing at this point, will be required to enter into a Phased Payment Agreement (‘PPA’) – effectively a three-to-five-year repayment plan at 3% interest.

The scheme was put in place under a peculiar set of economic conditions – negligible inflation, record low interest rates and a strong economy despite Covid-19. Economic conditions have changed quite considerably recently, inflation is now running at c. 9%, interest rates are on the rise and the recessionary canary has started to twitter.

What has that got to do with warehoused tax?

Well firstly, the faint hope of a write off is well and truly off the table. The deferral of tax revenue required the government to borrow more, the cost of that borrowing is now on the rise. Additionally, it would likely cause a row within the business sector given that 90% of the eligible funds have already been repaid.

Secondly, the warehoused tax facility will operate like a debt facility – fixed repayments, fixed term and interest bearing meaning it will effectively be leveraging up a business just at a time when economic clouds are building on the horizon.

Lastly, cash is king as they say and any additional repayments on anything in a small business can have an outsized impact. Cash that is spent repaying this facility cannot be invested elsewhere and could limit the ability of a small business to access finance from traditional banks with traditional lending models. Deferred investment has a multiplier effect around the wider economy which is enhanced during slow growth periods in the wider economy.

Our advice is to engage with Revenue early and often to ensure you get a deal that works for you and your business.