Warehoused tax bill is not the only burden small businesses face

SMEs face challenges on a number of fronts including the increased minimum wage, sick pay, increased employer PRSI, rising input costs, and the introduction of pension auto-enrolment

Sun, 21 Jan, 2024 - 17:30

Nicola Quinn

There has been a lot of commentary in recent weeks, particularly from the hospitality sector, in relation to tax debt warehousing and the upcoming deadline of May 1 for businesses to repay amounts owed to Revenue.

In essence, the scheme has provided for the deferral of tax debts for businesses that experienced cash flow and trading difficulties during the pandemic.

Currently, there are nearly 60,000 businesses with warehoused Revenue debt amounting to €1.8bn under the scheme.

However, 85% of the total warehoused debt is held by only 10%, or about 6,000 of these businesses.

Countless businesses were no doubt saved by this vital liquidity support during the pandemic period.

Many of those same businesses, however, now contemplate with growing angst the impending Revenue repayment deadline of May 1.

A significant portion of the businesses who availed of the warehousing scheme are SMEs — firms who form the backbone of the Irish economy and who employ large numbers of people across the country.

The major turbulence unleashed by covid-19 was followed quickly by another powerful punch: a cost-of-living crisis not seen since the early 1980s.

This undoubtedly prolonged the timeframe for businesses to recover from the initial upheaval of the pandemic.

To pull the rug from under businesses now, just as the worst of the inflationary crisis shows signs of abating would be a mistake.

It would also risk undermining much of the good work the Government did in saving those businesses in the first place.

The announcement in recent days by finance minister Michael McGrath about possible changes to the scheme and increased flexibility are welcome and we await further details on this in the coming weeks.

In the meantime, any business that has availed of warehousing needs to ensure that they don’t put their head in the sand and should ensure that they engage with Revenue in relation to it before the May 1 deadline.

It is also important that businesses who have availed of warehousing are tax compliant.

Failure to keep your tax affairs up to date can lead to the loss of the benefits of the warehousing scheme and immediate enforcement action to collect the warehoused debt.

Cost and funding pressures for SMEs

2024 will see SMEs continue to grapple with intensifying cost challenges on a number of fronts including the increased minimum wage, sick pay, increased employer PRSI, rising input costs, and the introduction of pension auto-enrolment in the second half of the year.

For some businesses, the repayment of warehoused liabilities may require them to obtain alternative sources of financing.

In a higher interest rate environment and with only two pillar banks, conditions in the leveraged loan market have become considerably more challenging for corporates in recent years.

Where a business has warehoused debt, the level and timing of repayment of that debt is something that will impact its ability to access funding.

Government needs to continue to support SMEs through these challenges.

This can be achieved in a number of different ways through direct cost supports, credit support schemes or through using the tax system.

Without continued support, we will see increased business failure with longer-term implications for the exchequer.

The tax administration burden

In addition to the increasingly high cost of doing business in Ireland, there is a growing compliance and administrative burden facing businesses.

This burden is felt disproportionately by SMEs. Tax return filing and reporting requirements are becoming increasingly complex.

One such example is the Enhanced Reporting Requirements which came into force from January 1.

The new provisions impose a real-time reporting obligation on employers with respect to certain non-taxable payments and represent the beginning of a phased introduction of additional reporting requirements for employers.

Tax return filing and reporting requirements are becoming increasingly complex. Picture: Laura Hutton/RollingNews.ie

Such measures are one of many introduced in recent years which only serve to compound the growing administrative burden facing businesses already hampered by significant financial and resource constraints.

Complying with all of these additional reporting requirements adds significant additional cost for companies.

Revenue should be seeking to reduce the administrative burden facing businesses rather than adding additional compliance obligations.

The finance minister has tasked Revenue with reviewing the administration of business supports with a view to simplifying and modernising them.

It is really important that this review considers the impact and burden of compliance on SMEs.

Cutting off the oxygen now would be shortsighted

To the Government’s credit, it intervened with sufficient speed and scale during the pandemic and saved many businesses from insolvency with the array of support schemes it provided.

In many respects, the heavy lifting has already been done, with many of those firms slowly but surely being nurtured back to health.

However, much like a wounded boxer recovering after a painful fall to the canvas, businesses need just a little more time to find their feet.

With a healthy Exchequer surplus and tax revenues in 2023 soaring to a record €88.1bn, we have the resources to support our SMEs to continue for the long term.

Government needs to be innovative and collaborate with the business community to ensure that the supports are targeted and impactful.

Our indigenous businesses and SMEs are the lifeblood of the Irish economy, employing more than a million people.

To cut off their oxygen now while there is still a pulse beating would be short-sighted and ill-advised.