Fears that 'hidden debt' could stymie small business after Covid

More than €1bn in tax liabilities is warehoused by SMEs under the Debt Warehousing Scheme, a support scheme for businesses affected by Covid-19 restrictions
Fears that 'hidden debt' could stymie small business after Covid

Sinn Féin spokesperson for Enterprise, Employment and Trade, Louise O'Reilly: “From speaking with many SMEs and family businesses, there is a fear that ‘hidden debt’, such as warehoused tax debts and commercial rent arrears, could hinder their ability to bounce back to profitability when we exit the current crisis.” Picture: Gareth Chaney/Collins

A mountain of "hidden debt" could hamper any economic recovery, it has been warned.

Finance Minister Paschal Donohoe told Sinn Féin's Louise O'Reilly in a parliamentary response that over €1bn in tax liabilities is warehoused by SMEs under the Debt Warehousing Scheme, a support scheme for businesses affected by Covid-19 restrictions.

Mr Donohoe said that the scheme allows Vat and PAYE debts incurred by businesses during the weeks of restricted trading to be parked on an interest-free basis for 12 months after the resumption of trading.

It can then be repaid over three years at a 3% interest rate.

The scheme is automatically available to SMEs and individuals managed by Revenue and by agreement with larger businesses, where such businesses have been adversely impacted by Covid-19, he said.

However, Ms O'Reilly said that she feared that when business resume trading, this debt could hinder their recoveries.

“From speaking with many SMEs and family businesses, there is a fear that ‘hidden debt’, such as warehoused tax debts and commercial rent arrears, could hinder their ability to bounce back to profitability when we exit the current crisis,” Ms O'Reilly said.

SMEs are the backbone of our economy, especially in terms of employment, so the fact they have warehoused more tax debt than any other sector is a concern. 

"The Government needs to look at this specific issue and assess the sort of structures they may need to be put in place for businesses to bounce back, and for people to re-enter employment, as we exit the crisis.”

Isme chief Neil McDonnell said that the scheme is "a good compromise" but there needs to be state recognition that many businesses will need more support even as lockdowns end.

"The debt warehousing is a good compromise. Of course, a lot of businesses will hope for forgiveness of this. A lot of these businesses will not make it without something like examinership-lite or summary rescue," Mr McDonnell said.

"The fact that warehousing is allowed is improving short-run cashflow. But the State has a role to play. Those taxes could be the difference between who comes out of this and who doesn't. Those who can repay, will."

Mr McDonnell said that the scheme allowed businesses to access credit at lower rates than would be commercially available. 

He said that the medium-term impact of the pandemic on businesses would take some time to be seen.

More in this section

IE_logo_newsletters

Select your favourite newsletters and get the best of Irish Examiner delivered to your inbox

Execution Time: 0.219 s