Given the new set of challenges businesses are facing right now, it’s easy to forget that most are still coming out of what was probably a once-in-a-lifetime experience.
While supply chain difficulties, rising input costs and higher energy prices are the issues businesses are grappling with right now, they came on the heels of the pandemic, which caused Many businesses will close their doors or reduce their services for extended periods.
The supports put in place by the Government to help businesses during those periods of restricted trade have been gradually reduced and two of the main schemes are ending for most businesses at present.
Employment Salary Subsidy Regime
As a successor to the Temporary Wage Subsidy Scheme, which was introduced by the government in the early days of the pandemic in March 2020, the EWSS came into force on September 1 of that year.
Provided a flat-rate subsidy to qualified employers based on the number of eligible employees on payroll and gross salary.
To qualify, companies had to be able to show that the business would experience a reduction in turnover of at least 30% and that the disruption had been caused by the pandemic.
The flat rate payment was reduced over time from a maximum weekly payment of €350 per employee to €100.
For all companies except those directly affected by the restrictions introduced at the end of December and in January to try to suppress the Omicron wave of Covid, the scheme ends today.
For exempt companies, the regime will be extended until the end of May at the rate of €100 per employee.
As of Thursday, 22,500 companies still benefited from the plan.
To date, it has cost around €6.8 billion and has supported almost 52,000 businesses and around 737,000 employees.
Debt Storage Scheme
The DWS was introduced to help companies experiencing business and cash flow difficulties due to Covid-19.
Under the scheme, companies were allowed to temporarily ‘park’ certain Covid-19-related tax debts, interest-free, for a period of time.
The idea behind the scheme was to allow companies to defer payment of some of their eligible tax obligations until they are in a better financial position.
The scheme was wound up for most eligible companies at the end of last year, with companies affected by last December’s restrictions eligible to remain in the scheme until today.
“The stored debt remains stagnant, without interest, until the end of the year,” explained the collector general of revenues, Joe Howley.
“For companies affected by the public health restrictions introduced in December 2021, the debt remains stuck until April 30, 2023,” it added.
After those periods a reduced interest rate of 3% will apply.
Revenue data from recent weeks show that, up to the end of January, of the total of 30.9 billion euros eligible for the Debt Deposit Scheme since its implementation, 90% had been paid.
Approximately 3,000 million euros are stored.
Companies that benefit from the regime must be up to date with their tax returns.
“Any business that does not do this will lose the benefits of the Debt Deposit Scheme. This means that the business’s tax debts would become due for payment immediately. It also means the 0% interest rate currently applied to stored debt , and the significantly reduced interest rate of 3% will not apply,” he said.
Revenue will start contacting companies that take advantage of the plan towards the end of the year to implement a “personalized payment” arrangement for their stored debts, for an agreed period of time.
“The payment agreement will take into account the financial circumstances of the company in question and a reduced interest rate of 3% will apply for the duration of the agreed payment schedule,” Howley explained.
Did the schematics work?
Danny McCoy, CEO of the Ibec business group, said it was ‘irrefutable’ that the EWSS had been a success.
Writing in the Irish Times, he said a version of the scheme should be kept in the state arsenal for future shocks.
Neil McDonnell, chief executive of the small and medium-sized business representative group ISME, said the schemes had largely achieved what they had set out to do.
“Perversely, you can measure success by declining bad debts,” he said.
In 2020 and 2021, the level of insolvency was below that of 2019, which, according to Neil McDonnell, made no sense in the context of a global pandemic.
The main negative aspect of the scheme, he says, was the limit it placed on the earnings of qualified employees, which, although substantial, excluded those who contributed more to the social fund.
“It was the lower paid unskilled workers who ended up benefiting anyway, so the government got it right by default,” he said.
However, the scheme sparked controversy late last year when it was revealed that some companies that had benefited from it had paid substantial dividends and posted significant profits.
The Minister of Tánaiste and Business, Leo Varadkar, called on the companies that had made it to return the payments, although he acknowledged that some had already done so.
Danny McCoy believes the issue was misleading in some respects, noting that some companies may be required to pay dividends to shareholders when they make a profit and that these requirements will be time-limited.
“Payments of salaries, interest, dividends and retained earnings are important outlays for companies to continue operating and retain shareholder confidence during a recession,” he wrote.
However, he told Morning Ireland in December that if there was ‘egregious’ behavior when it came to companies taking advantage of supports while making big profits or paying big dividends, that behavior should be reported and acted upon.
Is there a case for extending schemas?
In light of new challenges facing companies stemming from inflation, which has been further aggravated by the war in Ukraine, the government has been asked to be flexible in its approach to winding down the schemes.
There is a general desire among business groups to see some wiggle room in the tax warehouse element in particular.
The Small Business Association requested an extension of the 0% interest rate period for the entire storage period to help businesses reduce their debt more quickly.
It also called for the introduction of a fixed minimum repayment period of between 2 and 3 years.
“While the tax deposit was invaluable to many, it will not be as easy to afford for many small businesses. There needs to be individualized engagement with small businesses by Revenue Commissioners to ensure many small businesses remain viable.” in the future”, Geraldine Magnier, said the director of Idiro Analytics and vice president of the National Council of SFA.
The Family Business Network, which represents 170,000 businesses here, said rising costs were putting the viability of many of those businesses at risk.
He called for an extension of the DWS along with a targeted tax relief to help local businesses overcome current rising costs.
Will there be an increase in business failure?
According to PwC in its latest restructuring update published in early April, a ‘wave’ of corporate restructuring has yet to hit Ireland.
The level of insolvency is expected to rise in the latter part of the year, he believes, from the current record low of just 15 companies in 10,000, which he describes as an “artificial” level.
These rates have not been seen in more than a decade and a half, he notes, and are well below the average failure rate over the past 17 years of 52 per 10,000 businesses, peaking at 109 per 10,000 in 2012.
“We should see a rebound later in the year and into 2023,” said Ken Tyrell, insolvency partner at PwC Ireland.
“Irish government support lasted much longer than in the UK, where it expired in the autumn. They saw a pick-up late last year and early this year,” he explained.
He noted that the Irish liquidation rate stood at about a third of the UK rate for every 10,000 businesses.
Even allowing for the fact that economic conditions may be a bit tougher in the UK, the insolvency rate here would normally not be much lower.
Neil McDonnell agrees that the insolvency rate is likely to rise in the coming months, but called for a degree of flexibility from all involved in the process.
“There’s red ink everywhere and it has to fall on someone’s balance sheet,” he said.
“There will have to be a judgment on this. Companies that were viable in 2019 and are vulnerable simply because of the lockdown, do you let them go?” she asked.
He noted that Revenue had taken a pragmatic approach in the past and hoped they would do so again in the coming months.
“The question is what will happen next year when the payments begin. If someone raises their hand and says that they cannot start the payments, will Collection disconnect them or will an agreement be reached? That will be a trial for the Treasury,” he said.