Taxman starts clawing back Covid millions – NZ Herald

A West Auckland Brewer is one of hundreds of New Zealand businesses caught in an ongoing Inland Revenue Department audit that has run the ruler over billions in Covid support payments and found a fraction
wanting.

Hugh Grierson, of Hopscotch Brewery, is being pursued by Inland Revenue demanding he repay $45,000 in Covid support payments over the past three years – in wage subsidies, resurgence payments, and a small business cashflow loan – after deeming his business ineligible or funds having been allegedly misspent.

Hopscotch is best-known for brewing Dick Move – a chili-laced oatmeal chocolate stout – but Grierson said choppy business conditions caused at least in part by the pandemic meant he was unable to repay what Inland Revenue sought and he was considering drastic options.

“I don’t want to liquidate. I feel like we’re getting back to where we want to be, but this is going to ruin it. That is – probably – the end result,” he said.

“IRD won’t get a lot of money that they’re attempting to claw back. What they will do is get a whole lot of receiverships.”

The key areas of contention concern using the small business cashflow loan – an interest-free loan of up to $20,000 – to pay himself drawings, and the definition of a “typical week” when making calculations as to whether lockdown-related downturns were sufficiently adverse to qualify for support.

Correspondence from Inland Revenue provided by Grierson to the Herald cautioned against gaming “typical” by picking the best and worst weeks available to maximise any apparent downturn, especially in businesses with lumpy cashflows such as real estate agents.

“Any transfer to an owner was deemed as misspending which included paying yourself a wage or drawings,” Inland Revenue told Grierson.

“While customers did not have to use an average sales figure and the word ‘typical’ is somewhat subjective, to suggest that any week within the six-week window could be chosen and considered typical is not something Inland Revenue accepts,” the correspondence continued.

Grierson said the definition of “typical” was unclear at the time, and the restriction on applying the small business cashflow loan to shareholders was overly restrictive for sole traders like himself who relied on their business to cover household necessities.

“Will they make small businesses pay back $20,000 and collapse? They’re not badass criminals, but really it wasn’t clearly explained. What did IRD think that people with no income, who were self-employed, would be doing? How were they going to pay mortgages and feed their children?” he said.

A spokesperson for Inland Revenue did not specifically address Grierson’s case – the department has a long-standing legislated policy of not discussing individual taxpayers – but said it had 55 staff in its post-payment verification team currently working on auditing Covid payments.

So far 397 businesses had been served with demands to repay $8.3 million, with $2m already repaid and “the bulk of the balance under instalment arrangements”.

“There were some businesses, having received the payments, that applied them for purposes outside the remit of the schemes,” an Inland Revenue spokesperson said.

These clawbacks, however, cover only around 0.1 per cent of both the number of support recipients and total Covid payments overseen by Inland Revenue, and have not seen any disputes escalate to Inland Revenue applying to the court to liquidated indebted companies.

The Ministry of Social Development delivered the first round of wage subsidies in March 2020, and that June Inland Revenue took over as principal Covid support agency to deliver more than $6b to more than 230,000 businesses and individuals through schemes like resurgence payments and small business cashflow loans.

Robyn Walker, a tax partner at Deloitte, said the early days and months of the pandemic were a tumultuous time, with policies being rolled out and refined on an almost weekly basis and this was particularly difficult to manage for small businesses without dedicated accounting support.

“I can understand why IRD are raising questions now, but at the same time I can understand how people found themselves making mistakes,” she said.

She said restrictions on small-business cashflow loans not being able to be directed to shareholders got tweaked early on to allow the payment of wages, but this still left questions.

“It’s a murky area. There’s always that general thing that money is fungible: you have got to pay yourself and how do you tell which pot it’s coming from? The guidance was always a little bit vague.”