The Temporary Wage Subsidy Scheme
The Emergency Measures in the Public Interest (Covid-19) Bill 2020 (“the legislation”) was passed by Dail Eireann on 26 March 2020. It includes proposals in a whole range of areas from tenancies, to health, to the payment by the government of a temporary wage subsidy scheme (“TWSS”).
Revenue subsequently issued guidance notes in relation to the operation of TWSS, and on how Revenue propose to monitor correct compliance with TWSS.
This article considers the operation of TWSS in the light of the legislation and Revenue’s guidance notes.
1. Operation of TWSS
- The TWSS legislation provides that a temporary wage subsidy (“TWS”) applies where:
A) The business of an employer has been adversely affected by Covid-19 to a significant extent with the result that the employer is unable to pay to “a specified employee” the wages/salaries the employer would otherwise have normally paid to the specified employee,
B) The employer has the firm intention of continuing to employ the specified employee (and to pay to the employee’s wages/salary) and is making best efforts to pay to the employee some of the employee’s normal wages/salary, and
C) The employer has satisfied the conditions the following conditions:
- The employer has logged on to Revenue’s ROS system in the MyEnquiries field using the employer’s tax reference number
- Having read the declaration referred to in ROS as the “Covid-19: Temporary Wage Subsidy Scheme” declaration, the employer has submitted that declaration to Revenue through ROS, and
- The employer has provided details of the employer’s bank account on ROS in the “Manage bank accounts” and “Manage EFT” fields.
- A specified employee means:
- An individual who was on the payroll of the employer as at 29 February 2020, and
- In respect of whom, the employer:
- Has submitted to Revenue a notification or notifications of the payment of emoluments to the employee in February 2020 in accordance with Regulation 10 of the Income Tax (Employments) Regulations 2018 (“The Regulations”), and
- Has submitted the return required under Section 985G TCA 1997 for the month of February 2020 on or before the required return date for that month.
- The legislation provides that the business of an employer shall be treated as being adversely affected where, in accordance with guidelines published by Revenue the employer demonstrates to the satisfaction of Revenue that, by reason of Covid-19 and the disruption that is being caused thereby to commerce, there will occur in the period of 14 March 2020 to 30 June 2020 at least a 25% reduction either in the turnover of the employer’s business or in customer orders being received by the employer. In Revenue’s guidance notes it advises that key indicators are that “the employer’s turnover is likely to decrease by 25% for quarter 2, 2020, and that the business is unable to meet normal wages or normal outputs and any other indicators set out in our guidelines”. Revenue goes on to advise:
- In relation to the likely reduction in turnover of 25% or more, this is a reduction in expected turnover for Q2, 2020, and that
- The employer is best placed to determine that and may base this judgement on the decline in orders in March 2020, in comparison to February 2020, or the likely turnover for the quarter compared to Q1 or if appropriate Q2, 2019, or on any other basis that is reasonable.
- The legislation goes on to provide for the following technical issues:
- Following the notification by the employer of the payment of emoluments to a specified employee in accordance with The Regulations:
- Revenue will pay a temporary wage subsidy (“TWS”) to the employer in relation to the specified employee
- The payment will be made by way of bank transfer to the nominated bank account of the employer
- Where a payment is required to be made to the employer in respect of each of two or more specified employees by Revenue, the payments may be aggregated by Revenue
- On the payment of any normal wages/salary by the employer, the employer must include in that payment an additional amount equivalent to the TWS in relation to the specified employee,
- The employer is not to tax the TWS though the employer’s payroll system. However, the TWS is still subject to income tax and Universal Social Charge (USC) in the hands of the specified employee.
- In the specified employee’s statutory payslip, the employer must include and separately identify the TWS.
- For Pay Relate Social Insurance (PRSI) purposes, the employee is to be treated by the employer as a Class J9 contributor for payroll purposes for the period during which TWS payments are made to the specified employee.
- However, the J9 classification shall not prejudice the specified employee’s entitlement to any non Covid-19 related social welfare benefits or assistance from the Department of Employment Affairs and Social Protection for the periods in which the J9 classification applies.
- The employer is not entitled to an income tax or corporation tax deduction (as the case may be), in respect of any TWS payments.
- In relation to the amount of the TWS, the legislation provides for the following:
- The amount of the TWS is to be determined by the Minister for Finance, with the consent of the Minister for Employment Affairs and Social Protection, given with the concurrence of the Minister for Public Expenditure and Reform.
- Different amounts of TWS may be determined under the legislation in relation to different classes of employee.
- In determining what is to be the amount of the TWS, the Minister for Finance will have regard to an amount being determined that, in the opinion of the Minister, “would represent a significant contribution to making good the shortfall in the amount of emoluments that would otherwise have been payable to the specified employee concerned”.
- In the case where the net weekly wages/salary that would otherwise have been payable to the specified employee is not more than €586 per week, the amount of the TWS will be capped at 70% of the otherwise arising net weekly wages/salary.
- In the case where the net weekly wages/salary that would otherwise have been payable to the specified employee is greater than €586 per week but not more than €960 per week, the above 70% rule applies, but the TWS payment is capped at €350 per week.
- No TWS arises where the net weekly wages/salary of a specified employee is in excess of €960 per week.
- Notwithstanding the confidentiality obligations imposed on Revenue by Section 851A TCA 1997, the names and addresses of all employers to whom a TWS has been paid by Revenue shall be published on Revenue’s website. We understand that this is to comply with EU State Aid rules.
- Where Revenue has paid to an employer a TWS in relation to a specified employee, and it transpires that the employer has not paid to the specified employee an additional amount equivalent to the TWS, or that the employer was not entitled to receive a TWS in respect of any individual, the TWS paid is to be refunded by the employer to Revenue.
- Refunds of TWS to Revenue carry interest at the rate of 0.0219% for each day or part of a day from the date when the amount is due and payable (approximately 7.99% per annum).
- The legislation provides for penalties where an employer fails to comply with the legal requirements in relation payslip documentation.
- A person shall, without prejudice to any other penalty to which the person may be liable, be guilty of an offence under this section if the person:
- Knowingly or wilfully delivers any incorrect return or statement, or knowingly or wilfully furnishes any incorrect information, in connection with the operation of TWSS or the eligibility for a TWS in relation to any individual, or
- Knowingly aids, abets, assists, incites or induces another person to make or deliver knowingly or wilfully any incorrect return or statement, or knowingly or wilfully furnish any incorrect information, in connection with the operation of the scheme or the eligibility for a temporary wage subsidy in relation to any individual,
and such actions may result in criminal prosecution.
- Notwithstanding any legislative obligations imposed on Revenue or on the Minister for Employment Affairs and Social Protection in relation to confidentiality, the legislation enables TWSS information exchange between the Minister for Employment Affairs and Social Protection and Revenue.
2. Revenue’s approach to monitoring the Temporary Wages Subsidy Scheme
By leveraging off the functionality it has developed in relation to the PAYE Modernisation project, Revenue has a key role to play in the implementation of the Temporary Wages Subsidy Scheme (“TWSS”). Its key role is recognised in the TWSS legislation recently passed by Dail Eireann.
The government is keen to ensure that no employers take advantage TWSS in fraudulent or other unintended ways, and the TWSS legislation contains significant sanctions for such instances. Revenue has recently issued guidance on how it intends to monitor the implementation of TWSS and the purpose of this article is to summarise the intended Revenue approach.
Revenue advises that its general approach to businesses experiencing cashflow and consequent tax payment difficulties is to work towards agreeing mutually acceptable solutions that assist a return to viability as soon as possible. In any such engagement, Revenue expects businesses to be able to produce relevant supporting documentation when requested to do so and to fully engage with Revenue on any follow up discussions or checks.
Revenue’s administration of the COVID-19 Temporary Wage Subsidy Scheme will operate on a similar basis, with eligibility initially being determined, largely on the basis of self-assessment and declaration by the employer concerned, combined with a risk focused follow up verification by Revenue involving an examination of relevant business records where that is considered necessary.
Revenue notes that to qualify for TWSS, a business must be experiencing a significant negative economic disruption due to the Covid-19 pandemic. It notes that in general, this will be readily apparent by evidence and in this regard Revenue advises that the negative effects on business of issues such as some businesses and some sectors have had to close their premises, the impact of public health advice on individual businesses in terms of restrictions on trade, physical distancing, the nature of essential and non-essential businesses, will be obvious.
Revenue advises of its intention to support businesses through TWSS, and that its approach will be based on a presumption of honesty and that it expects businesses to approach the scheme in a similar manner.
The legislation provides for the following:
- One of the TWSS eligibility conditions is that “the business of an employer has been adversely affected by Covid-19 to a significant extent with the result that the employer is unable to pay to “a specified employee” the wages/salaries the employer would otherwise have normally paid to the specified employee”, and that
- The business of an employer shall be treated as being adversely affected where, in accordance with guidelines published by Revenue the employer demonstrates to the satisfaction of Revenue that, by reason of Covid-19 and the disruption that is being caused thereby to commerce, there will occur in the period of 14 March 2020 to 30 June 2020 at least a 25% reduction either in the turnover of the employer’s business or in customer orders being received by the employer.
In Revenue’s guidance notes it advises that key indicators are that “the employer’s turnover is likely to decrease by 25% for quarter 2, 2020, and that the business is unable to meet normal wages or normal outputs and any other indicators set out in our guidelines”. Revenue goes on to advise as follows:
- In relation to the likely reduction in turnover of 25% or more, this is a reduction in expected turnover for Q2, 2020.
Revenue advises that in its administration of TWSS, the key focus will be on the fact of significant negative economic disruption on the employer due to Covid 19.
Regarding retention of employees, in line with the legislation, Revenue highlights that TWSS is confined to employees who were on the employer’s payroll at 29 February 2020, and for whom a payroll submission has already been made to Revenue in the period from 1 February 2020 to 15 March 2020.
It also advises that employees who were laid off after 29 February 2020 may be taken back onto the payroll for the purposes of this scheme.
Revenue advises that it will not be looking for proof of qualification at this stage, but that it may do so in future, based on risk criteria review eligibility. It goes on to state that in this context, employers should retain their evidence and basis for entering TWSS.
Interestingly Revenue states that it will be “very clear” to Revenue from its “normal relationship with businesses” and its “normal interaction with businesses” that there was no doubt about a business’s qualification for TWSS and that it will also “very clear that the businesses were so impacted”.
In relation to supporting proofs as to TWSS eligibility, Revenue advises as follows:
- In any check, Revenue will focus on the types of business records, having regard to the nature and scale of the business, that should normally be readily available for such a business.
- It goes on to state that where for example, a business has negotiated forbearance measures with a financial institution, Revenue will not seek to duplicate the relevant information and the documentation from the financial institution will generally be adequate for verification purposes as evidence of financial disruption.
- The critical requirement is to be able to show significant negative economic disruption due to COVID 19. The evidence in that regard will contribute in large part to demonstration of compliance with the other criteria.
- Revenue sets out the following as illustrative rather than exhaustive evidence and that Revenue is open to considering other relevant evidence as a reasonable demonstration of eligibility for TWSS:
- If for some reason the decline in turnover was less than 25% the business should retain documentation supporting its rationale for believing that it would suffer such a decline
- Copies of documentation submitted to a financial institution as part of the negotiation of forbearance measures with the financial institution.
- Copies of notifications or communications to employees or to Trade Unions or staff representative bodies of salary/wage cuts implemented as a direct result of COVID 19
- Copies of documentation that show that any cash reserves in the business that are required to fund debt that is equal or greater than the reserve amount
- Evidence of reliance on the Government Credit Guarantee Scheme or overdraft facilities or other borrowings for capital purposes.
- In the case of start up businesses, for example, evidence of a decline in investment by at least 25% arising from the COVID 19 crisis.
- Revenue goes on to highlight that an employer that has been hit by a significant decline in business but has strong cash reserves that are not required to fund debt, will still qualify for the Scheme but that the Government would expect the employer to continue to pay a significant proportion of the employees’ wages.
Revenue concludes as follows:
- In operating the scheme, Revenue’s priority is to ensure that all employers experiencing significant negative economic disruption from COVID-19 can register for and start to receive payment as quickly as possible.
- The declaration by the employer is not a declaration of insolvency. The declaration is simply a declaration which states that, based on reasonable projections, there will be, as a result of disruption to the business caused or to be caused by the Covid-19 pandemic, a decline of at least 25% in the future turnover of, or customer orders for, the business for the duration of the pandemic and that as a result the employer cannot pay normal wages and outgoings fully but nonetheless wants to retain its employees on the payroll.
- Revenue does not consider that any employer will require professional advice or assistance in being able to prove to the satisfaction of Revenue that these criteria are met. Should Revenue seek to validate employer eligibility for the scheme, it will adopt a reasonable, fair and pragmatic approach in considering whether the criteria have been met.
To find out more about Revenue’s approach to monitoring TWSS click here: https://www.revenue.ie/en/corporate/communications/documents/guidance-on-employer-eligibility-and-supporting-proofs.pdf
3. Revenue’s Frequently Asked Questions (“FAQ”) on the Operation of the Transitional phase of the Covid-19 related Temporary Wage Subsidy Scheme (“TWSS”)
Revenue has published a useful list of FAQs in relation to the operation of TWSS. The list can be accessed on Revenue’s website. Revenue are continually updating the FAQ list in response to specific situations and questions received, and so we recommend that the website is consulted frequently to ensure that you have the most recent Revenue views on TWSS. https://www.revenue.ie/en/employing-people/documents/pmod-topics/guidance-on-operation-of-temporary-covid-wage-subsidy-scheme.pdf
We have taken great care to ensure the accuracy of this publication. However, the publication is written in general terms and you are strongly recommended to seek specific advice before taking any action on the information it contains.
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Please note that Government and tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions.
The following information is sourced from Revenue.ie (27 March 2020)