Insights

Warehousing of Tax Debt

  • Written By: Aileen Dunning
  • Published: Mon, 18 May 2020 12:02 GMT

One of the key measures introduced by Government to reduce the cashflow impact of tax payments for businesses impacted by COVID-19 is the suspension of debt collection and charging of interest on late payment of VAT and PAYE (payroll tax) liabilities due from March.

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This is a very welcome cash flow measure for businesses, but uncertainty remained as to when this level of tax debt tolerance would end, with many businesses wondering how and when they would trade their way back to profitability and be able to repay the amounts due.

On 2 May 2020, the Irish Government announced a suite of measures to further support businesses that are negatively impacted by Covid-19. One of the measures introduced is the “warehousing” of tax debt. This warehousing will apply for a period of twelve months after recommencement of ‘normal trading’, in this period Revenue will take no debt enforcement action and no interest will be charged in respect of the warehoused debt.

In the normal course, Revenue would work closely with businesses to put in place arrangements, appropriate to the circumstances and viability of each business, to secure payment of those debts over a reasonable timeframe. However, in the current circumstances, businesses that have had to close, or have been significantly negatively impacted by the restrictions, will not be able to enter into arrangements now or in the short term to clear the Covid-19 -related tax debt, while at the same time face the challenge of paying their ongoing tax liabilities as they arise after they reopen; pay their trade and other non-Revenue creditors; complete any necessary restructuring to deal with new trading arrangements in the context of social distancing; build up stock, etc.

The Tax Debt “Warehousing” Arrangements

The tax debts covered are VAT and PAYE debts from the “Covid-19 restricted trading” period. These are the tax debts that have been subject to the suspension of debt enforcement, as discussed above. This scheme will operate in three periods.

Period 1 – Covid-19 Restricted Trading Phase

The relevant tax debts built up while the business is unable to trade or was subject to restricted trading, and debts for an additional two months after the business re-commences ‘normal’ trading, will be ‘ring-fenced’. There will be no collection of any of the debt in question during this period and no interest will apply, but the debt will have to have been quantified by the business through the filing of all the relevant returns for the restricted trading phase. If a best estimate return of liability has been made for any period, the correct return will have to be filed before the end of Period 1 to ensure that the debt benefits from the warehousing.

Period 1 may vary from sector to sector and business to business, depending on when Government restrictions are relaxed in line with the roadmap for re-opening society and business as announced on 1 May 2020.

Period 2 – Zero Interest Phase:

Following a resumption of ‘normal’ trading, the outstanding VAT and PAYE (Employer) tax debts will be warehoused for 12 months during which there will be no collection of this debt by Revenue and no interest will be charged. However, businesses will be expected to pay current liabilities as they arise during this 12-month period.

Period 3 - Reduced Interest Phase:

At the end of the ‘warehoused’ 12-month period, a significantly reduced interest rate will apply on the repayment of such warehoused tax debt until it is fully paid. For more information, visit https://www.revenue.ie/en/corporate/press-office/press-releases/2020/pr-020520-revenue-confirms-warehousing-of-covid-19-related-tax-debt-for-businesses.aspx or speak to a financial advisor.

Revenue has confirmed that the time frame allowed to pay the ‘warehoused’ debt will be flexible and determined by the ability of the business to pay both COVID-19 related debts, as well as meeting its ongoing tax liabilities as they arise in the normal course of businesses.

Administrative points

  • In order to avail of the scheme, the tax debt will have to be quantified by the business through the filing of all relevant returns for the restricted trading phase.
  • Revenue has confirmed that Tax Clearance will not be affected by a business availing of tax debt warehousing under this arrangement.
  • Refunds and repayments of tax which arise will also be paid, notwithstanding that the business owes VAT and PAYE (Employer) liabilities that have been warehoused. However, a business can choose to offset the repayment against the warehoused liabilities if it wishes.
  • Tax debts before and after the “Covid-19 restricted trading” period are not included in the warehousing arrangement. Businesses experiencing difficulty in meeting their payment obligations in relation to such liabilities should engage with Revenue to make suitable arrangements for the discharge of these debts.

The necessary legislative amendments are expected to be contained in Finance Bill 2020. In the meantime, Revenue will operate the scheme on an administrative basis.

Government and Tax legislation, sourced from Revenue, 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.

DISCLAIMER
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.
Smith & Williamson Freaney Limited Authorised to carry on investment business by the Institute of Chartered Accountants in Ireland. A member of Nexia International.

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