COVID-19: Revenue Announces New Tax Debt Warehousing Scheme
On 2 May 2020, the Irish Government announced that it will legislate to permit Revenue to ‘warehouse’ VAT and Payroll tax debt that arises on foot of the COVID-19 related restrictions. On 7 May 2020, Revenue published guidance which sets out how Revenue will operate the arrangements on an administrative basis until such time as the necessary legislation is put in place.
Suspension of Debt Collection and Charging Interest
Since 1 March 2020, Revenue had on a concessional basis suspended debt collection and the charging of interest for the late payments of the January/February and March/April VAT periods as well as February, March and April PREM (Employer) liabilities. This concession applied automatically for SMEs1 with medium and larger businesses being in a position to request similar treatment where they were able to satisfy Revenue that they were experiencing temporary cash flow or trading difficulties. So far these deferred payments have amounted to over €1,260 million. These measures are extended to include the May/June VAT period and May and June PAYE (Employer) liabilities.
Debt Warehousing Scheme
The Debt Warehousing Scheme (the “Scheme”) is intended to formalise the informal arrangements which had been granted. Pursuant to the Scheme, VAT and PAYE arising during the period in which the business was and is unable to trade, or was and is trading at a significantly reduced level will in effect be deferred for repayment at a later date. The two most beneficial aspects of this Scheme for taxpayers are:
- Any VAT and PREM (Employer payroll deductions) taxes arising in the restricted trading period will be warehoused for 12 months during which there will be no collection of this debt by Revenue and no interest will be charged; and
- Following this 12 month period, businesses will benefit greatly from a significantly reduced interest rate of 3% which will apply on the repayment of the warehoused tax debt until it is fully paid. This compares to a rate of 10% per annum currently charged on overdue VAT and PAYE (Employer) tax debts.
The Scheme contains three periods:
(a) Period 1 – COVID-19 Restricted Trading Phase: This first period will operate while businesses are unable to trade or are trading at a significantly reduced level and for two months after normal trading resumes. During this time for SMEs there will be no collection of any of VAT and PREM (Employer payroll taxes) arising in the period and no interest will apply. However the relevant tax returns must still be filed during this time. If a tax return has been filed on a best estimate basis, the correct return must be filed before the end of Period 1 to ensure the debt benefits from the warehousing. Whilst the scheme applies automatically to SMEs, medium and large businesses that are “severely impacted by COVID-19” can request to access the scheme.
It is important to note that Period 1 may vary from sector to sector and business to business, given the Government’s phased road-map to unlocking COVID-19 restrictions.
(b) Period 2 - Zero Interest Phase: This will last for 12 months after the end of Period 1. During this period no interest will be charged on the debt built up in Period 1 but current tax liabilities must be discharged as they arise.
(c) Period 3 – Reduced Interest Phase: This will last from the end of Period 2 until the COVID-19 related debts built up in Period 1 are paid. A reduced interest rate of 3% will apply on the repayment of the debt from Period 1.
Key points to be aware of if your business avails of the Debt Warehousing Scheme
(a) If a key employee or agent is unavailable due to COVID-19 reasons and therefore unable to submit a tax return, Revenue has confirmed that businesses should submit tax returns based on the best estimate of the liability. However, businesses must ensure that a correct return is subsequently filed in order for the debt to benefit from the scheme;
(b) VAT and PREM (Employer payroll taxes) taxes are the only debts that will be covered by the Scheme;
(c) The guidance does not provide any indication of the time frame within which taxpayers are expected to repay any taxes that have been warehoused. We understand that the intention is that this will vary from taxpayer to taxpayer with Revenue seeking to work with taxpayers to agree a reasonable time frame. We note that the guidance acknowledges that many businesses “..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.” This therefore suggests that Revenue will offer flexibility in terms of agreeing repayment arrangements which will be welcomed by taxpayers.
(d) Tax Clearance will not be affected by a business availing of the tax debt warehousing;
(e) Refunds and repayments of tax which arise will be paid, notwithstanding that the business owes VAT and PREM liabilities built up in Period 1. The business can elect to offset the repayments against the liabilities owing;
(f) After Period 1 has expired businesses will be expected to pay current tax liabilities as they arise;
(g) Revenue will operate the arrangements on an administrative basis until the necessary legislation is enacted. It is currently not clear when the relevant legislation will be published which will underpin the guidance. The fact that a government has not yet been formed impacts on the ability to pass legislation so it may be a number of months before the relevant legislation is published and enacted; and
(h) For medium and large businesses seeking to access the Scheme it is not clear from the guidance what proofs, if any, they will need to provide to Revenue to demonstrate that they have been “severely impacted by COVID-19”. For businesses of this nature we would suggest that they should engage with their relevant Large Corporate Division or Medium Enterprises Division.
The Scheme will be welcomed by taxpayers who have been impacted by COVID-19 as it provides an important source of liquidity for businesses as they emerge from the COVID-19 restrictions which have impacted their businesses. Taxpayers will need to carefully study the relevant enacting legislation once it is published to ensure that any conditions that apply to the Scheme are met. Until such time as the relevant enacting legislation is passed we would encourage medium and large businesses who are seeking to access the Scheme to liaise with their relevant Large Corporate Division or Medium Enterprises Division contacts.
How can we help?
McCann FitzGerald is ready and willing to assist clients in addressing all of their concerns in respect of legal and/or taxation issues business may face in responding to COVID-19. Please contact any member of the McCann FitzGerald tax team to the extent that you have any questions on the above or any other measures which are relevant to your business.
- A business with turnover of less than €3 million which is not dealt with by either Revenue’s Large Cases Division or Medium Enterprises Division.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.