Tax Debt “Warehousing” and Interest on Tax Liabilities Suspended

Interest on Tax Liabilities Suspended

Over the last number of months Revenue has outlined some key actions it has taken to assist businesses experiencing cashflow and trading difficulties arising from the impacts of COVID-19, including:

  • advising businesses to continue to file tax returns on time, even where payment is not immediately possible.
  • suspending all debt enforcement action until further notice, and
  • suspending interest on late payment charges for both SME’s (automatically) and larger businesses (on request) for January/February 2020 and March/April 2020 VAT, as well as February 2020, March 2020 and April 2020 PAYE (Employers) liabilities.

On 7th May 2020 Revenue announced additional measures to support both SME businesses (automatically) and larger businesses (on request) experiencing cashflow and trading difficulties arising from the impacts of COVID-19 by suspending further the imposition of interest on late payments of:

  • May 2020 and June 2020 PAYE (Employers) liabilities normally due in June 2020 and July 2020 respectively, and
  • May/June 2020 VAT liabilities, normally due in July 2020.

Revenue have stressed the importance of filing tax returns even where full or part payment of the related tax is not possible, this is because the Revenue need to be in a position to determine the level of unpaid taxes as a result of Covid-19. Where key personnel are unavailable to compute the tax returns due to the COVID-19 virus, businesses should still file on a ‘best estimates’ basis. Any subsequent amendments can be completed on a self-correction basis without imposition of penalties.

Businesses other than SMEs who are experiencing temporary cash flow or trading difficulties, including larger businesses managed by the Large Corporates Division (LCD) and Medium Enterprise Division (MED), should contact the Collector-General’s office through ‘MyEnquiries’, Revenue’s secure online correspondence service which is available in both ‘MyAccount’ and ROS. Alternatively, these businesses can engage directly with their LCD or MED branch contacts.

For tax purposes, an SME is a business with turnover of less than €3 million who is not dealt with by either Revenue’s Large Corporates Division or Medium Enterprises Division. SMEs are managed from both a service and compliance standpoint by Revenue’s Business Division.

Tax Debt “Warehousing”

On 2nd May 2020, the Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, announced  a number of economic measures in response to COVID-19 including legislating to permit Revenue to ‘warehouse’ VAT and Payroll tax debt arising due to COVID-19 related restrictions. Pending the enactment of the legislation, Revenue will operate the scheme on an administrative basis. In effect the amounts deferred from March will be warehoused. The tax liabilities arising in March would have been the January / February 2020 VAT and February 2020 Payroll. Under the scheme, VAT and PAYE (Employer) tax debts deferred while a business was or is unable to trade or was or is subject to restricted trading due to the COVID-19 related health restrictions, as well as debts for an additional two months after the business resumes ‘normal’ trading will be ringfenced by Revenue. The Debt Warehousing arrangement will have three Periods as follows:

Period 1Covid-19 Restricted Trading Phase:

The applicable VAT and Employer tax debts that have 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’.  The relevant Tax Returns for this period must be filed to Revenue, as Revenue have to be able to quantify the taxes owing by the business. If a ‘best estimate’ return of liability has been made, the correct return will have to be filed before the end of Period 1 to ensure the Taxpayer can avail of the debt benefits from the warehousing arrangement. No interest on late payment of taxes will arise on these taxes and debt enforcement will be suspended.

Please note that 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. However, during Period 2 businesses will be expected to pay their taxes as they fall due in this 12-month period.

Period 2Zero Interest Phase:

When businesses have resumed to ‘normal’ trading, the unpaid VAT and Employer Payroll Taxes outstanding will be warehoused for 12 months after the end of Period 1.  Again, no interest will be charged by Revenue on these tax debts nor will they enforce debt collection. However, Taxpayers must file their tax returns and pay their tax liabilities as they arise during Period 2.

Period 3Reduced Interest Phase:

A reduced interest rate of 3% (normally 10%) per annum will be imposed on the warehoused tax debt from the end of the ‘warehoused’ 12-month period until the tax debt is repaid in full.

Tax clearance will not be rescinded where a business is availing of tax debt ‘warehousing’ arrangement so Taxpayers have certainty that availing of this arrangement will not impact their Tax Clearance validity.

Any tax over-payments arising will be repaid by the Revenue to the Taxpayer regardless of the business having ‘warehoused’ tax liabilities. If the Taxpayer wishes they can request Revenue to offset any over-payment against the Covid-19 liabilities.

Full details of the arrangements for debt warehousing will be published in legislation in due course.

Revenue recognises the need for clarity and certainty on how and when businesses will repay their taxes and Revenue said in their information note on 7 May 2020 that they 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.

The above note is intended for general guidance, if you have any queries or require specific advice then please do not hesitate to contact a member of our Tax Department.