BY JOHN ELLIS, FINANCIAL ADVISOR
Back in 2020 businesses impacted by the Covid lockdowns were throw a number of lifelines by the Government. They suspended debt collection and charging of interest on late payment of VAT and PAYE (payroll tax) liabilities due from March of that year.
They allowed the “Warehousing” of tax debt. They confirmed that Tax Clearance Certificates would not be affected by business availing of tax debt warehousing under this arrangement.
The aim of these initiatives was to assist businesses experiencing cash-flow and trading difficulties due to the pandemic. Businesses could defer paying some of their eligible tax liabilities until they were able to financially deal with the debt with lower interest rates being applied — 0% initially and then 3% from January 2023 to the final repayment date.
There were/are three phases to the scheme.
Phase 1, the ‘Covid-19 Restricted Trading Period’ began in January 2020. This covered the period when the business first experienced cash flow trading difficulties arising from the impact of Covid.
Phase 2, the ‘Zero Interest Period’ which began January of this year and ends on December 31, 2022. During this period no interest will be charged during Period 2 on the warehoused liabilities from Period 1.
Period 3, the ‘Reduced Interest Period’ beginning on January 1, 2023. and will continue until the date on which the Covid-19 deferred liabilities are discharged in full. This is the phase where a reduced interest rate of 3% per annum applies until the warehoused debt has been fully discharged.
The facility was open to businesses with tax liabilities in the areas of VAT, PAYE, Temporary Wage and Employment Wage Subsidy, but was conditional on the filing of all tax returns and payment of all tax liabilities that fall due while the warehousing scheme is in effect.
Taxes that fell due during the warehousing agreement had to be maintained for the duration of the warehouse period and for any subsequent arrangement period to guarantee the reduced interest rates of 0% (while in warehouse) and 3% (after the warehouse period ends).
This was/is a very welcome cash flow measure for businesses, but this level of tax debt tolerance is coming to an end as recently Revenue issued warning notices to taxpayers who are availing of the Debt Warehousing Scheme but have overdue tax returns.
According to Revenue, businesses availing of the Scheme had been provided with a deadline of April 30 last to file overdue tax returns and have confirmed they are beginning to issue ‘Final Notices’ to taxpayers whose tax returns still remain outstanding.
The Final Notices provide a 10-day timeframe to businesses to file all outstanding returns, with the notices warning that the benefits of the Debt Warehousing Scheme will be lost if the returns are not filed within this period.
If lost, the warehoused debt will immediately become due for payment and the lower rates of interest that apply to warehoused debt (of 0% and 3%) will no longer apply.
Revenue confirmed approximately 60% of the Final Notices were issued by post with the remainder issued to the taxpayers’ ROS Inbox. “Further notices will issue on a rolling basis over the coming weeks as cases with outstanding returns come to Revenue’s attention.”
In addition, businesses need to be aware that tax debts before and after the “Covid-19 restricted trading” period are not included in the warehousing arrangement.
For many businesses the way ahead seems bleak, and many must be wondering how they will trade their way back to profitability and be able to repay the amounts due.
If there are difficulties meeting tax return filing obligations due to Covid-19 the advice from Revenue is “submit all returns as they are due on a best estimate basis and if there is a difficulty in paying tax liabilities as they fall due engage with Revenue to make suitable arrangements for the discharge of these debts.
They will take each case on its merits and will work with businesses to come to a suitable solution. But it can’t be repeated enough, tax returns must be up to date. Go to www.revenue.ie, where you will find all the information required..