“Revenue is determined to maintain the current high levels of compliance notwithstanding the more difficult economic circumstances in which businesses and tax payers are now operating. Therefore Revenue expects that taxpayers and businesses organise their financial affairs to ensure that they pay their tax debts by the due date.
Revenue also acknowledges that in the current economic slowdown some businesses and taxpayers are currently experiencing difficulties in meeting their tax payment obligations even where they are fully committed to so doing and in more favourable economic and financial circumstances did precisely that."
The above is a statement was issued by Revenue in December 2008 in respect of taxpayers that are having difficulties in paying their tax.
The current economic climate has resulted in an unprecedented demand on cash flow for many businesses including motor dealers. Businesses are juggling cash funds to pay banks, staff, and creditors and often payment obligations to Revenue are viewed as a deferrable debt.
Importantly Revenue have issued guidance on www.revenue.ie for taxpayers who are experiencing difficulties in paying their tax liabilities and crucially it appears that they recognise the difficulties facing businesses and are willing to work with businesses experiencing such difficulties to a certain degree.
It is important to highlight that Revenue plays a crucial role in delivering a large proportion of the funds required by the Government to provide services to the people living Ireland. Therefore if there is a delay or reduction in tax collection, this affects the resources available to Government to provide vital services to its people. In this regard, while it appears that Revenue is sympathetic towards the cash flow difficulties experienced by businesses, they will not accept the ongoing failure of a business to meet its tax commitments. In their own words they “cannot and will not become a banker of last resort.”
What Revenue expect is that businesses assisted by their tax advisors, maintain a clear focus and organise their financial affairs to ensure that tax liabilities are paid as they fall due. Where businesses do not cooperate with Revenue, Revenue will have no option but to initiate enforcement measures to address the problem. In Revenue’s eyes, if a business has the ability to continue to trade while not paying their taxes, such businesses are treating Revenue as an unauthorised source of credit. This is not something that can be maintained for the greater good of the economy.
For those finding it difficult to pay their tax liabilities, one thing that is certain is that the ‘burying your head in the sand’ approach will not work. An inability to meet tax obligations does not usually materialise overnight; it is often the result of a deteriorating situation over a period of time. The key message is that it is not always better to wait until Revenue approach you.
The approach taken by Revenue in cases such as these is as follows:
- Revenue use an IT system which identifies incidences of late or non payment of taxes as they fall due and following identification a caseworker is assigned to a particular case;
- the caseworker then seeks to engage with taxpayers where such late or non compliance arises;
- the caseworker and the taxpayer develop a strategy and agreed approach to addressing the non compliance, including agreement on a timeframe for implementation or completion of an agreed approach; and
- where meaningful engagement is not forthcoming, Revenue will look to apply enforcement action (which can entail court proceedings) and interest charges. This can be in the form of a Sherriff coming knocking on your door or communication from your bank that the Revenue has issued an attachment order.
A key driving point of Revenue’s approach in responding to late payments of tax or non-compliance is early intervention by Revenue. The main aim of Revenue is to bring the case to a close as soon as possible; therefore it is in everyone’s best interests to cooperate and get the matter resolved as quickly as possible. In cases where a taxpayer’s situation has deteriorated to such a degree in that they are severely behind in their tax payments and tax compliance, the scope for flexibility in discussions with Revenue as to how the matter can be resolved are severely limited. Therefore the key message is that early proactive engagement by a taxpayer with Revenue when they begin to experience payment difficulties is likely to prove more successful than waiting until the difficulties have become too large to overcome.
So if you find yourself struggling to pay your tax bill, what should you do?
- either you or your tax agent should contact your relevant Revenue district at the earliest stage in the difficulties possible;
- be willing to engage with Revenue on an open and honest basis;
- provide a clear explanation of the reason for difficulties with payment and an analysis of the current financial situation of the company should also be provided in the form of a cash flow analysis;
- details of current debtors and creditors should also be provided. Detail should be provided in relation to which precise customers are overdue in making their payments and what the extent of the debt owed by the customers. Revenue will also want to know when the payment is expected and what measures have been taken to collect the debts from overdue customers as well as how long the difficulties have been ongoing; and
- propose a clear timeline for repayment of the tax liability in full.
In cases where the taxpayer is experiencing short term cash flow difficulties but the viability of the business is not in jeopardy, Revenue will insist on payment of taxes as they fall due and a payment of back taxes (plus interest). Where payment is not made on time, Revenue will apply interest on the late payment of tax which is applied at a rate of 0.0219% per day (10% per annum). Where tax returns are not filed on time, the penalty for this non-compliance can be up to 10% of the tax liability due depending on how late the return is.
Where a taxpayer is experiencing long term cash flow difficulties or where a short term difficulty has resulted in an accumulation of a significant amount owing to Revenue, Revenue may in appropriate circumstances enter into a phased payment arrangement over an agreed period of time with the taxpayer. Such agreements are normally only available where timely contact and engagement with Revenue is entered into by the taxpayer and are strictly granted on a concessional basis. This stresses once again the importance of approaching Revenue where a taxpayer is in difficulty. It is also important to note that entering into a phased payment agreement does not reduce a taxpayer’s exposure to interest being applied to the amount outstanding which can further enhance the taxpayer’s payment difficulties. Therefore it is often in the best interest of the taxpayer to agree to pay as much as possible upfront and leave as small as balance as possible payable over the shortest timescale possible.
In conclusion, where a taxpayer is in difficulty they should approach Revenue as soon as possible as responsibilities to pay tax liabilities is unlikely to disappear.
This article is only a general discussion and does not deal with all the issues and tax savings available. When implementing any of these savings, it is important to do so carefully and to obtain professional advice.
Crona Brady is a manager in Grant Thornton's tax department.
Email crona.brady@ie.gt.com