Tax

COVID-19 - Debt Warehousing Regime

New “warehousing” of deferred tax debts and interest suspension arrangements

In March, Revenue announced the suspension of debt collection and the charging of interest on late payment for the January/February and March/April VAT periods and February, March and April PAYE (Employer) liabilities for SME businesses. These arrangements are further extended to include May/June VAT and May and June PAYE (Employer) liabilities.

For the purposes of clarity, PAYE (Employer) liabilities include income tax, universal social charge and employees’ and employer’s PRSI due to be remitted by employers to Revenue under the PAYE system in respect of the payment of wages, salary, etc., to their employees.

Notwithstanding the suspension of debt collection, effected businesses are required to file timely returns so that Revenue has visibility on the level of unpaid debt arising from the Covid-19 crisis. Where a business is unable to file complete returns due to, for example, the absence of key employees or an agent due to Covid-19 related illness or restrictions, the business should submit returns based on the best estimate of the liability.

In early May, the Government announced that it will legislate to provide that Revenue will warehouse such deferred tax debts. The proposed scheme will involve the effective parking of this debt,  for a period of 12 months after a business resumes trading and the application of a lower interest rate of 3% per annum on the repayment of such ‘warehoused tax debts’ after that date.

The necessary legislative amendments will be brought forward in due course. Pending the enactment of the necessary legislation, Revenue will operate the arrangements on an administrative basis.

Qualifying Businesses

Firms that qualify for the wage subsidy are also likely to qualify for deferment of these liabilities. These are Firms with sales or orders down 25%.

Revenue are expected to be flexible in their approach in dealing with taxpayers.

Based on Revenue guidance the scheme will generally operate as follows:

  • It applies to all effected SMEs.
  • Larger firms impacted by C-19 and experiencing tax payment difficulties should apply to the Collector General, or their LCD or MED branch contact.

Where not an SME, there is a need to engage with Revenue. 

Phases of the Arrangement

The warehouse arrangement is split into three periods as follows; 

  • Period 1 – Covid-19 restricted trading phase.

This is the period where the business has restricted trading, + 2 months of normal trading.

The guidance notes state that Period 1 may vary sector by sector depending on the government road map for reopening.

No debt collection or interest will apply to these periods but tax returns must be filed on a current basis.

  • Period 2 - Zero interest phase.

This lasts for 12 months after the end of Phase 1 (effected period + 2 months).

No interest or collection on the Period 1 debt will apply but taxpayers must keep current taxes up to date.

  • 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% per annum will be charged on the debt from Period 1. This compares to a rate of 10% per annum normally or otherwise due on overdue VAT and PAYE (Employer) liabilities.

Businesses must keep up to date on all taxes. 

Other Points to Note

  • An SME is a business with an annual turnover of less than €3million, which is not dealt with by either Revenue’s Large Corporates Division (LCD) or Medium Enterprises Division (MED).
  • Tax clearance will not be impacted by a business availing of the tax debt “warehousing” under this arrangement.
  • Refunds and repayments of tax which arise will be paid with no offset but the business can choose to offset the repayment against the Covid-19 liabilities if it wishes.
  • Taxpayers availing of the arrangement must keep current on all taxes
  • The arrangement does not apply to Income Tax or Corporation Tax. 

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

The link to Revenue’s Guidance on the arrangement is:

www.revenue.ie/en/corporate/communications/documents/tax-debts-warehousing