Have you considered putting your tax liabilities on ice with no interest payable?

Just think of all we’ve seen this year which we never heard of before, TWSS, EWSS, CRSS and more, and all because of the Jurassic economy. The Covid Restrictions Support Scheme (CRSS) was enhanced during the week with the related press release noting that “Revenue have been accepting registrations for the scheme since 1 November, and the claims process is open since 17 November with over €45.5million in payments already issued.”

Warehousing of tax liabilities is a recent development brought about as part of a series of actions taken to assist businesses experiencing cash flow and trading difficulties arising because of the Jurassic economy. Regular readers of this column will recall previous columns outlining the possible use of accelerated losses to generate refunds and other interventions.

Warehousing allows VAT and PAYE (Employer) liabilities incurred by businesses during the period of restricted trading caused by Covid-19 to be put into cryostasis on an interest free basis for a year following the resumption of trading. According to Revenue’s guidance PAYE (Employer) liabilities include income tax, USC, employer’s PRSI and LPT collected by the employer on behalf of a customer which are due to be remitted by employers under the PAYE system.

At the end of the year-long interest free period, the warehoused debt may be paid in full without incurring an interest charge. Alternatively, it can be paid through a phased payment arrangement at the reduced interest rate of 3% per year. This is a big difference when you compare the reduced rate to the standard rate of 10% per annum that would otherwise apply to such liabilities.

Since my last column, Revenue have written to over 100,000 taxpayers confirming that their tax debts totalling €2.2 billion are eligible for Debt Warehousing. Those Revenue letters explain the benefits of warehousing for each individual business as well as outlining exact amount of debt that has been warehoused. Samples of such letters are available on Revenue’s website. In some cases where returns are outstanding, the businesses were asked to file these returns within 28 days in order to continue availing of the benefits of debt warehousing.

What if you didn’t get a letter? As part of a recent press release Revenue reminded any other businesses who have not been written to and who want to avail of the Debt Warehousing Scheme to contact the Collector-General’s office to apply for the scheme.

That press release explained that “To avail of the Debt Warehousing Scheme, businesses need to file all relevant tax returns for the restricted trading period(s) so that the exact liability can be quantified and included in the scheme. Businesses that may have made a best estimate return of liability while Covid-19 restrictions were in place need to file the return so that the full liability can be quantified and warehoused. Businesses that have additional tax liabilities that have not yet been declared to Revenue in the appropriate tax return, due to error or omission, must self-correct or make an unprompted disclosure. Completing these steps will ensure businesses can avail of this significant support during an extremely challenging time.”

Access to the warehouse arrangement for VAT, PAYE (Employer) and Temporary Wage Subsidy Scheme (TWSS) repayments is automatic for all businesses managed by Revenue’s Business Division (turnover <€3m) and Personal Division. Access is available for businesses managed by Revenue’s Large Corporates Division (LCD) and Medium Enterprise Division (MED).

There are three periods to the warehousing scheme. Period 1 is the “COVID-19 Restricted Trading Period”; Period 2 is the “Zero Interest Period”; and Period 3 is the “Reduced Interest Period”. Period 1 or the “COVID-19 restricted trading phase” covers the period when the business first experienced cash flow trading difficulties arising from the impact of the virus.

Period 2 starts immediately after the above and comprises the period of 12 months beginning on the first day after the end of Period 1. No interest is charged during Period 2 on the warehoused liabilities from Period 1. Period 3 begins on the first day after the end of Period 2 and continues 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.

Budget 2021 provides for the extension of the Debt Warehousing Scheme to the recovery of any overpayments arising from the TWSS. The Budget also extended the warehousing facility to self-assessed 2019 income tax and 2020 preliminary tax liabilities. With the incoming ROS pay and file deadline of 10 December hurtling towards us the press release explained:

“The extension of the scheme announced as part of last month’s Budget gives self-assessed taxpayers the option to warehouse the balance of their 2019 income tax and 2020 preliminary tax liabilities. When filing their 2019 Form 11 income tax return, self-employed taxpayers can make a declaration that their total income for 2020 is expected to be at least 25% less than their total income for 2019 due to Covid-19. Once 2019 preliminary tax obligations were fully met, Revenue will warehouse these tax debts under the expanded scheme.”

Period 1 for the 2019 Income Tax and 2020 Preliminary Tax years ends on the due date for both returns i.e. 31 October 2020. An extended due date of 10 December 2020 applies for taxpayers who file online through Revenue’s Online Services (ROS). No interest is charged during Period 1 on the warehoused liabilities arising in that Period. Periods 2 and 3 are similar to those outlined earlier.

Self-assessed taxpayers who have already filed their return and now wish to avail of the Debt Warehousing Scheme can contact Revenue to arrange to have their liabilities warehoused. Revenue’s guidance explains that Income Tax payers who failed to meet Preliminary Tax requirements for 2019 (insufficient payment on 31 October 2019) are ineligible and cannot avail of Debt Warehousing in respect of the 2019 Income Tax balance. However, those taxpayers are eligible for warehousing of their 2020 Preliminary Tax and can also avail of the reduced rate phased payment arrangement on 2019 Income Tax if they apply before the 10 December 2020.

In short, if you’re eligible then it’s worth considering.  

Please note this article first featured in the Business Post on Sunday, 29 November 2020 and was re-published kindly with their permission on our website

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