Changes to ROS, the VAT Return and COVID-19 Measures | Indirect Tax Matters May 2020
This article provides an overview of the impact of changes that Revenue have made in recent times to both ROS (the Irish Revenue Online Service) and VAT return details. It also examines the COVID-19 Tax Warehousing relief that many businesses are likely to avail of as they navigate these challenging times.
VAT returns – Postponed Accounting
Those that frequently file Irish VAT returns may have noticed a new field in the VAT return to allow for ‘Postponed Accounting’.
As announced as part of the Brexit Omnibus Bill on St Patrick’s Day 2019, in the event of a hard border between Ireland and the UK, Irish VAT registered businesses will be entitled to account for import VAT arising in respect of goods imported into Ireland from non-EU countries (including the UK) as part of their Irish VAT return. As a result, VAT will no longer have to be paid at the point of entry, when goods are imported into the EU, before the goods are released into free circulation. Where a business is entitled to full VAT recovery, the accounting for import VAT under the ‘Postponed Accounting’ system will result in a cash flow neutral position and the current delay in the accounting for and recovery of import VAT should no longer arise. This is a welcome development for Irish established businesses as it will help mitigate some of the cash flow issues that will be encountered when the UK leaves the EU.
The new field in the VAT return ‘Postponed Accounting’ will capture the import VAT that is being recorded in the VAT return. The new field is not currently “live” as the Omnibus bill has not yet been enacted. This change will result in a significant once off cost to the Irish State and, as such, we expect that the change in accounting for import VAT will be delayed until such time as the transition period expires, which is currently set for 31 December 2019.
Given the high possibility that the transition period will not be extended and the UK will leave the EU at the end of this year, businesses should consider whether Brexit will impact existing supply chains and whether customs duties will arise with effect from 1 January 2021. There are a number of customs reliefs available that can result in a taxpayer avoiding customs charges. However, it is important to note that these reliefs typically take a number of months to obtain and are likely to take longer in the current climate.
Separately, a new optional box has been included in VAT returns within the last year, which allows a taxpayer to provide details to Revenue surrounding any irregular/large purchases during the VAT return period. Including relevant details in this box may be useful as an attempt to pre-empt Revenue queries in the event of such purchases resulting in an unexpected VAT refund position or a larger than normal refund amount.
Cash Receipts Basis v Invoice Basis ROS Update
Revenue have recently updated ROS to show whether a taxpayer is registered to account for VAT on a cash receipts or an invoice basis. Ordinarily, a trader is liable to account for VAT on the earlier of (i) when the supply is made to a customer or (ii) when the invoice is raised to a customer.
However, where a taxpayer is registered on a cash receipts basis, they are liable to account for VAT when the payment has actually been made by the customer. This can give rise to important cash flow benefits for a business.
For example, if a taxpayer makes a sale to a customer in February 2020, raises an invoice in March 2020 and only receives payment from the customer in May 2020, they would be liable to account for VAT:
- in the March/April 2020 VAT return if registered for VAT on an invoice basis or
- in the May/June 2020 VAT return if registered for VAT on a cash receipts basis.
A taxpayer may opt to register for VAT on a cash receipts basis where its turnover does not exceed €2m for any twelve month period or at least 90% of its sales are to customers who are not registered for VAT purposes.
In our experience, SME in the retail sector often account for VAT on the cash basis.
The move by Revenue to update their systems to record the basis of registration may be the precursor to Revenue reviewing and/or challenging the incorrect operation by taxpayers of the cash receipts basis of accounting for VAT. In our view, it is unlikely that Revenue will challenge this in the short term (due to the circumstances surrounding COVID-19), but this is certainly something to watch out for once Ireland eases the current restrictions in place and businesses return to a normal level of operations.
Recent enhancements to ROS will now enable taxpayers to update their details, including their business address, on ROS. This previously unavailable facility should ease the administrative burden for businesses changing their details.
A very welcome addition to ROS is the ability for agents/taxpayers to request a tax refund amount to be used to offset other tax liabilities via ROS. This will allow businesses more flexibility in managing their tax liabilities.
The government have been taking steps in recent months to assist businesses with cash flow and trading difficulties arising as a result of COVID-19. In the most recent set of measures ‘Tax Warehousing’ issued on May 2nd, Revenue have confirmed that tax payments for impacted businesses including VAT and Payroll debts due from 1 March will be delayed until 1 year from the lifting of the sectoral restrictions. This will mean that businesses that are not allowed to open until August 2020, will not be required to pay VAT and payroll taxes until August 2021. Interestingly, Tax Warehousing does not appear to be confined to SMEs. The measures detail:
- Interest will not accrue on these tax debts during the twelve month period;
- COVID-19 related tax debts will carry a reduced interest rate of 3% (down from circa 10%), until the debt is paid after the twelve month period has expired;
- Revenue will afford taxpayers greater flexibility in dealing with this ‘warehoused’ debt and this will be determined by the business’ ability to pay this debt, in conjunction with its ongoing tax liabilities.
A key point that Revenue continue to re-iterate is that the measures will only be available for businesses that file their tax returns on time in line with Revenue guidance and for businesses that continue to engage with Revenue. Where your business is experiencing difficulties in meeting its tax filings as a result of staff being on sick leave, it is imperative that you reach out to Revenue and make every effort to file tax returns on time.
VAT bad debt relief
While not specifically COVID related, given the current circumstances, it is a good time to consider VAT bad debt relief.
With nearly all businesses struggling for cash flow in these economically challenging times, it is likely that business may incur bad debts in respect of customers defaulting on outstanding amounts. Ordinarily, for a business to be able to recover the VAT arising in respect of the owed amount, it must be able to evidence that it has taken all reasonable steps necessary to recover the debt and that the outstanding amount has been written off in the financial accounts. To evidence that all reasonable steps have been taken, a taxpayer would generally need to refer the issue to a solicitor or a debt collection agency or have formal correspondence from the debtor. Given the current circumstances, it is possible that Revenue may be less strict regarding the requirement to evidence these steps but we have yet to receive official confirmation on this point. In the event a debtor pays after a debt has been written off, the VAT would once again become payable to Revenue.
Six month rule for input deduction
It is also worth bearing in mind the six month rule given the current circumstances. Where a taxpayer has taken a deduction for VAT in a taxable period and has not paid the supplier for the related goods or services within six months of the end of that taxable period, an adjustment will need to be undertaken to the VAT amount originally reclaimed on the unpaid portion of purchase invoices. If you are unable to pay suppliers at this time, and the debt remains unpaid for a six month period, an adjustment for the unpaid VAT must be made in your VAT return. While you may not have to pay the VAT as a result of the tax warehousing measures, it is important that the adjustment is made given Revenue’s stance on filing tax returns in order to avail of the tax warehousing measures.
A few months ago, Brexit was a key issue facing businesses and was considered to be an unprecedented challenge. The last few months have shown that Brexit pales in comparison to the impact COVID-19 has had. In these difficult times, supports are available for businesses impacted by COVID-19 and while COVID-19 may be taking up a significant amount of time, it is important that businesses do not forget other developments that may impact them during this time and in the near future.
To discuss any of these issues please contact your usual Deloitte advisor or one of the contacts below.