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What can happen if you don’t keep your tax returns up to date in the Jurassic Economy

In this Business Post column, Tom Maguire discusses the importance of keeping your tax returns up to date

The Minister for Finance Paschal Donohoe gave a speech recently at the Economic and Social Research Institute recently entitled “The Pandemic: One year on”. Now there’s five words we hoped we would never see in the same sentence. But here we are in the Jurassic Economy due to what is probably the biggest humanitarian, social and economic event of our lifetimes. The Minister set the scene early saying that there were over 1 million people on some form of income support from the State – nearly half a million people receiving the Pandemic Unemployment Payment, another 350,000 being supported by the Employment Wage Subsidy Scheme, and nearly 200,000 on the Live Register.

He continued that all of the main multilateral agencies that provide economic advice – the European Commission, IMF, OECD – have taken the view that, because the crisis was not caused by underlying economic imbalances, such as excessive credit growth or inappropriate fiscal policies, the correct policy response is for governments to deploy their balance sheets in a pro-active, counter-cyclical manner. All of this formed the backdrop to the design and implementation of the Employment Wage Subsidy Scheme (EWSS) and the Covid Restrictions Support Scheme (CRSS). He explained that to date, the EWSS has provided subsidy support of almost €2.5 billion, including PRSI relief worth €360m, to over 47,000 employers in respect of 532,000 employees. There are over 20,000 firms in receipt of the CRSS payment with almost €330 million paid out to date.

It’s not possible to go through the ins and outs of all these measures in one column, there’s probably a book in it, and historians will tell the story of how these interventions did what they could to wrench the economy from Jurassic status. Other economic measures were taken, one of which was the Debt Warehousing Scheme. I mention this because the Revenue Commissioners in one of their electronic newsletters (e-briefs) reminded taxpayers of this option and had a stark warning.

Revenue explained that Debt Warehousing Scheme remains available to support businesses impacted by the Covid19 related public health restrictions noting that it’s automatically available to businesses and individuals that are managed by Revenue’s Business and Personal Divisions. It is also available by agreement to larger businesses managed by Revenue’s Large Corporates and Medium Enterprises Divisions, where such businesses have been adversely impacted by the virus.

Under the scheme, businesses can temporarily put certain tax debts on ice while trade is impacted by Covid19 restrictions. These debts remain in cryostasis on an interest free basis for 12 months following resumption of ‘normal’ trading. At the end of the 12-month interest free period, if the warehoused debt has not been paid in whole or in part during that time, the balance can be paid through an agreed phased payment arrangement at a significantly reduced interest rate of 3% per annum which is significantly lower than normal interest on late payment.

Revenue explained last week that there are almost 70,000 businesses availing of the scheme covering €1.9 billion in tax debt. Approximately 26,500 of these businesses are also claiming support under EWSS and/or the CRSS. The newsletter explained that in the last month, a total of €324 million in EWSS and CRSS payments have been made to these businesses. The newsletter continues that to avail of the Debt Warehousing Scheme, all tax returns must be filed on time. Of the 70,000 businesses availing of the scheme, 41,300 are continuing to file their tax returns as they fall due and 28,700 have some outstanding returns. The newsletter confirmed that almost 22,000 of the businesses that remain compliant with the terms of the Debt Warehousing Scheme by continuing to file their tax returns received €284 million in EWSS and CRSS supports during the past month. Let that sink in for a moment.

The e-brief continued that almost 4,500 of the businesses that have not kept up to date with filing their tax returns are nevertheless regularly submitting claims for support under the EWSS and/or CRSS. In the last month subsidy payments amounting to €40 million were made to these businesses. But the e-brief reminds taxpayers of the importance of continuing to file timely tax returns by reiterating that a key condition for businesses “to continue to avail of the Debt Warehousing Scheme is that all tax returns must be filed as they fall due”. It explained that Revenue will be writing to the businesses currently availing of the scheme to remind them of the requirement to continue filing their returns, and of the importance of bringing any outstanding returns up to date.

The Debt Warehousing Scheme allows businesses retain tax clearance where tax payments are not up to date. But the key requirement for businesses currently in the Debt Warehousing Scheme to retain tax clearance, which is a key eligibility requirement for access to the EWSS and the CRSS, is to continue to file accurate and timely tax returns. The e-brief explained that Revenue confirmed that the real-time updating of the tax clearance system will recommence shortly, noting that tax clearance will be withdrawn where tax returns are not up to date. This in turn will mean that a key eligibility requirement for EWSS and CRSS payments will not be satisfied and, in such circumstances, the relevant business will not qualify for these subsidy payments.

Bottom line the Collector General explains in the e-brief that where tax returns are not kept up to date, access to the Debt Warehousing Scheme, including the reduced 0% and 3% interest rates, may be withdrawn. This would mean the tax debt of the business is no longer in cryostasis and the tax liability is regarded as outstanding, which affects tax clearance of the business, a key eligibility requirement for businesses availing of the EWSS and the CRSS. So losing warehousing is like pushing over the first domino in a chain. The Collector General put it thus “Without tax clearance access to vital liquidity support provided by the subsidy schemes will be withdrawn”.

He warned “…a small number of these businesses are not taking the necessary due care to ensure they meet their timely tax return filing and payment obligations and are now the focus of our attention. We will also be contacting these businesses over the coming weeks to outline that if their filing and payment issues are not quickly rectified they will be subjected to debt collection and enforcement action, including interest charges at the standard rates of 8% and 10%, as appropriate”.

In short, a lot can fall or stand due to keeping tax returns up to date.

Please note this article first featured in the Business Post on 14 March 2021 and was re-published kindly with their permission on our website.

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