September 2, 2020
We at, John M Shanahan & Co, Chartered Accountants, Tullamore, Co Offaly have taken a look at Revenue's latest Scheme of zero% interest to 3% interest on Debt arising on foot of the pandemic and old debts pre-pandemic which remain unpaid.
The debt warehousing scheme provides for the ‘warehousing’ of PAYE (Employer) and VAT debts associated with the COVID-19 crisis on an interest-free basis for a period of 12 months. Revenue have set out the general terms of the scheme in its Information booklet.
These new measures should apply automatically for SME’s, while they are available on request by larger corporates. For tax purposes, a SME is a business with a turnover of less than €3 million, which is not dealt with by either Revenue’s Large Corporate Division or Medium Enterprises Division. Revenue will correspond with SME Business and Personal Division customers in September to inform them of their inclusion in the warehousing scheme.
Under the scheme, VAT and PAYE (Employer) tax debts deferred while a business is unable to trade or was subject to restricted trading due to the COVID-19 related health restrictions, as well as debts for an additional two months after the business resumes "normal" trading, will be ringfenced by Revenue. The scheme will have three periods, namely as follows:-
Period 1: COVID-19 Restricted Trading.
The restricted period is the period during which the business was and is unable to trade or was and is trading at a significantly reduced level, due to the COVID-19 related restrictions and two months after the business re-commences “normal” trading. All relevant returns for the restricted trading phase will need to be filed so that the debt can be quantified. If a “best estimate” return of liability has been made for any period, the correct return will have to be filed before the end of Period 1 to ensure the debt benefits from the warehousing. No interest will apply to these taxes for this period and debt enforcement will be suspended. Period 1 may vary from sector to sector and business to business, depending on when Government restrictions are relaxed, in line with the roadmap for re-opening society and business, as announced on 1 May 2020.
Period 2: Zero Interest Phase.
Following a resumption of “normal” trading, the outstanding VAT and PAYE (Employer) tax debts will be warehoused for 12 months during which there will be no collection of this debt by Revenue and no interest will be charged. However, businesses will be expected to pay current liabilities as they arise during this 12-month period.
Period 3: Reduced - 3% Interest Phase.
At the end of the “warehoused” 12-month period, a reduced interest rate of 3% will apply on the repayment of such warehoused tax debt until it is fully paid.
Tax Clearance will not be affected by a business availing of tax debt warehousing under this arrangement. In addition, refunds and repayments of tax which arise will also be paid, notwithstanding that the business owes VAT and PAYE (Employer) liabilities that have been warehoused. A business can choose to offset a refund/repayment against the warehoused liabilities if it wishes.
Reduced Interest Rate – Non-COVID-19 Debt.
Importantly, in addition to the above, there is a reduced interest rate of 3% per annum to apply to tax debts that cannot be warehoused, i.e. older liabilities and debts not associated with COVID-19. The 3% rate represents a significant reduction from standard interest rates on late payment of taxes of 8% and 10% per annum.
This reduced rate is available across all tax types and to agreements that are already in place as well as new agreements made on or before the end of September.
The reduced interest rate measure is available to taxpayers with undeclared liability from tax periods that pre-date the COVID-19 phase, provided this liability is declared by 30 September 2020 under a self-correction or voluntary disclosure.
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