On 2 May 2020, the Government announced, among other supports for businesses affected by the COVID-19 restrictions, a scheme to facilitate the warehousing of tax liabilities for a period of twelve months for businesses severely impacted as a result of the COVID-19 pandemic restrictions.
To date, Revenue has participated in a process of allowing the deferral of payment of PAYE or PRSI or USC ("payroll tax") and VAT liabilities, subject to the ongoing submission of the relevant tax returns when due. This has been facilitated on a pre-approved basis for SMEs and on a case by case basis for larger companies, in particular those dealt with in the Medium Enterprise or Large Cases Divisions within Revenue. However, these arrangements have now been formalised within the Tax Warehousing Scheme for those companies wishing to participate.
During the currency of the scheme there will initially be no debt enforcement action taken by Revenue and no interest charge accruing in respect of the warehoused debt. Thereafter, a reduced interest rate and agreed repayment regime will apply.
Revenue issued initial high level guidance following the Government announcement. However, we have now received further clarification on the operation of the scheme. Key features are as follows:
Businesses dealt with by the Medium Enterprise or Large Cases Divisions in Revenue will need to apply to participate (either to the Collector General's office or their appropriate Revenue office) and will be assessed on a case by case basis. (Revenue has been cooperative in allowing temporary tax deferrals to such companies, where appropriate, since the beginning of the crisis and have indicated that this approach will continue in relation to this scheme).
The scheme will NOT apply to tax heads other than PAYE or PRSI or USC ("payroll tax") and VAT.
For businesses qualifying under the scheme, VAT and PAYE or PRSI or USC ("payroll tax") due from 1 March 2020 until 2 months after "normal trading" resumes for the business, will be warehoused for a period of twelve months.
It is acknowledged that the resumption of "normal trading" may arise at different times depending on the business or sector in question.
No interest will accrue on the tax debts during the initial twelve month warehousing period. (The rate for VAT and Payroll Tax is normally approximately 10% per annum).
Thereafter the business will qualify for a reduced interest rate of 3% on outstanding debts for the period of the new agreed repayment period.
In advance of the end of the warehousing period, the business will be expected to engage with Revenue to reach agreement on a repayment programme appropriate to the company's business needs and its continued viability.
It will be a prerequisite that businesses remain compliant with all their tax return filing obligations throughout the entire process. In addition, any tax debts arising prior to the period covered by the scheme must have been paid.
Participation will not impact on the holding of Tax Clearance Certificates by businesses.
Until the enactment of the necessary legislation to underpin the warehousing arrangements, Revenue will operate the scheme on an administrative basis. The current estimation is that the legislation may be in place by late June or shortly thereafter. The timeline will be subject to Government formation.
A number of areas remain unclear but will be addressed in further Revenue guidance and in the legislation. In particular, the question of eligibility criteria and the meaning of terms such as "severely impacted" will be needed to be addressed to help provide certainty to businesses applying for the scheme. In addition, the question of what is meant by the resumption of "normal trading" will need clarification to facilitate planning by businesses for managing the cost of their tax debt, the point from which liability for interest costs will be resumed and, ultimately, the repayment of the debt.