The government has provided many tax reliefs during the Covid-19 crisis but the devil is in the detail, says Sandra Clarke, president-designate of the Irish Tax Institute

What’s your business background? 

I first got really interested in tax while I was training in practice. After qualifying as a chartered accountant I decided to pursue the Irish Tax Institute exams and I qualified as a Chartered Tax Adviser in 1997.

In the early Noughties I started going to branch meetings with local tax districts on behalf of the Irish Tax Institute to discuss issues practitioners were dealing with daily, and also to build relationships between Revenue and practitioners. My involvement in the Institute grew from there. 

I’ve been very active in the various forums through which the profession interacts with Revenue and I’ve served as chair of the Institute’s Tax Administration Committee. I was elected to the Council in 2009, and for the next year I have the great honour of serving as the Institute’s 45th president. 

Warehousing of tax debt. What advice do you have regarding this parked liability?

The warehousing of Covid-19 related tax debt will provide vital liquidity to businesses that have been badly affected by the pandemic. These business owners should get professional advice to ensure they take the proper steps to qualify for this important facility.

The first step is to quantify their tax debt by filing all relevant tax returns for the period during which trade was restricted. If a best estimate return has been made for any period, the correct return must now be filed so that the full debt can be included in the warehousing scheme.

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During the ensuing 12-month warehousing period, the business must continue to file tax returns on time and pay current liabilities as they arise in order to qualify for the interest rate exemption and the reduced 3% interest rate after the warehousing period ends.

Debt warehousing automatically applies to taxpayers whose tax affairs are dealt with by Revenue’s Personal and Business divisions i.e. annual turnover under €3m.  Other businesses that come under the Large Corporate or Medium Enterprises divisions and that are seeking to warehouse Covid-related tax debt should contact their Revenue branch contact or the Collector-General’s Division as a matter of urgency, to have their eligibility for the scheme assessed.

It’s important for businesses to understand that the warehousing arrangement only applies to VAT and PAYE (employer) debts arising from the Covid-19 restricted trading period. That period may vary according to sector, depending on when the government restrictions were lifted allowing businesses to resume trading. 

In addition to the debt warehousing facility, a provision included in the July Stimulus package extended the reduced 3% interest rate to ‘non Covid-19’ tax debts, for example corporation and income tax. 

In order to qualify, businesses or individuals must agree a phased payment arrangement with Revenue before the deadline of September 30. This is a very valuable provision, given that the interest rates that normally apply to late payment of tax are 8% and 10%. But time is of the essence.

Employers who wish to avail of the new Employment Wage Subsidy Scheme by August 31 must have tax clearance.  What is tax clearance, and can it be achieved if tax debt is being deferred by agreement?

Revenue has specifically stated that an individual or business with non-Covid tax debts will not qualify for a tax clearance certificate unless they have agreed a phased payment arrangement to pay those debts. 

Revenue has also said that businesses availing of debt warehousing will qualify for a Tax Clearance Certificate if they otherwise meet the normal qualifying conditions. That means the tax affairs of the applicant and their connected parties (e.g. business partners, directors, shareholders of a company) must be up to date.

An employer that doesn’t hold tax clearance can apply online and be assessed in real-time through Revenue’s ROS e-Tax clearance service. 

Employers wishing to avail of the new EWSS and don’t have a valid tax clearance should apply for it immediately and act quickly to ensure that all outstanding tax returns are filed and to agree a phased payment arrangement with Revenue for any remaining non-Covid-19 tax debts. 

The Temporary Wage Subsidy Scheme which concludes on August 31 has been a great benefit to business but employee tax liabilities have been deferred. How do you see this end-game developing, and how should TWSS employers prepare? 

Payments under TWSS are liable to income tax and USC but were not taxed in ‘real time’ through the payroll. However, in late June Revenue placed all employees receiving payments under the TWSS and the PUP schemes on a non-cumulative or ‘Week 1’ basis to minimise the amount of tax that may arise at year end for these taxpayers.

Revenue has confirmed that employees will be informed of the amount of tax they owe on any TWSS payments in their end-of-year PAYE statement. Each person’s tax liability will be different depending on their personal circumstances, their tax credits, and the amount they received on this wage subsidy scheme. 

But in cases where PAYE taxpayers owe tax on their income, it is normal Revenue practice for that debt to be collected in manageable amounts by reducing credits over future years to minimise hardship. 

Revenue has recently indicated that any adjustment to tax credits that may be required to repay debt will not be made until 2022. Also, any additional credits, such as health expenses, can be used to reduce the tax owing. But the fact is many state payments are liable to tax, and in the end the tax has to be paid.

Government has responded to the pandemic with many tax measures. What else should ministers be mulling tax-wise for Budget 2021 to boost the economy?

In its own agreed Programme, the government has committed to review the tax environment for SMEs to ensure that Ireland remains an attractive location for enterprise and innovation. The Institute welcomes this and will be recommending a number of changes to the Key Employee Engagement Programme (KEEP) and the Employment Investment Incentive (EII) to make them more effective for SMEs.

We would also urge the government to deliver on its commitment to review CGT in each budget over the next five years. The Institute agrees with the assessment of the Tax Strategy Group in 2018 that a reduction in the overall rate of CGT could lead to an increase in business transactions for SMEs that would benefit the Exchequer.  Given the current low-level yield from CGT, the risk to the Exchequer from cutting the rate is minimal.

One issue not mentioned in the Programme For Govenment  on which the Institute has a strong view is the existing rate of interest applying to overdue taxes. The level of interest charged absolutely should recompense the Exchequer for delays in the payment of tax due, but the current rates of 8% and 10% are by any measure penal and far in excess of the cost of late payment to the state. In the UK, for example, the current equivalent rate is 2.6% 

The reduced 3% interest rate on warehoused VAT and payroll tax liabilities and other agreed deferred tax introduced in response to the pandemic is most welcome. The Institute would like the government to make this reduced rate a permanent part of our tax system.  It is a fair and reasonable rate that allows the Exchequer to recoup its cost while disincentivising late payment and it could be tracked to prevailing ECB market rates. 

Sometimes, a crisis provides the impetus for long-needed reform, and in our view this is one such example. The Institute believes it would be a mistake not to keep the rate at 3% after the Covid crisis has abated.