Originally posted on Business Post 30 May 2021.
There are important tax implications for employers as they prepare for the winding-down of the pandemic supports.
‘The caveats associated with the withdrawal of government pandemic supports should not diminish the air of excitement about the prospect of the return to normal business.’
Almost every sector of the economy has benefited from a tax system which, more than a year ago, was thrown into reverse to distribute financial support during the pandemic closures.
While there is much talk about the “new normal”, elements of the old normal are going to return. The Revenue Commissioners will soon cease adhering to the belief that it is better to give than to receive.
There are of course many issues that businesses which are reopening have to deal with – stocking, premises, staffing, health and safety, debtors, creditors and banking arrangements. As well as these, there are consequences as the government pandemic supports come to an end.
Pandemic supports have created three categories to think about.
Employees who had to be laid off entirely were more than likely receiving Pandemic Unemployment Payments (PUP) of up to €350 a week. It is up to the employee to notify the Department of Social Protection that they have returned to the workforce.
Employers need to be aware that the employee’s tax credits could have been restricted earlier in the year to account for income tax due on the PUP, and the employee might not get into their hand as much as they expected after PAYE.
Employees who were on the Temporary Wage Subsidy Scheme (TWSS), which was the first wage subsidy from April of last year, may also have less after-tax income than they expect. This is because of the way the TWSS operated – not all the tax due was gathered through payroll.
Workers have an opportunity to spread whatever back taxes from 2020 are due out over the next four years. There is also an option for an employer, should they wish, to settle their employees’ tax liability without further tax consequences either for themselves or the employee. This option runs out in September 2021.
In the third category, employees who are on the Employment Wage Subsidy Scheme (EWSS) will not have a back tax issue. EWSS replaced the TWSS and has operated since last September.
The scheme allows employers and new firms where turnover has fallen by 30 per cent to get a flat-rate subsidy per week based on the number of qualifying employees on the payroll, including seasonal staff and new employees.
Eligibility for the EWSS may continue for the next few weeks even though a business is reopening, provided the reduced turnover criterion for the business remains valid. There are signals that, for some sectors at least, the EWSS could be extended beyond the June 30, 2021 deadline.
If the experience in Britain, which is reopening a few weeks ahead of us, is anything to go by, many of the businesses commencing or extending trading again will experience a surge in demand, and a parallel need to enhance conditions or provide more flexible arrangements to attract or retain staff. The tax system remains notoriously inflexible when it comes to staff arrangements.
It is almost impossible to broker arrangements whereby current or former employees can be treated as self-employed contractors for part or all of the time they work. It is possible to provide equipment to staff if they can work from home, but the reimbursement of working from home expenses without operating PAYE is limited to €3.20 per day. The consequences of getting employment status or expenses reimbursement wrong almost always land on the doorstep of the employer.
One of the better pandemic relief measures for businesses was the strategy of allowing them not to pay over Vat, PAYE and direct taxes as they fell due, but defer them into a “debt warehouse”.
Businesses which were affected by the first lockdown last year and which entered the debt warehousing scheme will find that interest will start to be charged on the unpaid tax at a rate of 3 per cent from September 1 next. There is room in the law as currently drafted to extend that September 2021 deadline to December 2022, which would be a great help. For now, if that tax is owing, businesses should budget for interest charges from September next.
There is a particular wrinkle on tax debt warehousing for proprietary directors. Even though the PAYE on the income of proprietary directors may have been warehoused by the company, the director will not receive credit for warehoused PAYE on their own tax returns and will have to make a separate application for tax debt warehousing in their personal capacity.
The Covid Restrictions Support Scheme (CRSS) was offered to businesses which had to prohibit or restrict customers from entering the business premises. CRSS is worthwhile, with a maximum weekly payment of up to €5,000. There is an arrangement called the restart week, which means that a business can claim double “restart week” payments for a period of two weeks on reopening. While CRSS does not need to be refunded directly, CRSS claims can add to tax liabilities in future years.
There was also a waiver of commercial rates for businesses which were forced to close over the lockdown. That waiver expires at the end of June.
The caveats associated with the withdrawal of government pandemic supports should not diminish the air of excitement about the prospect of the return to normal business. Last Friday’s announcements concerning the hospitality, travel and events sectors signal what is permissible, even though they are not a guarantee of what is possible.
In the rush to get back to normal, it is worth remembering that the state is as anxious for businesses to reopen as the businesses themselves are. The pandemic supports can’t be paid for ever.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland
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