Proprietary directors of 52,000 companies in the Tax Debt Warehousing Scheme may not be entitled to a PAYE tax credit when they file their tax returns this Autumn
Over 86,000 businesses are currently availing of the Scheme covering €2.4 billion in tax debt
Temporary legislative remedy in the Finance (COVID-19 and Miscellaneous Provisions) Bill 2021 is required
30 June 2021 - The interaction of an anti-tax avoidance provision of the tax code with the Tax Debt Warehousing Scheme will give rise to financial difficulties for taxpayers classed as proprietary directors according to the Consultative Committee of Accountancy Bodies Ireland (CCAB-I).
Proprietary directors, or beneficial owners of companies, must file a self-assessment return, with a surcharge incurred if the return is not filed on time. The CCAB-I has been working in recent months to highlight this impending issue with Revenue whereby this cohort of taxpayer will not be entitled to a credit for PAYE tax in the calculation of their income tax liability for 2020 and preliminary tax liability for 2021 where their employer is participating in the Tax Debt Warehousing Scheme for PAYE purposes. Employees who are not classed as beneficial owners of a company in the Tax Debt Warehousing Scheme will get full credit for PAYE warehoused in the Scheme.
Commenting Norah Collender, Professional Tax Leader, Chartered Accountants Ireland said
“Proprietary directors and the companies they work for represent the SME sector, which is the sector most significantly impacted by the Government’s public health restrictions. Consequently, this is the sector in most need of support from the Government.
“This issue will be a widespread one coming up to the income tax deadline. There are approximately 52,000 companies currently availing of the Tax Debt Warehousing Scheme, and consequentially many proprietary directors will be impacted.”
The Tax Debt Warehousing Scheme is subject to rigorous monitoring by Revenue. Revenue has indicated to the CCAB-I that proprietary directors unable to pay their income tax liability can apply to avail of the Tax Debt Warehousing Scheme for income tax purposes if they satisfy the condition that their income for 2020 or 2021 is 25 percent lower than 2019, or they can enter a tax repayment arrangement with Revenue subject to interest.
Collender continued
“The approach of both a director and a company being held accountable for a PAYE debt in the Tax Debt Warehousing Scheme is cumbersome and complex, as the same tax debt is effectively serviced by the company and the proprietary director. In addition, many directors may fail to meet the conditions to qualify for the Tax Debt Warehousing Scheme for income tax purposes and will face a substantial tax liability.”
The CCAB-I is calling for a temporary legislative remedy to be reflected in the Finance (COVID-19 and Miscellaneous Provisions) Bill 2021 currently going through the Dáil to allow proprietary directors to claim a full credit for PAYE tax already in the Debt Warehousing Scheme.
Collender concluded
“The temporary measure could be ringfenced to only facilitate PAYE tax in the Debt Warehousing Scheme for a period aligned with 1 January 2023 when interest of 3 percent becomes payable on tax debt in the Warehousing Scheme. This would ensure that the anti-avoidance purpose of section 997A TCA 1997 is safeguarded while also ensuring that the Tax Debt Warehousing Scheme operates as intended as a support for the SME sector, which continues to face significant challenges.”
ENDS
Notes to Editor
The Consultative Committee of Accountancy Bodies-Ireland (CCAB-I) is the representative committee for the main accountancy bodies in Ireland. It comprises Chartered Accountants Ireland, the Association of Chartered Certified Accountants, the Institute of Certified Public Accountants in Ireland, and the Chartered Institute of Management Accountants which combine to represent over 50,000 professional regulated accountants in Ireland.
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