Originally published on Business Post, 12 April 2020
In many successful businesses, Revenue is one of the largest creditors. It's no surprise therefore that many of the emergency reliefs for business, arising from the government response to the pandemic, should be channelled through the tax collection system.
Ireland is not the only country taking the tax route to get funds into cash-starved industry. The likes of the UK, Canada, Australia and New Zealand have introduced assistance and supports very similar to the Irish wage subsidy scheme. Some of these schemes differ in the detail. Other countries look for a projected 30% or even 50% reduction in turnover for businesses to be eligible rather than the 25% sought here.
Despite the cash lure of the Wage Subsidy Scheme, the take-up after the initial flurry seems to have stalled at around 40,000 of the 176,000 or so employers which could, in theory at least, avail of the scheme. One major sticking point seems to be the position of lower paid workers, many of whom believe that the pandemic unemployment payment of €350 may be a better fit for them than lower after-tax wages, even if the wages are subsidised.
Just as wages, subsidised or not, are taxed, there will be tax due on the pandemic unemployment payments. There is a widely held misconception that state benefits are not taxable, but in fact most of them are. Payments like jobseekers benefit, maternity benefit and the state pension payments are subject to tax, and payments to individuals are notified directly to Revenue by the Department of Employment Affairs and Social Protection. The pandemic unemployment payment will be subject to tax even though that tax is not deducted from the payments at source. It will be assessed and collected next year, though many of us are focusing more on what we will have to do next month.
While the wage subsidy scheme is a lifeline that businesses should grab hold of if they can, there are other concessional treatments from Revenue for businesses during the crisis. These are receiving less attention, but perhaps in some cases may be more useful.
The best way for government to get cash into business is not to take it away in the first place. This is the rationale behind interest forgiveness on the late payment of recurring PAYE and VAT bills, and other jurisdictions are examining this Irish approach to see if they should also apply it. The March Exchequer returns weren't as bad as some had predicted, but the falloff in VAT paid to the Exchequer was directly attributable to this concessional treatment. Almost €1 billion worth of working capital was kept in Irish business in March through the simple expedient of allowing business the flexibility not to have to settle their VAT bills last month.
We can expect to see this trend repeated in the coming months to the detriment of the Exchequer receipts. Revenue don't even request smaller industry – businesses with a turnover of €3 million are less – to notify them in advance if they are opting not to make VAT or PAYE payments. It is important for businesses to continue making tax returns of all types, even if there aren't tax payments being made with them. Bear in mind that the tax itself is not been written off; rather the payment model is being relaxed. The responsibility to file tax returns is not being lifted nor is the responsibility, ultimately, to pay the tax at some stage.
Another way for businesses to get cash from Revenue is to apply early for any refunds or credits which might be due. Many of the Revenue phone services have been curtailed but I gather that correspondence is being dealt with quite quickly, particularly through the Revenue on-line channels. Arrangements have been publicised to accelerate the refund of professional services withholding tax. This is a withholding tax which some service industries suffer on many government, state and semi-state contracts. A similar approach is being taken to refunds of relevant contracts tax which is a form of withholding tax applied in the construction, meat processing and forestry industries. Companies which have spent money on research and development can also request earlier refunds of the tax credits which might be due to them.
All these refund claims can and should be made now, but this crisis will end. While the focus of tax system interventions is on supporting cash flow through the crisis, planning is needed to stimulate and support industry recovery post crisis. Some countries are already modifying their tax systems with that in mind. In New Zealand, a country with very few tax reliefs and incentives, tax breaks are to become available for investment in factories and premises. In South Africa, a new scheme allows companies with spare cash to get a full tax deduction for their investment in a government loan fund. That in turn can be used by businesses needing cheap finance.
Incentives like these will be needed here too. Revenue will in time revert to their default position as cash collectors. Irish business will need to be able to pay them, the largest creditor.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland.