On 2 May 2020 the Minister for Finance and Public Expenditure and Reform, Paschal Donohue TD, announced the introduction of a scheme to warehouse VAT and Employer PAYE debt (tax debts), as a result of the COVID-19 restrictions. The Debt Warehousing Scheme (the Scheme) is available to businesses in all sectors of the economy who have been negatively impacted by COVID-19.
How the scheme operates
Tax debts deferred while a business is unable to trade or was subject to restricted trading due to COVID-19 health restrictions, as well as tax debts for an additional two months after a business resumes ‘normal’ trading, are ‘ring fenced’ for interest on tax debt purposes.
Period 1 – COVID-19 restricted trading phase:
Tax debts arising while the business is unable to trade or was subject to restricted trading will be warehoused. During this period no collection procedures of any of the tax debts will be initiated and no interest will apply.
All relevant returns for the restricted phases of trading must be filed to allow the tax debts to be quantified. Where a return is filed on a ‘best estimates’ basis, the self-corrections return will have to be filed before the end of Period 1, to ensure the benefit of warehousing arrangements.
Previously, Period 1 could vary from sector to sector and business to business, depending on the relaxing of government restrictions, in line with the Roadmap for reopening society and business. However, the Finance (Covid-19 and Miscellaneous Provisions) Act 2021 provides that Period 1 can begin on the following dates:
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Tax head/Scheme
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Period 1 commencement date
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VAT
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1 January 2020 ( that is, beginning with the January/February 2020 bi-monthly VAT period)
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PAYE (Employer) liabilities
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1 February 2020 (that is, beginning with the February PAYE “income tax month”
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Income tax
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31 October 2020 or 10 December 2020
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Temporary Wage Subsidy Scheme
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26 March 2020
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Employment Wage Subsidy Scheme
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1 September 2020
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Period 1 ends on 31 December 2021.
Period 2 – Zero interest phase:
In line with the changes to Period 1 under the scheme, Period 2 now begins on 1 January 2021 and ends on 31 December 2022. No interest is charged during Period 2 on the warehoused liabilities from Period 1.
Period 3 – Reduced interest phase:
On the completion of Period 2, a reduced interest rate of 3 percent per annum will be charged on the tax debts warehoused in Period 1, from 1 January 2023 until such a time as those tax debts are paid in full.
Revenue have confirmed that tax clearance will not be affected by businesses availing of the Scheme and, refunds and repayments of tax arising will be paid, despite tax debts owing through the Scheme.
Revenue emphasise the importance of filing tax returns, even where payment or part payment is not immediately possible. Where key personnel are unavailable to compute tax returns due to the Covid-19 virus, businesses should file on a ‘best estimates’ basis. Subsequent amendments can be made on a self-correction basis, without penalty.
SMEs impacted by COVID-19 disruption qualify automatically. An SME is a business with an annual turnover of less than €3million managed by Revenue’s Business Division. Businesses managed by LCD and MED, can contact Revenue through MyEnquiries or their branch contacts for access to the warehousing scheme.
Legislation on debt warehousing arrangements is provided for in the following sections:
Revenue published an Information Booklet on the Tax Debt Warehousing Scheme.
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