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While the outbreak poses significant challenges for businesses in the face of a worldwide pandemic crisis, the impact of these challenges are more pronounced for small to medium sized enterprises (SME’s). Cashflow is already an issue for SME’s as they are particularly vulnerable to sudden loss of trade.

Following the announcement by An Taoiseach, Leo Varadkar, on 12 March of various measures to try and hold up the spreading of COVID-19, the Irish Revenue has moved quickly to announce some key relieving measures which are designed to help support small and medium businesses experiencing cashflow and trading difficulties as a result of the pandemic.

For these purposes, Revenue has advised that a SME is “a business with turnover of less than €3 million who is not dealt with by either Revenue’s Large Cases Division or Medium Enterprises Division”.

These key Revenue measures and guidance follow on from a number of social welfare measures introduced by the Government and the Department of Employment Affairs and Social Protection in response to COVID-19. These measures focus on the key benefits and payments available for both employers and employees and further details are contained in our KPMG alert Covid-19 (Coronavirus) Guide for employers and employees".

The relaxations announced by Revenue recognise the cashflow difficulties SME businesses have now found themselves in and supplement a number of other financial measures recently put in place by the government to protect the Irish economy in the wake of the COVID -19 outbreak.

VAT and PAYE

In light of the difficult trading conditions, Revenue issued some key advice and guidance to businesses experiencing tax payment problems. Revenue’s advice recognises that temporary cashflow issues arising for a business can be a very worrying time.

Revenue confirmed that it will work successfully with taxpayers to help resolve their tax payment difficulties and rather than hope that these payment difficulties fix themselves in time. Revenue teams are encouraging affected businesses to take the following practical steps:

  • taxpayers should continue to file all tax returns, e.g., bi-monthly VAT returns and monthly PAYE returns, on time, and
  • engage with Revenue as soon as possible where they are facing difficulties in paying tax liabilities.

Following on from this advice, on 2 April 2020 Revenue has announced the following relieving measures

  • Interest on late payments of January/February and March/April VAT liabilities are to be suspended,
  • Interest on late payments of February, March and April PAYE liabilities are to be suspended.
  • All Revenue debt enforcement activity will also be suspended until further notice.

These measures are welcomed as businesses make their plans as to how best to structure their businesses to keep them afloat amid difficult trading conditions arising from this fast-evolving crisis.

The greater challenge will be the ability to pay PAYE/PRSI liabilities, as apart from being monthly payments, these represent fixed liabilities which need to be made if staff are to be paid and retained. Employers finding themselves affected by the COVID-19 pandemic and unable to pay the wages they would otherwise pay their employees may be entited to claim support of up to €410 per week for eligible employees to retain links with their employees under the COVID-19 Temporary Wage Subsidy Scheme. Click here to read KPMG’s alert on the Wage Subsidy Scheme and insights from Revenue’s guidance on conditions that must be met by employers to be eligible for the scheme.

VAT returns should be less problematical given their link to turnover, although any expense decisions will now need to be carefully taken, these are unprecedented times.

In further recognition that late tax payments are a distinct possibility, Revenue have also confirmed that the current tax clearance status will remain in place for all businesses over the coming months.

While these measures are largely aimed at SMEs, where other businesses are experiencing cashflow or trading difficulties, Revenue has restated its guidance that businesses should proactively look to engage with Revenue as early as possible with a view to putting in place new payment arrangements acceptable to both Revenue and the business.

RCT & PSWT

Revenue has also announced that the planned RCT (Relevant Contracts Tax) review scheduled to take place in March 2020 is also suspended. RCT is a withholding tax that applies to certain payments by principal contractors to subcontractors in the construction, forestry and meat-processing industries. The rates of tax are 0%, 20% and 35%.

The review was designed to assess the current rate applicable to each subcontractor in the eRCT system and determine whether a different rate should apply. The suspension will allow lower rates of RCT to be withheld in cases where a higher rate may be due.

While, subcontractors existing rates will continue for now, subcontractors are reminded in the statement that “self-review” within the eRCT system is possible in order to check their current rate and apply for a reduced RCT rate.

In relation to Professional Services Withholding Tax (PSWT), Revenue have announced that PSWT interim refunds will be paid on the basis of a written statement issued by the accountable person where the relevant F45 form cannot be issued to the specified person due solely to the current Covid-19 circumstances.

R&D Tax Credit refunds

Revenue has also announced expedited payment of any instalments of excess R&D tax credits due to be paid in 2020.  Click here to access more details on this announcement.

Customs

Revenue have also announced that critical pharmaceutical products and medicines will be given “green routing” status for customs purposes in order to ensure an uninterrupted importation and supply process during these exceptional and difficult times.

Conclusion

Revenue has advised that they it continue to closely monitor the situation as it evolves with regard to COVID-19 and will issue further updated guidance for businesses prior to upcoming deadlines for PAYE/VAT and other payments due.

As the situation unfolds in real time, the economic outlook is pointing towards a downturn with normal operations not expected to resume in the short term.

While the measures introduced so far are extremely welcome, in a time of uncertainty, it remains to be seen whether they will be sufficient to allow SMEs to remain solvent through these difficult times.

For now, these immediate tax measures are both necessary and welcome in the current climate and SME businesses as well as larger businesses can draw some comfort from the Revenues recent statement, which states “It is important that businesses know that Revenue has a long history of working very successfully with taxpayers to resolve their tax payments difficulties.”

If you have any questions or need further information about KPMG’s response to COVID-19, please contact your usual KPMG contact for assistance.

For more information on the key tax benefits and payments available to employers and employees, please click here.

For more information on embedding resilience please refer to our KPMG publication “A quick guide to the business implications of the coronavirus (COVID-19) outbreak”.

Further information