It goes without saying that the COVID-19 pandemic has had a considerable impact on parts of the Irish retail sector. On one hand, many retailers have been asked to close their doors on public health grounds resulting in the loss of turnover and jobs, and on the other hand, even during the periods when those businesses could open, the pandemic has had a huge impact on the numbers of shoppers on the streets and on consumer sentiment in general, write Donal Thomas and Fidelma Cosgrove of our Retail & Manufacturing practice.
The recent decision by the Irish Government to move to Level 5 of the ‘Living with COVID-19’ plan has resulted in many ‘non-essential’ retailers being asked to close for a further prolonged period – an additional shock to many businesses that were still recovering from the first set of restrictions earlier in the year.
However, in the face of an unprecedented crisis, many of those retailers must be commended for the way in which they have adapted to the restrictions, such as moving to more of an on-line offering or operating a ‘click and collect’ service. Nonetheless, in many cases, this is simply diluting the impact of the pandemic on their business rather than negating it.
To their credit, in the recently released Finance Bill and in their earlier July Stimulus Plan, the Government introduced certain tax and other financial measures which seek to support Irish businesses adversely impacted by COVID-19, including those in retail. The supports, which are broadly welcomed by the retail industry, provide badly needed assistance to impacted retailers. Indeed, some of the supports may be the difference between those retailers making it through the crisis or shuttering for good.
Therefore, it is crucial that retailers are aware of the supports available to them over the coming months and with that in mind we explore in this article some of the details of those key tax and other financial supports.
In the recent Budget, the Government announced a new COVID-19 related support scheme, the CRSS, which is specifically aimed at sectors which have been impacted by the restrictions set out in the ‘Living with COVID-19’ plan. The CRSS provides welcome liquidity support for the retail sector and particularly those retailers which have been impacted by the recent Level 5 restrictions.
The CRSS is scheduled to run until 31 March 2021 and will operate on a self-assessment basis. To be entitled to participate in the scheme, the following key qualifying conditions need to be satisfied:
Once the qualifying conditions have been satisfied, a claimant should: (i) register for the scheme on Revenue’s Online Service (ROS), (ii) complete an electronic form containing certain information (tax registration number, description of business activity, average weekly turnover, etc.) and (iii) make a declaration confirming that they satisfy the qualifying conditions.
Once registered for the CRSS, a retailer can make a claim to Revenue for a cash payment which will be based on the business’ average weekly turnover. Specific rules apply to determine a business’ average weekly turnover depending on when the business commenced. Nonetheless, broadly, the weekly CRSS entitlement is calculated as the sum of:
However, the weekly CRSS payment entitlement is subject to a cap of €5,000 per week.
The total amount payable to the retailer will be determined by the number of weeks that the retailer is unable to trade due to the public health restrictions. The payment is treated as a reduction of otherwise tax-deductible trading expenses for tax purposes and therefore is effectively a taxable subsidy. However, for retailers facing into significant trading losses for the current period this should only result in a reduction in the amount of those trading tax losses available for carry forward to future periods rather than triggering an income tax or corporation tax liability.
The CRSS is a very welcome development for impacted businesses, albeit somewhat limited. It is hoped that it will go some way to helping those businesses navigate through the next few months and importantly enable them to be ready to re-open successfully once the relevant public health restrictions have been lifted.
A central objective of the Government’s COVID-19 response to date has been supporting job retention and income protection for employees. The Temporary Wage Subsidy Scheme (TWSS) and the Employment Wage Support Scheme (EWSS) have been instrumental in achieving this objective.
The TWSS provided much needed cash-flow assistance to retailers in the early stages of the crisis and helped maintain the link between businesses and their employees. Whilst this scheme has now formally ceased, it was confirmed in the recent Budget that TWSS subsidy repayments due by businesses can be deferred as part of the tax debt warehousing scheme (discussed further below).
As part of the Government's July Stimulus Plan, it was announced that the EWSS would replace the TWSS with effect from 1 September 2020. To be eligible to participate in the EWSS, a retailer must be able to demonstrate to the satisfaction of the Revenue that their business has been significantly disrupted by COVID-19. Specifically, a retailer needs to demonstrate at least a 30% decline in either the turnover of their business or in customer orders received during the period 1 July 2020 to 31 December 2020, as compared to the same period in 2019. There are special rules for businesses that did not operate for the whole of the reference period in 2019.
Under the EWSS, eligible retailers will receive a per-employee subsidy on a flat rate basis which will be determined based on the amount of gross pay that the retailer pays to the eligible employee. The weekly subsidy rate will be capped at €350 for employees earning between €400 and €1,462 weekly. Reduced weekly subsidy rates apply to those with gross weekly pay below this threshold.
The EWSS is expected to run until 31 March 2021 but the Government has acknowledged that further wage subsidy supports will be required beyond that date in 2021. The EWSS will remain a key support to retailers that are impacted by the COVID-19 restrictions.
As part of the July Stimulus Plan, the Government introduced a tax debt warehousing scheme to allow businesses impacted by COVID-19 to defer payment of certain PAYE, PRSI and VAT liabilities for a set period with favourable late payment interest arrangements. Under the scheme, payments can be deferred during the period when a business’ ability to trade is impacted by the COVID-19 related restrictions. This measure can provide critical cash-flow assistance at a time where retailers’ cash reserves are under severe pressure.
Revenue have to date generally been sensitive to taxpayers who have come to them with tax payment difficulties, an approach which has been appreciated by retailers and other businesses alike. However, it is hoped that this continues when the specific debt warehousing measures expire. It would be hugely dispiriting for businesses to get through the period of the COVID-19 crisis to only be crippled by warehoused tax liabilities once payment deferrals expire.
The Government's July Stimulus Plan also confirmed that the standard rate of Irish VAT will be temporarily reduced from 23% to 21% for a six-month period from 1 September 2020 to 28 February 2021. Where the benefit of the VAT rate reduction is passed on by businesses to consumers it is hoped that this will stimulate consumer spending which should be a positive for the business itself and the economy in general.
In addition, given that most supplies of goods and services in a retail setting attract standard rate VAT, the reduction should have wide-ranging application in the retail sector. It was hoped that the standard VAT rate reduction may have been extended beyond February 2021 in the recent Budget, but this did not occur.
One of the more significant measures announced in the Government’s July Stimulus Plan to ease the tax burden on businesses, particularly those businesses that were previously profitable, was to allow the early carry back of 2020 losses against 2019 profits.
Ordinarily, companies would have to wait until their 2020 corporation tax return is filed (potentially as late as September 2021) in order to benefit from relief for losses incurred in 2020. Under the new measure, up to 50% of a company’s projected 2020 losses will be available for early carry back to offset against prior year profits, with the remainder of the 2020 losses being available to carry back in the usual way (i.e. as part of the 2020 corporation tax return). For example, a retailer with a forecasted 2020 trading loss of €100,000 could generate an early refund of 2019 corporation tax paid of up to €6,250 (being the tax value of 50% of the 2020 loss of €100,000), with the remainder of the 2020 loss available to be carried back to 2019 in the usual manner when the retailer files its 2020 tax return. A true-up is required to correct for any over or under claim for losses based on projected numbers.
For the self-employed, the measure goes beyond just an acceleration of the carry back process, but rather marks an introduction of the ability to carry back losses to prior years where the trade is continuing. For example, a self-employed retailer can carry back up to €25,000 of their 2020 losses (and certain other allowances) to offset against their 2019 profits, thus generating a refund of the income tax paid on those profits.
Clearly the above is welcome in the context of the current crisis for those retailers facing into losses for 2020.
The automatic commercial rates waiver that was introduced in March 2020 has been extended to the end of 2020 to support eligible businesses including those in the retail sector. This will provide relief for many retail businesses from an overhead cost that would otherwise be payable notwithstanding the business’ inability to trade.
There are also a range of other important Governmental supports for COVID-19 impacted businesses such as the COVID-19 Credit Guarantee Scheme, the COVID-19 Working Capital Scheme and the Trading Online Voucher scheme amongst others.
Retailers would be well advised to familiarise themselves with the detail of the supports available to make sure they maximise the assistance to them when most needed.
Whilst the scale of the COVID-19 crisis is unprecedented, and the outlook for businesses is uncertain and unknown, retailers have not only shown great resilience but an ability to adapt and adjust. These tools will undoubtedly be needed more than ever in the weeks and months ahead. However, let’s hope for some retail therapy for both retailers and consumers alike in the not too distant future.