The July Stimulus Plan (the “Plan”) was officially unveiled by the Government on Thursday 23 July 2020, setting out a host of measures to support businesses and employment as the Government response to Covid-19 shifts to a long-term footing. The Plan will inject a massive total of €7.4 billion into the economy and in this respect dwarfs any normal Budget.
In this Bulletin we highlight the key taxation measures contained in the Plan which may not have attracted the same attention as the changes to the WSS and the PUP but will be of real interest to businesses and their advisers.
1. Reduction of Interest Rate on Settlement of All Tax Liabilities
One of the more significant elements of the Plan is the quiet announcement that the interest rate applying to agreed repayments of all tax debt will be reduced to 3% where agreement has been reached with Revenue prior to 30 September 2020. This reduction from the usual interest rates of 8% to 10% on such liabilities may present a significant opportunity for taxpayers with tax arrears or who are currently engaged in an audit process. Any taxpayer who has outstanding tax debt should immediately review their position in light of the announcement, which appears to be a ‘mini-amnesty’ opportunity. The legislation is awaited.
2. Warehousing of Tax Liabilities
Another welcome relief during the emergency for businesses was the practice note from Revenue that PAYE and VAT debts for a set period could be “warehoused” or paid by a later date with no interest or penalties being applied by Revenue under certain conditions. These arrangements are to be put on a statutory footing. This deferment should assist businesses with their cash flow in the short-term, though sufficient reserves should be maintained to satisfy these liabilities when they come due. These measures will be of real importance to businesses impacted by the emergency and should be availed of in all cases where payments cannot be made – it is not good practice to do nothing in both a tax compliance and also an insolvency law perspective.
Indeed, we are currently aware of cases where taxpayers have not formally sought ‘warehousing of debts’ where Revenue is now seeking recovery of liabilities.
Undoubtedly, the legislation will contain some conditionality to be followed so affected businesses should review the legislation in detail when published.
3. Tax Reliefs
The following tax relief measures were included in the Plan:
Where a company expects to incur trading losses but was profitable in a prior year, the carry-back of these losses will be allowed up to 50% of the losses expected. This should increase the cash-flow available to such companies by way of a refund of some corporation tax paid for the prior year with the balance then to be reclaimed in the normal manner. It will be interesting of course to see how the estimates of current year losses are to be assessed.
An as-yet undetermined income tax relief for self-employed individuals has been included for in the Plan. It is stated that the relief will apply to such individuals who were profitable in 2019 but incur losses in 2020 as a result of the Covid-19 pandemic. The loss relief will be capped at €25,000.
There is to be an option for farmers to step out of income averaging for the 2020 tax year.
An additional 20% tax relief is to be introduced where any taxpayer spends up to €625 on accommodation, food and non-alcoholic drinks between October 2020 and April 2021. This relief is capped at €125 per taxpayer and is payable by way of a tax credit. There is a minimum spend and the claim will be made through a mobile app.
4. Changes to the Temporary Wage Subsidy Scheme
The highlight of the Plan, so far as media attention was concerned, was the further amendment to the Temporary Wage Subsidy Scheme, which, although not a tax measure, has become one through the intricacies of its operation. This support for employers will be replaced by a new Employment Wage Support Scheme from 1 September (but will run from 31 July 2020 to 31 August in parallel with the existing arrangements) (the “Scheme”) which will continue until April 2021. Under the Scheme, where an employer can demonstrate that their turnover has fallen 30% in the period from July to December 2020 when compared to the same period in 2019, the employer should be eligible for a flat-rate subsidy of up to €203 per employee per week. As this will require some degree of projection, we will have to await the legislation to see how it will work in practice. Businesses should examine their turnover and cash-flow carefully, to determine both their eligibility for this extended Scheme and also to manage the reduction in supports from the current levels to the maximum of €203 per employee per week.
5. VAT Rate Reduction and Changes to the Help-to-Buy Scheme
The following measures were also announced:
While a widely-sought cut in the VAT rate for the hospitality sector did not materialise, the full VAT rate is to be reduced from 23% to 21%, with effect from the beginning of September. The reduction will remain in place for a six-month period. It is arguable that this reduction will not be sufficient to meaningfully increase spending in sectors worst -affected by the pandemic.
“The cap on the Help-to-Buy Scheme has been increased to €30,000 (an increase of €10,000) or 10% of the property’s value. While welcomed among prospective buyers of new homes, this may prove to be of limited value where the supply of new housing has been reduced due to the effect of Covid-19 on the construction industry.”
Additional details on the Plan should be available once the draft legislation is introduced, scheduled for the week commencing Monday, 27 July 2020. Additional supports or amendments to the existing measures may also be introduced as part of the Budget in October 2020, where the National Economic Plan should be set out to provide details of a long-term recovery.