July Stimulus Package
The Government has recently announced a set of substantial measures in the July Stimulus Package with a view to protecting and stimulating employment as the pandemic continues.
There are a number of tax measures included in the package which may be of relevance to our clients. We have set out the key tax features below.
Temporary income tax relief for self-employed individuals carrying on a trade or profession
The Financial Provisions (Covid-19) (No. 2) Act 2020 introduced an acceleration of income tax loss relief for individuals adversely affected by Covid-19. The package has recognised that individuals carrying on a trade or profession (either solely or in partnership) will incur losses in 2020. In normal circumstances, such losses and the capital allowances incurred in a tax year would only be available for carry forward against income of the same trade or profession in the subsequent tax year. However, the July Stimulus package introduced provisions to accelerate relief for losses and capital allowances incurred in 2020 of up to €25,000. This means that losses incurred in 2020 can be set back against 2019 income (of the same trade or profession), which could potentially give rise to a 2019 income tax refund.
The amount that is eligible for accelerated income tax relief is the aggregate of (i) the loss incurred in 2020, and (ii) the capital allowances (including industrial buildings and farm buildings allowances) to which the individual is entitled for 2020, that would otherwise be carried forward for relief in 2021 or subsequent years under normal income tax rules (subject to the €25,000 cap).
The legislation provides for interim claims to be made by individuals based on an estimate of the losses and capital allowances which they believe they will incur in 2020. At the date of making the interim claim, the taxpayer must be ‘tax compliant’ i.e. filed all tax returns and made all tax payments (excluding Revenue approved debt warehousing arrangements).
Any individuals making an interim claim must prepare and retain records evidencing the basis on which they computed the amount of relief due.
To prevent abuse of this relief, interest at a rate of 8% per annum will apply to any ‘excess’ tax repaid where (i) the claim for excess relief was made either deliberately or carelessly, or (ii) the individual did not adjust the claim without unreasonable delay on realising that the relief claimed was excessive.
Individuals can find more guidance on the relevant provisions here.
Accelerated Corporation Tax Loss Relief for Companies
The Financial Provisions (Covid-19) (No. 2) Act 2020 introduced an acceleration of Corporation Tax loss relief for companies adversely affected by Covid-19.
The relief allows companies to estimate trading losses for accounting periods affected by Covid-19 and make a claim to immediately carry back 50% of these losses. If a company was profitable and paid Corporation Tax in respect of the preceding accounting period, this relief will result in an immediate partial refund of the Corporation Tax paid for that period.
When companies are making estimates in respect of their trading results, the Revenue guidance provides that “a company will be regarded as having made a best estimate where a genuine attempt has been made to calculate the amount of the loss based on all the information available to the company at the time the interim claim is made.” Companies can find more guidance on appropriate estimates in this regard here.
The relief applies for any accounting period of a company carrying on a trade which includes the period 1 March 2020 - 31 December 2020.
The relief is claimed by amending the company’s Form CT1 for the prior period online via ROS. The company is required to notify Revenue that they are making such a claim, but they are not required to submit any supporting documentation when making the claim. However, supporting documentation (such as projections) should be retained by the company to support their claim for the accelerated loss relief.
Debt Warehousing & the Reduced Rate of Interest for ‘Non-Covid-19’ Debts
Revenue announced in May of this year a debt warehousing scheme for certain PAYE (employer) and VAT liabilities arising during the period in which Covid-19 restrictions are in place. This scheme, which had to date been operated on an administrative basis by Revenue, has now been legislated for under The Financial Provisions (Covid-19) (No. 2) Act 2020.
Warehoused debts can be ‘parked’ on an interest free basis for a period of 12 months following the resumption of trading. After the end of the 12-month interest free period, the warehoused debt may be paid in full within 1-year without incurring an interest charge or thereafter can be paid through a phased payment arrangement at a significantly reduced interest rate of 3% per annum.
In order to qualify the tax debt must be accurately quantified by the business through the filing of all relevant tax returns for the restricted trading phase, and the business must continue to file its tax returns on time and pay current liabilities as they arise during the 12-month warehousing period.
The scheme is automatically available to businesses whose tax affairs are dealt with by Revenue’s Business and Personal Divisions. Other businesses, whose affairs are dealt with by Revenue’s Large Corporates and Medium Enterprises Divisions, may request to be included if they satisfy Revenue that they are unable to pay PAYE (employer) and VAT debts due to Covid-19 related restrictions.
The reduced interest rate of 3% per annum will apply for outstanding ‘non-Covid-19’ tax debts, where there is a phased payment arrangement in place between the business or individual and Revenue by 30 September 2020. The 3% rate is available across all tax heads.
Those availing of the scheme will be entitled to apply for tax clearance. Having tax clearance is necessary to meet the eligibility criteria for some of the essential supports available to businesses including the new Employment Wage Subsidy Scheme, the Stay and Spend Scheme and accelerated loss relief.
VAT Rate Reduction
As part of the recently published July Stimulus Package, the Government announced that the standard rate of VAT will be reduced from 23% to 21% from 1 September for a period of 6 months.
Staycation Tax Credit
The staycation tax credit will run from October 2020 to April 2021.It will enable those who holiday in Ireland to reclaim a portion of their expenditure on accommodation, food and non-alcoholic drinks.
The taxpayer will be entitled to a tax credit of 20% on qualifying expenditure up to a maximum spend of €625 (minimum spend of €25). Therefore, the maximum tax relief that can be claimed by an individual holidaymaker (who spends €625) is €125 (€250 for a couple).
In order to qualify for the scheme, it is expected that the service provider must be VAT registered and have a tax clearance certificate. The Taoiseach, Micheál Martin has said that the relief will be administered via an app. Further details on the relief are yet to be announced.
If you would like to discuss making an accelerated loss relief claim, or any other of the matters outlined above, please contact a member of our team.