As tax is generally charged on profits earned rather than on cash received, a business’ liability to pay tax may arise before it has paid for goods or services from its customers. The lack of available cash during the “credit crunch” means that it is not unusual for businesses having difficulties in sourcing cashflow to pay taxes.
Significant interest and penalties can apply for failure to pay taxes on time. Current interest rates are quite high and depending on the tax, interest can vary from 8% -10% per annum. In addition, Revenue has a number of enforcement powers for non-payment of taxes including the Revenue Sheriff and debt collection proceedings in court, all of which will result in additional costs for a business.
Revenue has indicated that it is willing to work with businesses experiencing difficulties in meeting their tax payment obligations. It will consider payment of tax (including interest) by way of a phased arrangement over an agreed period of time. However, Revenue has said that it will not allow itself to be used as an “unauthorised source of credit” by allowing businesses simply to stop paying their taxes and continue trading and accumulate further debt to Revenue. Given the potential costs involved in late payment of taxes, the importance of contacting Revenue as soon as possible where businesses are having short-term cash flow difficulties cannot be overstressed.
Although no formal process has been outlined by Revenue, it has indicated that its willingness to work with the taxpayer regarding payment of taxes will depend on the quality and timeliness of engagement by the business with Revenue. Taxpayers should expect to provide certain details, including the following:
- explanation of the reasons for payment difficulties;
- a clear outline of the reasons why the debt due cannot be paid now and in full (to be supported by details of the business’s current financial situation);
- details of current debtors and creditors – which customers are overdue on making payments, the extent of those payments, when is the payment expected, what measures have been taken to collect the debt from overdue customers;
- clear and time bound proposal for the payment of the debt in full in the shortest time frame possible; and
- proposed level of down payment at the commencement of the proposed phased payment arrangement.
Revenue is aware that many employers are currently experiencing lengthy delays on obtaining their 60% rebate on statutory redundancy payments from the Department of Enterprise, Trade and Employment (DETE). In recognition of this, it has announced that where a business is awaiting a statutory rebate and is experiencing difficulties in meeting its tax obligations because of the delay, Revenue will accommodate such taxpayers in deferring for a reasonable period collection or enforcement action that would otherwise ensue in the event of delayed payment of tax. Such a deferral will only be considered where, subject to satisfactory evidence being provided of the repayment due and its quantum, the employer instructs the DETE to pay the rebate directly to Revenue.