Ireland: In austere times, the taxman is prepared to discuss payment options
07 June 2012
Posted by: SAIT Technical
It is surely a sign of the austere times we now live in that I find myself penning an article on how the owners of small businesses and personal taxpayers, striving to survive, should approach the Revenue Commissioners when the cash flow is not there to pay their taxes as they fall due.
However, this is the reality that is facing many small and medium enterprises on a daily basis.
On top of concerns about maintaining sales and getting paid by customers, an additional worry they most certainly do not want is owing money to Revenue and not being able to pay it.
The Revenue has put in place a structure called a Phased Payment Arrangement ('PPA') to support and facilitate businesses and taxpayers to comply with their tax return filing and tax payment obligations. In return, Revenue expects businesses and taxpayers to organise their financial affairs to ensure they meet the agreed payments, as they fall due.
In order to qualify for this PPA, there are certain elements to be considered.
When it comes to dealing with outstanding taxes, sticking one's head in the sand only make matters worse.
When tax is due and remains unpaid, the liability will increase over time through the application of penalties and interest on the overdue amount. Time most certainly does not heal the wound in this case.
When you first realise that you or your business may not be in a position to pay a forthcoming tax liability, the importance of contacting your local Revenue district cannot be stressed enough.
The extent of the room that Revenue personnel have for manoeuvre is significantly influenced, in the first instance, by the level and timeliness of meaningful engagement by the taxpayer.
The Revenue will examine the business on a case-by-case basis, and they will be reasonable in their approach and in dealing with the PPA application.
In the last number of years, some financially viable businesses and individual taxpayers have experienced particular difficulties in meeting their tax payment obligations. This has been due to, for example:
- A tightening of credit and overdraft facilities, or
-Cash-flow problems arising from extended and ongoing late payment by their debtors, or
-Exceptional bad debt(s) incurred.
Revenue consider the impact of the above and determine if the business is economically viable and whether there is the capacity to meet future tax obligations.
The commitment of the taxpayer to future payments is also a definite factor to be considered, something that early engagement shows.
In trying to qualify for the PPA, another key factor, which will be taken into account, is the previous compliance record of the business or taxpayer.
Phased Payment Arrangement
Once Revenue is satisfied that the business is viable long-term, and committed to meeting its current and future tax obligations, an application can be formally made for the PPA. This is essentially a payment plan, whereby a monthly direct debit is agreed to discharge the tax outstanding over a period of time. This period is generally a maximum of two years.
Revenue will also require the following information:
- Current bank statements to allow Revenue to take a view as to whether there are increasing excesses on the account, and to take a view on the extent of any major fluctuations in the account:
-List of all assets and encumbrances thereon.
-Outline of what cost-cutting measures have been implemented, including reduction in drawings by the owner/ directors.
-Cash-flow projections for the next six months.
-Current management accounts.
It is of the utmost importance before providing these figures that they have been discussed with the business's tax adviser, and accurately reflect the true state of the business. Where the basic viability of the business is not established to Revenue's satisfaction, or where current taxes are not being paid as they fall due, then the PPA as originally agreed may be cancelled, and the outstanding taxes collected by harsher means such as enforcement. This is an avenue down which neither the business nor Revenue wish to proceed.