Revenue should permanently cut interest charges on late payments so firms can survive, says tax expert

Fearghal O’Connor

REVENUE may need to suspend interest payments on outstanding tax for a longer period for companies threatened with closure by the coronavirus outbreak, according to one of the country’s leading taxation experts.

Mazars Ireland tax partner Frank Greene welcomed the quick announcement last week by the tax authority that it would suspend the application of interest on late payments of Vat for January and February and on employers’ PAYE for February and March.

Revenue had said earlier in the week it stood ready to engage with businesses which found themselves facing cashflow difficulties due to the sudden downturn in business.

But, according to Greene, while the suspension was very welcome, Revenue needed to examine whether it should significantly reduce on an ongoing basis the high interest payments it charges on late tax payments.

Last week, Revenue collector-general Joe Howley outlined that it will engage with any viable business which experiences temporary cashflow difficulties related to the Covid-19 outbreak.

It followed this up with the announcement that debt enforcement activity is suspended until further notice and current tax clearance status will remain in place for all businesses over the coming months.

“It is important that businesses know we will work with them to resolve their tax payment difficulties. With early and meaningful engagement, we can generally agree payment arrangements that are acceptable to both the business and Revenue,” said Howley.

Greene said the standard Revenue practice of agreeing instalment arrangements where companies can pay liabilities over a period of time would not have worked well in the current sudden crisis because, in general, it would not involve any form of write-off of debt built up.

When a company builds up arrears in tax and enters an arrangement with Revenue it will in normal circumstances charge rates of interest on the repayments of as much as 10pc on Vat and PAYE and 8pc on income tax, capital gains and corporation tax, said Greene.

Those interest rates are far higher than other countries, where, for example, in the UK similar tax repayments attract interest of 3.25pc, he said. Even before the current situation the French tax authorities had reduced the interest they charge on outstanding tax to even less than that and the Irish situation was an outlier, he said.

“In the current environment, paying those levels of interest would be extremely costly and a disincentive for people to enter into arrangements. It needs to be radically looked at in the long term,” said Greene.

Nevertheless, he welcomed the move to bring in the temporary interest rate freeze.

“I don’t think anybody should be putting up prices in the current environment and, likewise, I don’t think the Revenue Commissioners should profit on the back of businesses and individuals who run into difficulties from a cashflow perspective in terms of not paying their tax,” he said.

Greene said he feared that once the virus crisis passed businesses would still potentially be in a weakened state and ongoing forbearance would be needed. Reinstating the payments could ultimately leave struggling businesses with unsustainable interest rate payments.

“After a downturn in revenues and cashflow problems, the last thing a company needs that, say, owes €100,000 and can pay it off over a year or two is to have to pay an extra €10,000 in an interest bill on top of it,” he said.

PAYE and PRSI were likely to be the taxes which would cause many businesses the most immediate problems in the current situation because they are monthly payments.

“If there is a downturn for a hotel or a pub your Vat liabilities, for example, will go down but companies will want to pay and keep their staff. Everyone is going to have to help each other out here and the Government is going to have to help itself because it is not in its interest either that companies start to lay off people because that will mean they will have to pay them social welfare.”

‘It is important that businesses know we will work with them’