COVID-19: Managing VAT Cashflow

Deferral of VAT Liabilities

  • Revenue have suspended the charging of interest on late payments for March/April VAT and April PAYE (Employers) liabilities. This follows on from the previous announcement that the charging of interest on late payments is suspended for January/February VAT and both February and March PAYE (Employers) liabilities. This applies to SMEs only.
  • Businesses, other than SMEs, who are experiencing difficulties in paying their tax liabilities are advised to either:
    • Contact the Collector-General’s office through MyEnquiries or
    • Engage directly with their branch contacts in Revenue’s Large Corporates Division or Medium Enterprises Division.

For the purposes of the suspension of interest, an SME is a business with turnover of less than €3 million which is not dealt with by either Revenue’s Large Corporates Division or Medium Enterprises Division.

Importantly, Revenue still requires all businesses experiencing temporary cash flow difficulties to continue to send in tax returns on time.

If key personnel are unavailable, best estimates can be used to prepare the VAT returns and self-corrected subsequently without penalty if required.

Existing tax clearance and RCT rate status will remain in place over the coming months and will not be impacted by availing of any of the measures as outlined above.

Acceleration of Refunds

Revenue will continue to prioritise the approval and processing of VAT refunds to taxpayers. Where checks are necessary to allow repayment/refund claims, they will be conducted via MyEnquiries service or by telephone. Business should review and follow up on any outstanding VAT refunds for prior periods in light of this and seek to progress/expedite any open aspect queries.

Bad Debt Relief

As the economic impact of Covid 19 deepens, many business will unfortunately suffer increased bad debts.

Remember that a VAT deduction can be claimed for the VAT component of the write off by adjusting the current VAT return for the period in which the debt is written off.

Electronic VAT Refund (EVR) Reclaims

EVR reclaims allow a business to request a refund of VAT which they have been correctly charged by a supplier based in another EU Member State. A business should review their records to see if any such claims can be made. You can submit a maximum of 5 claims in any one calendar year.

Accounting for VAT/VAT Reporting

A cash receipts basis of accounting for VAT may be used where either 90% of sales are to non-registered persons or gross turnover is less than €2million per annum.

The cashflow benefit under the cash receipts basis is that VAT is due at the point of receipt from the customer, not on invoicing.

With declining sales, more businesses may be eligible to switch to the cash receipts basis.

Also, consider whether it is possible to switch from bi-monthly VAT filings to:

  • Quarterly - where annual VAT payments are between €3,001 and €14,400
  • Bi-annual if VAT payments are less than €3,000 annually or
  • Annually (subject to direct debit setup and bi-monthly VAT liabilities of €50,000 or less)

For taxpayers in a permanent VAT refund position an application may be made to Revenue to lodge monthly VAT returns which should also improve cash flow.

Delayed Payments to Creditors

Remember where an invoice has not been paid within 6 months an adjustment must be made to the VAT return to repay the VAT reclaimed to Revenue.

This has always been and is likely to remain an area of focus for Revenue.

How RBK can help?

If you need assistance to avail of any of the above measures or wish to discuss in confidence, please contact your usual RBK contact or:

Jackie Masterson, Tax Partner

Patrick Fannon, Senior Tax Manager

Download PDF of the Tax Issue - April 2020