Q. What should a business do when problems arise paying its taxes?
A. Simply sitting tight until things get better is not an approach to dealing with difficulty in keeping up to date with your taxes.
Firstly, it is really important that a business understands what precisely is giving rise to the particular difficulties in meeting its tax payment obligations and causing the credit squeeze. It is quite surprising and not least very worrying on occasions to find that a business will have only a general awareness that it is having difficulty but be unable to pinpoint the precise source of those difficulties.
So what are some key actions for a business or taxpayer in a credit squeeze?
1. Review basis of Accounting for VAT
Every day we hear statements like, "We are finding it difficult to get payments from our customers". SMEs should be aware that where annual sales of a business in a 12-month period do not exceed €1m, they have the option of accounting for VAT based on cash receipts rather than on the basis of sales invoices issued in the taxable period. At a minimum this avoids paying for VAT on sales invoices issued to customers that have not been paid.
2. VAT – Bad debt relief
A business which has accounted for VAT in respect of the issuing of a sales invoice to a customer may subsequently claim bad debt relief for the VAT attributable to the bad debt, provided they have taken all reasonable steps to the recover the debt and the debt is allowable as a normal trading deduction. Connected party transactions are not eligible for bad debt relief.
3. Phased Payment – Revenue Installment
Permission from Revenue to pay a tax debt by way of a phased payment arrangement (revenue installment) is a concession and must be fully justified by reference to the circumstances of each individual taxpayer or business. Every phased payment arrangement or revenue installment will however include interest. Accordingly, it is in the interest of a business or a taxpayer to minimise its exposure to interest by paying as much of the debt up front and any balance over the shortest possible timescale.
For further information, contact Dylan Byrne, OSK
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