Many directors who "warehoused" their company's Revenue debt in 2020 will be very surprised when they file their 2020 income tax returns!

J

Jim Stafford

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Many directors who "warehoused" their company's Revenue debt in 2020 will be very surprised to learn that when they file their 2020 income tax returns they will not get credit for any taxes which were warehoused. They will be personally liable for any taxes due on their "gross" salary.

The Revenue have just updated their guidance note on Section 997A to outline the impact of warehousing on Section 997A. See link below:



The Revenue take a very tough stance on Section 997A! The section applies to any employee holding a 15% shareholding, or who is "connected" to such a shareholder.

Jim Stafford
 
Am I right in saying

Burgess Ltd pays me a gross salary of €100k
Burgess Ltd deducts €40k PAYE and PRSI and doesn't pay it over to Revenue.

Brendan Burgess is treated as having a gross salary of €100k and is personally liable for the taxes on it?

Seems right to me. Why should I get a credit for taxes which I have not paid over to Revenue?

Brendan
 
Brendan

Yes, your interpretation is correct.

The issue is that some directors believe that they have no liability, as they trading a limited liability company, However, Section 997A pierces that veil.

Warehousing Revenue debt sounds very attractive to an optimistic entrepreneur. However, For some businesses, such as retail and hospitality, it is challenging to assess future viability post-Covid. For example, in respect of pubs, the consensus view is that when pubs do finally re-open that sales in Year 1 will be 55% -60% of 2019 sales, Year 2 will be 75%, year 3 will be 85%. For some pubs, sales will not get back to full 2019 levels due to a change in consumer habits. Can such pubs re-open, particularly if they were close to break-even in the pre-Covid period? In respect of fashion retail, Covid has propelled us 10 years into the future, and over 50% of such sales are now carried out online. Can such shops re-open?

In summary, there can be a real sting in the tail for directors who optimistically warehouse their company's Revenue debt.

Jim Stafford
 
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