Taxing times: How Covid has changed the way your Pay & File tax return will work

With the Revenue's self-assessed deadline normally looming, October is understandable when business-owners and the self-employed turn their attention to tax.

This year the pandemic has given people plenty of other challenges to focus on - but it has also led to important changes to the Pay and File system.

If you’re one of the more-than 500,000 people preparing a self-assessed return, here’s what you need to know:

Deferred deadline

While 31 October remains the deadline for the physical returns, Revenue usually gives an extra two weeks for those filing through its online system.

This year, that extension for online filings has been increased by a further four weeks - meaning people now have until Thursday, 10 December to submit.

"There’s an extra four weeks there for people to get their taxes in order, which is great," said Marian Ryan, consumer tax manager at Taxback.com. "The self-assessed are trying to keep their doors open, trying to keep themselves afloat so throw a tax deadline and paying a tax bill on top of that and the stress would go through the roof."

Liability on ice

Whatever the deadline, many businesses will feel that they’re not currently in a position to hand any cash over to Revenue at the moment. The good news for them is that they won’t have to.

This year, whatever businesses and sole-traders may owe in tax can be 'warehoused’ for a year with no interest applied - meaning it can be deferred to the end of next year at no additional cost.

If the amount remains outstanding after that period, Revenue will add a 3% interest rate to it - and no surcharge will be levied.

"In the past the rate would have been 10% so that’s really welcome," said Ms Ryan. "What that means for the self-assessed is they can file their return on the 10 December, say ‘my liability for 2019 is this much and I should be paying you this much in 2020 preliminary taxes, but I’m not in a position to do that’ and it’s kind of banked there.

"It buys people a bit of breathing space to be able to make payments."

However there a few small-but-important details to bear in mind around this.

A return must be made in order for the warehousing scheme to be availed of, with the 12 month grace period kicking off from the date of the return.

It is also just a deferral of what is owed, not any kind of write-down or write-off.

The scheme is automatically available to small and medium-sized operators - and Revenue should be in touch about it directly - though companies with a turnover of more than €3m will have to apply.

Outstanding debt

Revenue is also taking a more lenient approach to outstanding tax debts - even if they’re from before the outbreak of Covid-19.

Where a liability exists for a previous year, or no return was cleared, Revenue is now applying an interest rate of 3% per annum - compared to the normal 8% to 10% levied on late payments.

To avail of this the self-assessed need to agree a phased payment arrangement by 31 October.

If you already have such an agreement in place, Revenue will automatically apply the reduced interest rate to it.

Carrying back a loss

However one of the most significant changes in place this year is one that many may have missed - which is the ability to carry back a loss to reduce the amount of tax owed.

Traditionally firms that made a loss in one year have been able to carry that forward, offsetting it against profits made in the next.

This year, though, they will be able to bring that loss backwards - meaning their downturn in trade in 2020 could lighten their tax bill for 2019.

"Before, if it was a case that you were in a loss position for a year, you could offset it against your future gains," Ms Ryan said. "They’re allowing people for this year to actually carry that back... I think that’s going to be a great help for people."

While other Covid-related measures allow traders to simply delay paying their tax bill, this one may actually allow them to reduce what they pay entirely - which is always going to be good news.

But as always, there are some fine-print details that apply.

Businesses are limited to carrying back losses or capital allowances worth a total of €25,000. If losses eat up all of that allowance, unused capital allowances can still be carried forward as before.

In order to avail of this businesses must also complete a preliminary return for 2020 alongside their 2019 figures, which will allow them to calculate the extent of the loss for this year.

"That extra four week is going to be helpful for people because there is work involved in it," said Ms Ryan. "They are going to have to gather all of their 2020 information together and include it in the computation."

Unlocking added supports

As important as being up-to-date on your tax is in normal times, it will be particularly important in the coming months due to the disruption businesses will continue to face due to Covid-19.

One of the tent-poles Budget 2021 measures for businesses was the Covid Restrictions Support Scheme - which offers businesses a payment of up to €5,000 per week if their trade is severely impacted by the Government’s Covid restrictions.

The exact amount firms will get will be based on their average turnover in 2019, which their filing for the year will help to demonstrate.

And a long-standing requirement of any kind of support and scheme - even those that don’t relate to Covid - is that those availing are up-to-date on their Revenue-related requirements.