Section 997A and warehoused debt

At the ITI/Revenue Branch Network Webinar on 4 October, we requested guidance from Revenue in relation to warehoused debt and director emoluments which are affected by section 997A, Taxes Consolidation Acts 1997 (TCA), given the upcoming deadline to file Form 11 2021. Revenue has supplied us with the guidance outlined below. We have raised a number of questions with Revenue on this guidance and will update members on Revenue’s replies when received.

28 October 2022 – Latest update to Debt Warehousing Scheme and 997A

Schedule E liability due to be paid by 31 October 2021 (17 November 2021 where the ROS deadline applied)

As you are aware, Finance Act 2021 introduced a provision to allow directors/employees with a  “material interest” in a company, to warehouse their Schedule E liabilities which were due to be paid by 31 October 2021 (17 November 2021 where the ROS extension applied), where the section 997A TCA provision prevented them from being entitled to a credit for the PAYE tax deducted by their employer company as a result of the employer availing of warehousing. The non-Schedule E liability had to be paid when filing the Income Tax return. It is expected that 90% (Preliminary Tax liability) of the Schedule E liability in respect of the year 2021 would have been warehoused, where a taxpayer availed of this provision.

On 17 October, Revenue announced an important and significant extension to the Debt Warehousing Scheme in light of the current challenging economic situation for businesses.  Under the scheme, businesses with warehoused debt were due to enter into an arrangement with Revenue to deal with that debt by the end of the year (or by 1 May 2023 for those subject to the extended deadline). Given the current economic uncertainty, Revenue has extended the timeline to 1 May 2024. This means that businesses will not now be faced with the challenge of either clearing the debt in the warehouse or entering into a phased payment arrangement to clear the debt until 1 May 2024. Importantly also, businesses will still be able to avail of the reduced 3% interest rate from 1 January 2023, as opposed to the general interest rate of 8%/10%, when they come to pay the debt.

This will apply for any taxpayer who has warehoused their Schedule E liability which was due to be paid in October/November 2021 also.

Schedule E liability due to be paid by 31 October 2022 (16 November 2022 where the ROS deadline applies)

There is no legislative provision to allow the Schedule E liabilities due to be paid by 31 October 2022 (16 November 2022 where the ROS extension applies) to be warehoused. Therefore, the balance of tax due in respect of 2021 will be due to be paid by 31 October 2022 (16 November 2022 where the ROS extension applies).

In relation to the 2021 Form 11 Income Tax Return, there is no warehousing tick box on the Form 11, as there is no Income Tax Debt Warehousing provision in respect of Income Tax payments due to be paid in 2022.

Where the director/employee with a material interest is now experiencing difficulty in paying the remaining 10% (balance of Schedule E tax due), they should contact the Collector General’s Division and agree an arrangement for what should be a small amount. As you will be aware, Revenue has introduced a number of flexibilities to its payment arrangements as a result of COVID-19 e.g., payment breaks, which may be appropriate in these circumstances.