Did Covid-19 Affect Your Profitability?
DBASS Blog | June 2021
The past year has been a very difficult time for business with the implications of Covid-19 and the pandemic induced closers likely to have long term implications. Now more than ever the importance of cash flow in your business cannot be underestimated.
In order to support you and your business as you navigate the ongoing impact of Covid-19 DBASS have put together some practical ways to positively impact your cash flow.
Corporation Tax Accelerated Loss Relief
This new temporary relief offers cash flow support, through the tax system to businesses who were previously profitable and who now find themselves as a result of Covid-19 in a situation where their business is making a loss.
Companies may now use up to 50% of their estimated losses for their 2020 accounting period against 2019 company profits. This will facilitate an early refund of some or all of the 2019 corporation tax paid.
The relief allows companies to estimate trading losses for certain accounting periods affected by the Covid-19 restrictions and make a provisional claim, referred to as an ‘interim claim’, to carry-back up to 50% of those losses against taxable profits of the preceding accounting period on an accelerated basis.
This will result either in a repayment of some or all of the corporation tax paid for that period or in a reduction in the amount of corporation tax payable for that period.
Note: A best estimate and reasonable approach is required when estimating losses. Supporting documents and records should be available to help determine whether losses were calculated in a reasonable manner and to the best of the company’s knowledge.
The company must declare that it has incurred or may reasonably expect to incur estimated losses. And this declaration must be submitted to Revenue.
Self-employed individuals whose trade or profession was profitable in 2019 but who incur losses in 2020 can make a claim to have those losses, and certain unused capital allowances, carried back and deducted from their profits for the tax year 2019. An individual who incurs, or who reasonably expects to incur, a loss during 2020, can accelerate the timing of the income tax relief by making an interim claim based on an estimate of the amount of the relief that will be available to the individual.
Applications to this scheme is through ROS.
Other use of Losses (Individuals)
Another way losses can be used by an individual is to consider particular types of losses within your trade or profession. Certain losses can be offset against an individual’s other income e.g. director’s salary, rental income etc. (and that of their spouse) in the same year in which the loss arises.
Professional Services Withholding Tax (PSWT) Interim Refunds
Were companies and individuals have had PSWT withheld, it may be possible for them to claim an interim refund providing certain conditions are met.
Employment Wage Subsidy Scheme (EWSS)
EWSS is an economy-wide enterprise support that focuses primarily on business eligibility. The scheme provides a flat-rate subsidy to qualifying employers based on the numbers of eligible employees on the employer’s payroll and gross pay to employees.
Covid Restrictions Support Scheme (CRSS)
The support will be available to eligible businesses who carry on a business activity that is impacted by COVID-19 restrictions. The business must have been required to prohibit or considerably restrict customers from accessing their business premises. Eligible businesses can make a claim to Revenue for a payment known as an Advance Credit for Trading Expenses (ACTE). An ACTE is payable for each week a business is affected by the restrictions.
Commercial Rates Waiver 2021
The Government announced earlier this year that the commercial rates waiver put in place for the first quarter of 2021 will be extended to the second quarter. This applies to business most seriously affected by ongoing restrictions.
The tax debt warehousing arrangement allows a business to park unpaid VAT and PAYE (Employer) tax debts that arose from the COVID-19 crisis for a period of 12 months after a business resumes trading. No interest will accrue during this period and an interest rate of 3% per annum will apply on the repayment of these ‘warehoused tax debts’ after that date.
The date on which a business is deemed to resume trading is by reference to the date when the business ceased to be subject to restrictions provided for in Regulations detailed in the Roadmap for Reopening Ireland (plus two additional VAT months).
A VAT refund in respect of a bad debt can be claimed where it can be demonstrated that the debt is not recoverable.
Early Tax Filings
Where a tax refund is due the accounts preparation process should be speeded up and the relevant tax return filed as soon as possible so as to obtain an early repayment and avoid what is effectively an interest free loan to the Revenue Commissioners.
Married Couples – Making Best Use Of Rate Bands
Many couples may have already arranged their incomes so as to maximise the additional 20% income tax band available for two income couples under individualisation. If they have not done so this is an area that should receive immediate attention as regards transferring income between the spouses etc., if it is possible.
Tax Credits – Ensure to claim all your tax credits available to you
Some tax credits, such as the PAYE tax credit are given automatically. Others you have to claim for, such as tuition fees, flat rate expenses, home carer’s, medical expenses, Claims can back date four years.
In summary there are a number of ways to positively impact your cash flow situation using the available supports and a more critical look at your business finances.