What Company Directors need to know when filing annual income tax returns
Business directors cannot claim a pay as you earn (PAYE) deduction if their company is availing of the tax debt warehousing scheme for payroll taxes.
The Government introduced tax debt warehousing for businesses last year. This meant that qualifying businesses could “park” their VAT and payroll tax liabilities which arose during Covid-19.
No interest is charged on this debt for a period of up to 12 months after the business resumes trading. After this time, there will be a lower interest rate of three per cent per annum charged on these outstanding warehoused tax debts, until they are repaid.
Tax Debt Warehousing and Company Directors
Revenue have recently confirmed that a director or employee with a material interest in the company cannot claim credit for PAYE to be deducted if the company has warehoused and not paid those payroll taxes.
A material interest is somebody who can control, directly or indirectly, 15 per cent of the ordinary share capital of the company.
What does this mean for Directors?
In essence, this will mean that when a director completes their income tax return for 2020 later this year, they cannot claim a credit for PAYE deduction from their salary if the company has warehoused the payroll taxes. This may lead to an unexpected income tax bill to pay.
What should Directors do now?
Revenue have confirmed that directors who are eligible for tax debt warehousing may be able to warehouse these liabilities. However, this still means that the liability for these taxes have shifted from the company to the individual personally.
Whether you are a company director or employee who may be affected by these matters, feel free to contact our team at McMahon and Co. for advice on what tax liabilities may arise for you personally when you file your 2020 tax return.