Get out of tax debt with a Revenue Phased Payment Arrangement

Get out of tax debt with a Revenue Phased Payment Arrangement

If you’re struggling to pay your business taxes, Revenue’s Phased Payment Arrangement, or PPA, is a great way to clear your debt. As the name would suggest, a PPA allows you to settle your debt over an extended period, making it more manageable. Whether your liability is regarding VAT, payroll taxes or corporation tax, a PPA can be put in action, allowing you to schedule payments into the future and avoid being foreclosed upon by the Revenue straight away.

Sounds great, right? A PPA can be a fantastic way to ease your business through a challenging time, but there are still a few pitfalls to watch out for along the way. Let’s dig deeper into the Phased Payment Agreement process so you can determine if it’s the right choice for you.

How to apply for a Phased Payment Arrangement

Up until very recently, a PPA was something you applied for with a hardcopy form which you sent to Revenue. Nowadays, you can apply online within ROS. On your main screen, under Other Services, you’ll see this new section called Phased Payment Arrangement that only popped up in the last few months. This is now the only way you can apply for a PPA.

The exact form you need to fill out is called PPA1. You can download the PPA1 form in advance from Revenue, but you will also be able to download it as you go through the online PPA process. It is worthwhile to note that for debt of €5,000 or less, the form will ask general questions about the businesses, but if you owe more than €5,000 you will need to provide extra information, such as a list of assets, leases on building, etc.

In the PPA1, you’ll be asked to address the periods for which the returns are outstanding, and you will also have to include a proposal. This proposal is of particular importance because not only does it include a down payment, but you will need to outline how much time you require to pay your debt and the amount for the monthly payments. You will be asked for information and proof regarding bank details, any loans you have applied for, and any current lending commitments of the business.

Have you tried to avail of a bank overdraft?

To apply for a PPA, you are expected to have already been refused a bank loan. Revenue expects you to have tried other sources of financial support before applying for a PPA. Considering that the interest rate Revenue charges for the PPA is quite high, it does make sense to look for a bank overdraft first. For the last client we helped to get a PPA, this criteria in the Terms & Conditions prompted them to try to get a bank loan and this turned out to be a much more cost-effective solution for them. If you want to get an idea of the terms that may apply to your PPA, you can input your details into Revenue’s tax arrears instalment calculator.

Is your business viable?

There is a particular part of the PPA1 form that we have found can throw people because they’re not sure how to fill it in. Revenue wants to know how you are going to manage to pay your debt while also running your business and paying your current taxes at the same time. Ultimately, they are trying to assess the viability of your business. This is because in the conditions of the PPA that you can keep all your current taxes up to date. If you fail to pay your current taxes or miss one of your payments, Revenue do not have to continue with the PPA and this can be the start of a quick downward spiral if badly managed.

Considering that the interest rate Revenue charges for the PPA is quite high, it does make sense to look for a bank overdraft first.

What to avoid in the PPA process

It is vital not to put yourself in a situation where you cannot pay your current taxes. Your tax affairs need to be kept up to date while you’re on the Phased Payment Arrangement plan; otherwise your PPA will be revoked and the Sheriff will be appointed to collect the full liability immediately. If you do run into trouble and your PPA is revoked, unfortunately it is not simply a matter of applying for a new PPA. The down payment for a second PPA can increase to 40% of the total liability.

You’ll find that once the Sheriff gets involved your problems can become exacerbated. This is because the Sheriff charges a percentage of the liability along with interest due and an execution fee. The Sheriff’s charges are calculated at 5% of the first €5,500.00, and then 2.5%of the balance of that amount. As you can see, depending on the size of the debt being collected, these extra charges can be really significant.

Apply for the PPA and become eligible for a Tax Clearance Certificate!

A fantastic benefit of the PPA that not many people realise is that it makes you eligible for investment and bank loans because you are no longer non-compliant. Once you are keeping up with your payments, you can get a Tax Clearance Certificate with an outstanding PPA. This can be hugely beneficial for a business looking to trade themselves out of a problem. This was very helpful for one of our clients who relied on Pobal funding to keep their crèche up and running. Once they were missing tax payments, they were considered non-compliant by Revenue and the grant stopped feeding into the business. By applying for a PPA they were able to save their business from being run into the ground because once they were making regular payments to clear their debt as well as keeping up with current tax payments, they could be reissued a Tax Clearance Certificate and apply for funding again!

The PPA is a clean and straightforward way to get out of debt, as long as you can keep up your payments. If you require more financial advice regarding your business, get in contact with us today.
Rory