Legal entities operating a business that have not paid (in full) their payroll tax and/or value added tax (VAT) for the February 2020 tax return period would be well advised to by 14 April 2020 at the latest to submit a notification of inability to pay to the Tax and Customs Administration (the decisive factor is the date on which the Tax and Customs Administration receives the notification).
This notification reduces the risk of the director(s) of the legal entity being held personally liable for tax not paid by the legal entity.
Even if you’ve been granted a payment deferral
Due to the coronavirus crisis, it is relatively straightforward to obtain a deferral of payment for these tax debts. If you submitted a request for a special deferral of payment on 12 March 2020 or later, citing the coronavirus crisis, that request applies to all tax assessments issued from that date onwards.
However, a request for a deferral of payment does not in itself constitute a declaration of inability to pay. Both must be made independently of one another.
Please note the deadline
Furthermore, the time limits for the two requests are not the same. A notice of inability to pay is only valid if it is given within 14 days of the payment deadline expiring.
The payment deadline for the monthly payroll tax and VAT return is the last day of the month following the month to which the return relates. The payment deadline for the return relating to February 2020 therefore ends on 31 March 2020. The deadline for submitting a notification of inability to pay then ends 14 days later: on 14 April 2020.
An application for a deferral of payment can only be made after a (supplementary) tax assessment has been received. The additional tax assessment for the February 2020 tax return period will be issued once the Tax and Customs Administration has established that the tax declared has not been paid. It goes without saying that these additional tax assessments are generally not sent out within 14 days.
Separate notification for pension contributions
The insolvency scheme also applies to the compulsory payment of pension contributions to an industry-wide pension fund. The notification of inability to pay in respect of tax does not also apply to pension contributions. A separate notification must be made to the sectoral pension fund for this purpose. This must be done within 14 days of the date on which the pension contribution is due under the pension fund’s regulations. The Tax and Customs Administration form (see below) also includes the option to report an inability to pay to the sectoral pension fund.
Coronacrisis
The financial measures introduced in response to the coronavirus crisis do not yet include any relaxation of the rules regarding the notification of inability to pay. However, the Tax and Customs Administration now states on its website that a request for a deferral of payment is also regarded as a notification of inability to pay. However, as this is listed under the heading “deferral for longer than 3 months”, it is unclear whether this also applies to the period prior to those 3 months.
Furthermore, it is not clear whether this applies only where the Tax and Customs Administration concludes that the payment difficulties are indeed caused by the coronavirus crisis. If the Tax and Customs Administration subsequently determines that the payment difficulties are due to other causes, this could mean that no notification of inability to pay has been made.
Opinion
Our advice to legal entities that are liable for corporation tax and that fail (in part) to pay their payroll tax and/or turnover tax or pension contributions for a given period is to notify the authorities in good time of their inability to pay.
For payroll and/or turnover tax relating to the February 2020 tax return period, this notification must be submitted by 14 April 2020 at the latest. If you have already paid the tax for February 2020: for the March 2020 tax return period, you must report your inability to pay by 14 May 2020 at the latest.
If you file your payroll tax returns every four weeks, you’ll have less time. The final payment date Period 2 ends on 23 March 2020, so the notification of inability to pay must be submitted by 6 April 2020 at the latest. The final payment date for period 3 is 22 April 2020, meaning that the notification of inability to pay must be submitted by 6 May 2020 at the latest.
How?
You report an inability to pay using the form provided for that purpose form from the Tax and Customs Administration. You can find more information about (reporting) an inability to pay in our factsheet Notification of inability to pay. Once you have duly notified the authorities of your inability to pay, this notification remains valid until you have settled all your tax debts; see our article Report of inability to pay continues.