A note on tax reliefs for businesses affected by recent bad weather (oh, and also those that are just struggling)

Businesses and individuals affected by recent flooding and cold weather may be entitled to tax relief depending on the severity of the interruption to the business and the extent of damage caused.  As this note deals with the affects of a business interruption, it may also be of interest to other struggling businesses. 


Some issues to consider and the related tax consequences include:

• Companies and individuals affected will be entitled to a tax deduction for damage caused to stock.
• A corporation tax or income tax deduction may not be available where damage is caused to property.  Further, insurance compensation may be treated "proceeds" from a deemed disposal (or part disposal) of an asset giving rise to a tax liability (this is because compensation received for the damage, loss, or destruction of an asset is a taxable receipt).  No charge to tax should arise to the extent the compensation is used to replace or restore the damaged asset - although make sure your advisor claims the relief as it does not apply automatically.
• Tax relief - by way of balancing allowance (i.e. tax depreciation) may be available for damaged plant and machinery and fixtures and fittings. 
• In cases where flood damage causes significant interruption to a business it may be the case that the trade is regarded as having ceased.  This would enable business owners to carry back any losses arising against profits in the previous three years.  This is an important tax planning point and can enable a business to seek a rebate of tax payments made in previous years.  Usually tax payments in previous years cannot be accessed by individuals and companies can only go back one year.
• Family businesses suffering a prolonged business interruption should note that this can affect to ability to pass on the business from one generation to the next "tax-free".
• Businesses that cease to trade with outstanding tax liabilities may have difficulty meeting their outstanding obligations.  It is critical that you consult with your business advisor and communication with Revenue at an early stage.  Revenue has a dedicated webpage  outlining their approach to taxpayers experiencing tax payment difficulties.
• Without tax advice, no immediate relief is available for expenditure to prevent future flooding and/or to improve drainage.  This is usually regarded as enhancement expenditure and capitalised for capital gains tax purposes - i.e. the expenditure is taken into account if/when you sell the land or building.  
• If a business experiences redundancies it is worth highlighting the Revenue arrangements for businesses who are unable to meet their outstanding tax liabilities and are entitled to a rebate from the Department of Enterprise, Trade & Employment in relation to redundancies.  In such cases the period for collection or enforcement will be deferred for a reasonable period until the redundancy rebate has been received.

In the recent Budget, the Minister for Finance made provision of €70 million to help those affected by recent flooding and to fund work to minimise the risks of future incidents.  Until details of the measures are announced though, the tax treatment of this relief is unclear and the likely benefit may not be derived for some time.  In the meantime, many businesses and farmers have suffered significant damage to premises and stock and the following points may be relevant for them.


* This text is adapted from a short article I wrote for farmers and businesses affected by the recent weather in the December issue of Tax Relay - a publication by the Irish Taxation Institute.