JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 14 Feb 2007

Under-Claiming of Allowances and Reliefs: Discussion.

Chairman

I propose that we have a short discussion on this topic. We have had useful and interesting meetings with the Revenue Commissioners and the Irish Taxation Institute. I propose that the joint committee draft a short report on this issue focusing on ordinary taxpayers rather taking a macroeconomic perspective. Given that many taxpayers do not receive their entitlements, I want the report to analyse each of the entitlements. It should inform ordinary taxpayers of how they can secure their entitlements and include statistics, where available, on the number of people claiming and failing to claim various allowances. Our approach must be to ensure that it is made easier for taxpayers to learn about how to obtain tax reliefs and tax credits. I suggest we complete the process before the next meeting.

The Revenue Commissioners have many good systems in place but they are well kept secrets. In my role as Chairman, I have met representatives from Revenue in an effort to obtain additional information. Page 451 on RTE 2's Aertel service provides people with invaluable information on taxation in the comfort of their own homes. For example, it features a telephone number to call if one needs information on each allowance. Clearly information is available but not widely known. I want the report to concentrate on how to enable ordinary people to access this type of information.

In recent days, 1.5 million people, including me, received a standard tax notice from the tax office. I will read four sentences of the statement to illustrate the problem people face. The heading on the document is "PAYE Notice of Determination of Tax Credits and Standard Rate Cut-off Point". I am satisfied that if one stood on O'Connell Bridge and asked 100 passers-by to explain this heading, no more than five of them would be able to do so. The heading on the communication to the taxpayer is unintelligible to 95% of taxpayers and the majority of Members of the House. I will not embarrass colleagues by asking them to explain it.

I will cite two short sentences from the accompanying letter with which I also have a problem. It states:

The tax credit certificate overleaf reflects the most up-to-date information the Revenue holds regarding your tax credit entitlements. I have sent a summary of your tax credits and standard rate cut-off point to your employer who will calculate your tax in accordance with these instructions.

Although most employees will immediately conclude that the employer will sort out their tax affairs, this is not the case. The form states:

Tax credits are given based on your personal circumstances. Unless these have changed there is no need to contact Revenue.

That is simply untrue, because the experience of this committee is that although many people's circumstances have not changed, they have not been getting all the allowances to which they are entitled. The form continues, "If you wish to make changes to your tax credits, the quickest and easiest way is to avail of the self-service options outlined in the enclosed leaflet". They are saying if one's circumstances have not changed, there is no need to contact them. That is not true. We know there are hundreds of thousands of people who should be contacting Revenue whose circumstances have not changed. Not only should they be getting the credit for this year but they should be looking for a rebate for all the years they have missed to date. That is just one classic example of how it would put ordinary people off.

The accompanying document is a dense A4 sheet with details on the front and back. It must have been written by somebody in the tax office who understood what he or she was talking about but it is not easy for ordinary people to follow. I would like to prepare a report on issues of relevance to ordinary people.

Deputy C. Murphy

Having listened to both groups it is clear the Revenue Commissioners disputed some of what was said by the Irish Taxation Institute. It was a helpful exercise. I do not disagree with the Chairman's approach but I wonder if we should get a psychologist to work out why people do not claim their entitlements. I do not think it is only a question of comprehension. People have no difficulty getting their heads around welfare payments because there is a perception that something is being drawn down. However, there is a problem with perception around something to which one contributes and where one may not be fairly contributing.

I am happy enough with the approach suggested by the Chairman but what would he expect us to do with the report? Would we go back to Revenue with suggestions as to how it might change? I asked a parliamentary question subsequent to the previous meeting about the level of the budget spent on helping people to claim tax as compared with the amount spent on collecting tax. Both sums of money were considerable. There was not much disparity between the two. In fact, more money was spent on encouraging people to claim back tax than on paying tax.

One would have to question the effectiveness of the money spent when documents such as the one outlined by the Chairman are produced and such a significant number of people are not getting the message. We were told by Revenue that every taxpayer got one of those documents. Did Revenue use the people who give it advice on PR to design these documents? I do not think any one of us would send out such a document as we know our constituents and it would only get from the front door to the bin. People are used to getting things in a different type of presentation nowadays.

Deputy Bruton

I have no problem with the Chairman's suggestion but I do not think it is adequate to deal with the issue. Essentially, we are not an information source. Our expertise is not in designing leaflets better than other people, although the example given is a very poor design. We are involved in the policy that underlies this issue. It is not enough for us to produce a manual on how to claim back tax from the Revenue, what we need to do is look at some of the policy blockages that are preventing people from claiming. Some of those are beginning to be addressed by Revenue, such as providing deduction at source. We should add impetus to the need to provide deduction at source in cases like trade union subscriptions, medical expenses, rent subsidies, etc. We should push that strongly and look for changes in those areas.

We were told by Revenue that in the case of trade union subscriptions, the issue was that Revenue was not ready at the time but it appears to be ready now. We should also look at the policy hand trips that are in the tax code, for instance, on medical expenses relief, where even after this budget the first €125 is unclaimable. That amount is of little significance. The Minister will not give tax relief on €2.50 per week but the effect of that is that one cannot have an at-source system because Revenue has to check and deduct €125 from whatever claims are made. That system should be scrapped and we should have a much simpler situation whereby all medical expenses incurred by an individual would be tax deductible. A form could be available in doctors' surgeries. This could be signed as one pays for the service and it could then be remitted. I suspect it would be a win-win situation for Revenue because it would ensure greater compliance, for example, from landlords.

Another issue that arose relates to simplification of the forms. Although Revenue disputed it, there are many obstacles and, as the Chairman pointed out, even the procedure regarding bin charges, etc. is not simple. Every basic document needs to be sent out asking whether people are aware they are entitled to claim. A list written in big letters could contain other areas of expenditure outlining that if people spent money in these areas they should phone a given telephone number. The information should be very much in one's face. We should simplify the tax code to make it easier for people to get these reliefs.

We also need to look at the issue of backdating. This was raised in particular by Deputy Paul McGrath. He made the point that while one can pursue an overpayment for only four years, Revenue can go back indefinitely if it believes a person has in some way neglected to make a tax return. If it goes back beyond four years and uncovers a liability but also an unclaimed relief, an individual is not able to get the benefit of the unclaimed relief because it is outside the four-year period. That is not fair play. Both sides are not being treated equally. If Revenue is going to look back it cannot decide arbitrarily that if it discovers unclaimed relief in respect of medical expenses, etc., it will not take them into account. We should address that matter and the general issue of how far Revenue should be allowed to look back and why people should be confined to four years if there has been a genuine problem.

The final point I wish to make relates to something that was recommended to us by the tax people, which I strongly support. Revenue has the information to compile a comprehensive report on the extent of overpayment by ordinary PAYE workers. It knows what doctors are returning as their income and whether the income came from GMS or private sources. Revenue knows exactly how much is going to nursing homes, landlords and trade unions because it has tax returns. The notion that amateurs like myself or the Irish Taxation Institute are trying to produce an estimate of this to try to get it on the public agenda is wrong. Revenue has a duty to be equally fair to people who have overpaid and to people who have underpaid. All of its reports focus on underpayments, the people it is pursuing, how much it estimates is out there and what it is getting. There must be some element of trying to be equally fair and identify money it is holding on to that does not rightfully belong to it. That report ought to be prepared.

Revenue clearly will not do so without a direction. The committee should give that direction. Obviously it is up to the Minister whether it is approved or not. However, it is wrong that Revenue should know how much the State is holding belonging to other people and not make the effort to collate that information, put it up in lights and issue forms asking people if they knew €350 million was uncollected in respect of carer's allowance, rent allowance, bin collection, trade union subscriptions, medical expenses, etc. We would then start to suck diesel, as they say. The report should address those issues.

Chairman

Since the last meeting, I have been following up on some of the points raised with the Revenue Commissioners. Senator Leyden mentioned flat-rate expenses for workers, which, traditionally we associated with tools for carpenters, for example. There are agreed rates but they appear nowhere on Revenue's list of reliefs and credits. I could not find a reference to them anywhere, although I have seen the documentation. I pursued the matter with the Revenue Commissioners and will supply the response I receive to the committee when I have the matter fully sorted out. The Revenue Commissioners said to me that the rates changed and were agreed between themselves and the trade unions on an ongoing basis and that this is why they were not included. I was told that hundreds of thousands qualify, although it might only be worth €40 to €100 to them. I was told that the following categories of employees could claim the relief: all employees in the building trade, shops, supermarkets, hotels and bars; general workers in the motor trade; all teachers, nurses and nurses' assistants; hospital and domestic staff and home helps employed by the HSE. This amounts to almost 1 million workers but I am not sure how many claim the relief. Traditionally, it was a clothing allowance.

Another matter on which I followed up is that of the tax-saving commuter ticket which Revenue did not have listed on its site. If one knew where to look in the benefits-in-kind section, one might find something about it, but the Revenue Commissioners have indicated that they have no information at all on how many tax-saving tickets have been issued, the reliefs available or the companies involved. I am amazed by this. It is handled directly between the transport companies and the employer. The employer pays for the ticket and the payments are deducted from the employee's salary, either on a monthly basis or according to an alternative arrangement agreed between the employer and employee. There is no reporting mechanism to inform the Revenue Commissioners. The relief is very attractive because one gets the PRSI and PAYE reliefs at the top rate. The relief is worth 48.75%, if one has an annual commuter train ticket. The only company I have seen advertising it is CIE, including Iarnród Éireann.

These are examples of the reliefs available but I accept the Deputy's point fully. I was referring to the micro-position affecting the ordinary individual but the overall position must be known by considering the global picture. We will ask the secretariat to examine the transcripts of this and the last meeting and produce the first draft of a report at the next available opportunity. When members have something in front of them, they can add or subtract. I hope that in the coming weeks, after the Finance Bill is passed, the committee will be able to launch the report. If we do not do so well before St. Patrick's Day, people will just move on. We could usefully issue a report on this topic in the coming weeks.

Deputy C. Murphy

Where?

Chairman

God only knows. I hope we will be moving back in here when the time comes.

We have covered most of the business members wanted to discuss. We will adjourn until 28 February but I am conscious that the select committee is meeting next week.

The joint committee adjourned at 3.45 p.m. until 11 a.m. on Wednesday, 28 February 2007.