Seanad Éireann debate -
Tuesday, 30 Mar 1993

Vol. 135 No. 10

Adjournment Matters. - Tax Collection.

Ms Kelly

While I acknowledge that all companies, large and small, have a duty to pay VAT, PRSI and PAYE on behalf of their employees, I wish to highlight a situation in my constituency that has recently come to my attention where a sheriff, acting on behalf of the Collector-General, has placed undue pressure on a number of small businesses.

Many small businesses have, occasionally, problems with cash flow. The company I am concerned about has three highly skilled employees. It provides a combined manufacturing and service facility in the electronics sector. Most of the work is sub-contracted from larger companies, some of which are located outside this country. If there is any delay in payment by the larger company, the smaller firm is faced with a cash flow problem.

A small business, when short of money, has to decide what to do with the resources available. Does it make highly skilled people redundant for a few weeks? Should it stop buying essential supplies? Should it let VAT, PRSI, or PAYE arrears build up? This company took that action because it felt it needed to uphold its reputation for getting work done and it needed the skilled employees who were not easy to find. As a result, it was several months in arrears in paying PAYE and PRSI. On 23 January 1993 it received a demand for VAT due in November. The company paid this money but a notice arrived from the sheriff asking for fees of £23.41 with a warning that if these fees are not paid that a further £60 would be charged. The company paid this extra £83.41.

On 25 January 1993 the company paid a total of £3,000 to the Collector-General which brought its VAT payments up to date. However, a letter dated 12 February 1993 arrived on 16 February 1993 seeking back payments of £903 PAYE and PRSI.

The Collector-General usually sends an estimate first and then the company works out the details, but to this company's horror on the 17 February, the day after the letter arrived, an individual from the sheriff's office came and demanded payment. As the owner of the business was not au fait with the accounts — the accounts were done by his wife who was not present at the time — he was not in a position to say if he could or could not pay. While they were trying to figure out if they had paid this money, the owner received an abusive telephone call.

At that point the constituent contacted me. He withheld payment while I researched the case. He subsequently paid the money owned but he did not pay the fee demanded by the sheriff. Last week a women, identifying herself as from the sheriff's office, telephoned the company and abused an employee who was not aware of the company's financial situation, for the failure of the company to pay the sheriff's fees.

I realise this could be an isolated incident but my constituent claims this happened to other small businesses in the area, although I cannot verify this or name other businesses to which this has happened. He claims that other businesses are afraid of the sheriff's power to damage the reputation of any small business if he decides to pursue his duties to the full letter of the law. I realise that the sheriff is appointed by the Minister for Justice and is acting on behalf of the Minister for Finance, therefore the sheriff has a dual responsibility. I want the Minister to realise that at this time many small businesses are under extreme stress because of high interest rates and currency fluctuations and a greater degree of tolerance could have been shown.

Who appoints the sheriff? What qualifications are needed? Is the post openly advertised? How long is the term of office? Who sets the expenses — not the fees — which the sheriff can claim? Who ultimately supervises the operation of the sheriff? What right of appeal does a defaulter such as this individual have? Is the money collected on behalf of the Collector-General paid over immediately by the Sheriff? If not, why? Is the sheriff taxed on his fees and at what rate? Would the Minister consider streamlining the efforts of the sheriff which are essential in the case of a major defaulter? In this case using the sheriff to collect reasonably small amounts of money from a firm which has been in business for a number of years and is experiencing a temporary hiccup was unnecessary.

Minister of State at the Department of Social Welfare (Ms Burton)

With your permission, a Chathaoirligh, I am taking this matter on behalf of my colleague, the Minister for Finance, who is unavoidably absent.

While the sheriffs operate under the rules of civil debt collection in carrying out their function of enforcing Revenue debts on foot of warrants issued to them under section 485 of the Income Tax Act, 1967, the underlying policy in relation to the collection of those debts, of necessity, rests with the Revenue Commissioners. In these circumstances, the motion on the Adjournment can be seen as being addressed to the Revenue Commissioners as much as to the Revenue sheriffs.

The primary function of the Revenue Commissioners is to fairly and efficiently collect for the benefit of the Exchequer all the taxes, duties and other charges placed under their care and management. This objective is stated clearly in the taxpayers' charter of rights. In 1991 the total tax revenue collected, net of repayments, was slightly in excess of £8.6 billion; in 1992 the figure was close to £8.6 billion and for this year, the budget estimate is targeted at almost £9.1 billion, which is an increase of about 6.3 per cent over the 1992 figure.

Prompt compliance is a vital factor in meeting Exchequer requirements, because of the levels of money involved and of the frequency of the due dates for payment of the two largest yielding taxes, i.e., VAT and PAYE/PRSI. Significant improvements in compliance levels have been achieved in recent years, particularly since the amnesty in 1988. Those improvements can be attributed in no small way to the presence of the Revenue sheriffs, the introduction of self-assessment for the self-employed and the corporate sector and other measures, such as power of attachment, tax clearance procedures and collection initiatives which facilitated, among other things, rapid pursuit of interest due on late tax payments.

The commissioners are committed to continue to improve voluntary compliance levels. This has the dual effect of boosting receipts on a current basis while, at the same time, reducing the accumulation of tax arrears which become more difficult to collect with the passage of time.

The majority of taxpayers now lodge their returns and pay on time. For example, 73 per cent of self-employed taxpayers now make their tax returns on time compared with just over 50 per cent in 1987-88 — the year before self-assessment was introduced. Over 90 per cent of returns are filed within a year of the due date. Ultimately, about 98 per cent of returns are now filed compared with a response level of about 60 per cent for the pre-self-assessment years. In the light of the amount of revenue to be collected in a year, the Revenue Commissioners cannot afford to delay any collection and enforcement procedures against those who do not comply. Every opportunity is given to taxpayers who may have difficulty in complying with requirements but, for those who simply refuse to comply, the most effective enforcement sanction must be applied as promptly as possible. Experience has shown that tax debts harden as they become older and are less likely to be collected in full.

Under the Charter of Rights the commissioners have committed themselves, in the interests of the complying taxpayer, to ensure that those who do not comply meet with the full rigours of the law. The non-complying public cannot be given an unfair commercial advantage over their complying competitors, simply because the former group refuses to pay its taxes. Refusing to pay taxes is not a victimless crime. It not only deprives the Exchequer of revenue and places a greater burden on other taxpayers but it also undermines legitimate business by obtaining an unfair commercial advantage.

The sheriffs are an important part of the enforcement system. Up to £200 million per year is paid either through the sheriffs themselves or directly to the Collector-General as a result of sheriff activity. Of the 150,000 or so items referred to the sheriffs for enforcement each year the full liability is satisfied in up to 70 per cent of cases.

Senators might also be interested to know that, while the sheriffs have to mount a significant number of seizures each year, no more than 100 or so require to be carried through to finality. This is because taxpayers may, even at the last moment, satisfy the debt without having to undergo the seizure process. As can be seen from these details the threat of seizure is an effective weapon of enforcement.

I acknowledge the point made by Senator Kelly in the motion that difficult economic conditions prevail at present, and that small firms may be faced unexpectedly with cashflow problems. However, payment of taxes is a statutory function and those taxpayers who have continued to comply with their statutory obligations in recent times have had to operate in the same economic climate as those who have not complied. Nevertheless, as I indicated earlier, the Revenue Commissioners are prepared to extend latitude to those who are in temporary difficulties in regard to prompt compliance, and who come forward and make their situation known at an early stage.

I stress to the Senator to advise companies or people experiencing financial difficulties to discuss their situation as soon as possible with the Revenue Commissioners. I will bring the content of the case she has outlined here to the attention of the Minister for reply together with questions she raised on the appointment of sheriffs, their remuneration and the tax arrangements in relation to their fees and so on.

Ms Kelly

With regard to the point the Minister of State made that every opportunity is given to taxpayers who may have difficulty in complying with requirements, this applies if the taxpayer comes forward and reveals the situation to the Collector-General. If the Collector-General identifies a potential difficulty for an otherwise successful company can the Collector-General approach the company? Small companies are often afraid to admit that they may be in financial difficulties in case confidence in their business is undermined. If possible, it would be preferable for the Collector-General to approach a company where a problem had been identified, rather than to allow jobs and profits to be put at risk.

Ms Burton

Where financial difficulties relate to VAT, PAYE and PRSI payments, these moneys do not belong to the company. They are not taxes levied on the company but taxes collected by the company on behalf of the State from customers or employees. Obviously, as the Senator said these moneys may cause cashflow problems for a company but I do not think it would be possible, except perhaps from VAT returns for the Revenue Commissioners to judge the financial state of a company's affairs from its PAYE or PRSI returns. That would be a matter for the company to bring to the attention of their local tax office and the earlier such a problem is brought forward the more response is possible. I know this from my experience in commerce. The company must approach the Revenue Commissioners. The Revenue Commissioners issue approximately 150,000 certificates to sheriffs each year, so it is a continuous process.

The other point is that small companies are not always familiar, as the Senator said, with PRSI and tax regulations. In accordance with the charter of rights to which the Revenue Commissioners is committed, if a company has financial difficulties it might be advisable, when the crisis is over, to discuss their accounting procedures so that these might be improved to help relieve some of the strain on the company.

The Seanad adjourned at 9.20 p.m. until 10.30 a.m. on Wednesday, 31 March 1993.