Thursday, 22 November 2018

Questions (65, 66)

Michael McGrath

Question:

65. Deputy Michael McGrath asked the Minister for Finance the plans of the Revenue Commissioners to cut flat rate relief for a number of industries; the estimated amount of extra tax that will be received as a result of the changes; the rationale for making this change; the industries impacted by this change; and if he will make a statement on the matter. [48810/18]

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Michael McGrath

Question:

66. Deputy Michael McGrath asked the Minister for Finance the number of persons claiming flat rate relief by industry; the cost of this relief being claimed in each case in tabular form; and if he will make a statement on the matter. [48811/18]

View answer

Written answers (Question to Finance)

I propose to take Questions Nos. 65 and 66 together.

I propose to take these two questions together as they relate to the flat rate expense regime operated by Revenue. I am aware that there have been some recent updates to Revenue’s concessionary flat rate expenses regime.

In the first instance, it is important to note that there has been no change to the general rule set out in legislation that says that all employees are entitled to claim a deduction under section 114 of the Taxes Consolidation Act (TCA) 1997 in respect of an expense incurred wholly, exclusively and necessarily in the performance of the duties of their employment, to the extent which the expenses are not reimbursed by the employer. 

Revenue are independent in the administration of the tax code and the flat rate expenses regime is an additional concessionary practice operated by Revenue where both specific commonality of expenditure exists across an employment category and the statutory requirement for the tax deduction as set out in section 114 TCA 1997 is satisfied.

The purpose of the regime is to simplify administration where the specific legislative criteria is met to help both the taxpayer and Revenue, by making it easier for large groups of employees working in the same sector to avail of their entitlement to tax relief in respect of expenses incurred in the performance of their employment duties.

The flat rate expense is agreed following engagement between Revenue and the relevant representative body for the particular group of employees who incur the same expense. This regime developed incrementally over the last 40 to 50 years, and currently incorporates some 53 employment categories covering broadly 134 individual flat rate expenses.

Given the historic nature of some of the flat rate expenses and having regard to changes in employment circumstances, regulations and work practices across employments, Revenue commenced a comprehensive review in 2018 of flat rate expenses. The rationale for the review, which is in line with best practice and good corporate governance, is to ensure the expenses agreed are still justified and appropriate to modern day employments and work practices and are in accordance with the legislative requirement for deduction as set out in section 114 of the TCA.

I am advised by Revenue that a flat rate expense can only be retained where the legislative basis underpinning the deductibility is supported and they have engaged with relevant representative bodies in cases under review.  A consequence of the review by Revenue may be an adjustment to the quantum of the flat rate expense (either increased or decreased) or it may be withdrawn where the continuation is no longer justified.  I understand that engagement is on-going in relation to some existing and new categories of flat rate expenses, which is likely to either result in an increase to the existing amount or a new category agreed with Revenue.

The flat rate expense categories initially selected by Revenue for review in 2018 were based on a combination of two factors, the quantum in terms of number of claimants and the value.  Revenue has advised that they intend to have their review completed by the end of next year. Therefore, in the interest of fairness to all sectors and employees currently benefiting from the regime, Revenue has decided that the effective date for implementation of any changes to particular flat rate expense categories will be deferred until 1 January 2020, prior to which the review of all the flat rate expenses operating in the various employment categories will be completed. 

The flat rate expense categories listed in the following table will be withdrawn with effect from 1 January 2020:

Flat Rate Expense Category

Flat Rate Expense Amount

Number of recipients in 2018

Total gross value of Flat Rate   Expenses -  2018

Agricultural Advisers

€671

122

€81,862

Cardiac Technician

€107/€212

881

€177,535

Journalist in employment

€381/ €153

8,134

€2,255,910

Professional valuer in the Valuation Office

€680

42

€28,560

Freelance actors in employment

€750

682

€511,500

Shop Assistant

€121

75,822

€9,174,462

 

More generally, I am informed by Revenue that it is estimated that the total number of PAYE workers who benefit from the flat rate expenses regime in 2018 is in the order of 536,000.  I am also informed by Revenue that a breakdown of the cost and numbers by reference to each industry in which the flat rate regime currently operates is not readily available.  It is not possible for Revenue to accurately quantify the tax saving/cost associated with the withdrawal as it depends on the particular tax circumstances of the individual recipients, for example, the extent of their income subject to tax and whether income is subject to tax at the standard or marginal rate. However, in the context of their ongoing review of the flat rate regime, Revenue has undertaken to provide a sectoral breakdown.

Finally, Revenue has advised that withdrawal of a flat rate expense does not impact on a taxpayer’s statutory right to claim a deduction under section 114 of the TCA 1997 in respect of an expense incurred wholly, exclusively and necessarily in the performance of the duties of their employment, to the extent to which the expenses are not reimbursed.