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Dáil Éireann díospóireacht -
Wednesday, 3 Jul 1985

Vol. 360 No. 2

Ceisteanna—Questions. Oral Answers. - Excessive Tax Deductions.

9.

asked the Minister for Finance if he will amend legislation so that redundant workers who have excessive tax deducted from lump sum redundancy payments will be entitled to receive interest on the overdeduction when it is repaid similar to the manner in which self-employed who over-pay tax are entitled to have interest added to their repayments; and if he will make a statement on the matter.

I do not intend to amend the legislation in the manner suggested by the Deputy.

Lump sum redundancy payments are properly chargeable to tax, subject to certain measures of relief. It is an inherent feature of the relieving legislation that part of the relief may be given at the time of payment of the lump sum and a further measure of relief cannot be given until the end of the tax year in question. Any such end of year payment is, accordingly, a relief and cannot properly be described as a repayment of an overdeduction.

The Minister will have to explain that latter remark. I was under the impression, like all workers who receive redundancy payments, that they would get a refund at the end of the year, because in the majority of cases they are overtaxed. That refund does not include any interest on the overpayment made, although in the case of the self-employed who also pay what the Minister calls properly assessed tax and who over-pay their tax refund includes interest on the overpayment. That does not apply to redundant workers. Why is it that the same regulation does not apply to them?

The Deputy is starting from a false premise. In the first place the legislation governing relief for lump sum redundancy payments is fairly complex. Essentially, it consists of a basic exempt amount which is calculated on whichever one of several bases is most favourable to the taxpayer in question. There is then a further measure of relief, called top slicing relief, on the taxable balance, if there is a taxable balance, after the first exempt amount has been allowed for. The top slicing relief is a specially calculated rate of tax based on the taxpayer's average rate of tax over the five years up to and including the tax year in which the lump sum payment is made.

The basic exemption is mainly given at a time of payment of the lump sum but the top slicing relief cannot be calculated until the end of the tax year. It is in that context that a further relief is given at the end of the year since it is based on the average rate of tax paid by the taxpayer in the five years up to and including the year in which the relief has been paid. It is in the nature of the system that a part of the relief falls to be paid only at the end of that tax year and is not properly regarded, or cannot be, as repayment of an amount overpaid in the first instance. It is a further relief.

On the second contention of Deputy Mac Giolla, I should like to point out that he is relying on a comparison between interest paid in relation to the refunds of taxes overpaid by self-employed persons. That, of course, is something that very seldom arises in practice. It arises only in the case of the payment of specified amounts of tax by self-employed persons where the specified amount turns out in the event to be in excess of the liability. As Deputy Mac Giolla knows, in the vast majority of cases the specified amount turns out to be less than the final liability and the reason for paying the specified amounts as set out in the legislation is to avoid incurring interest on the balance that turns out to be due.

In general terms, in the PAYE system there is no provision for the payment of interest either on refunds of overdeducted tax or on payments of tax underpaid. For example, where there is substantial underpayment, for whatever reason, of tax in a PAYE case, no interest is charged on the amount and, in fact, the most common method of recovering underpayments of PAYE is on the basis of a restriction of tax free allowances over one or several years without any charge of interest being made. Deputy Mac Giolla is making a comparison that, strictly speaking, is not relevant.

I am glad the Minister gave us a rather extended reply and I will be able to pore over it at my leisure when I get a copy of the Official Report. The Minister's reply is not satisfactory to the PAYE sector or workers who are made redundant. Is the Minister saying that what one loses on the roundabouts in the PAYE sector one makes up for in the swings? If that is the case some people are on the swings all the time and never get to the roundabouts in regard to over and underpayments. That is not a fair method for deciding on interest rates on overpayments. In regard to redundancy, is the Minister saying that the relief to which the redundant worker is entitled but which cannot be calculated until a year later is not subject to interest on the relief held back from him for one year?

I am not making anything like the point about swings and roundabouts that Deputy Mac Giolla has just mentioned. The essential point I should like to make is that, in relation to the self-employed, income tax repayments, the payment of interest on amounts overdeducted does not happen. In certain circumstances there may be a payment in cases where the specified amount turns out to be in excess of the finally determined liability. Those cases are very rare. I could wish from another point of view that they were less rare.

In relation to PAYE income tax, there is neither interest on amounts of tax underpaid and subsequently recovered nor is there interest on amounts of tax overpaid and subsequently refunded to the taxpayer. I do not think Deputy Mac Giolla is making a case for that system to be changed with interest applying on both sides. I would not favour that for a number of reasons.

The vast majority overpay.

I do not have the figure on that point, but I am not sure it is as strong a point as Deputy Mac Giolla seems to think. There is no question of swings and roundabouts.

The Chair is of the opinion that the Minister's swings and roundabouts and Deputy Mac Giolla's extended questions would be appropriate speeches for the Finance Bill and should be reserved for it.

I appreciate the sentiments expressed by the Chair and I agree that brevity is most often the soul of wit but what we are at here is fairly complicated tax law and not witicisms.

It is not suitable for Question Time.

The point about the top slicing relief is that it can be given only at the end of the tax year in which the relief arises. The fact that it is given at the end of the tax year does not mean that there has been an overdeduction of tax at a previous stage. It is a relief that cannot be given until the end of that tax year. The question of it being an outstanding amount does not arise.

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