Dáil Éireann díospóireacht -
Thursday, 2 Oct 1997

Vol. 480 No. 8

Adjournment Debate. - Interest on Tax Liabilities.

Mr. Kirk

I appreciate the opportunity to raise this matter and thank the Minister for Finance for attending in the House. I raise this issue in the context of difficulties having arisen with regard to farm incomes in the current year. There have been problems with the cereal crop and cattle prices have fallen primarily because of the BSE crisis. The number of full-time farmers is decreasing rapidly and on the basis of the Santer proposals it appears that agriculture in the EU will see dramatic change in the future.

There is a problem with the approach adopted by the Revenue Commissioners. There is a system of self-assessment for tax in place for the self-employed and those in the farming sector. However, given the nature of the farming industry and the unpredictability about eventual profit margins in any one year with large fluctuations from one year to another, there is a need to ensure the Revenue Commissioners will adopt a flexible approach to this issue.

The recent implementation of the directive was not as severe in the past. I have had contacts on this matter from people in the accountancy profession as well as from those in agriculture. At a time when the sector is going through dramatic change and income has deteriorated the standard advice from Teagasc is to cut costs to ensure sustainability — advice with which I concur — this approach by the Revenue Commissioners will add additional costs. Given the Minister's experience I am sure he is aware of the problems being faced. There should be flexibility in the application of this directive from the Revenue Commissioners.

Minister for Finance (Mr. McCreevy)

I thank Deputy Kirk for raising this matter. The issue raised by the Deputy relates to the payment of income tax by the self-employed, including farmers, under the self-assessment system. Self-assessment for income tax was introduced in 1988 in a major simplification of the tax system. While some further simplifications have been made, the underlying system is the same as introduced in 1988.

The system involves the payment of preliminary tax by 1 November in each tax year; the filing of a return of income by 31 January after the end of the relevant tax year; and the payment of any balance of tax due over and above preliminary tax paid, by 30 April after the return filing date.

The self-employed taxpayer has three options as regards how much preliminary tax he or she should pay without being exposed to an interest charge. Under the first option he or she can pay 90 per cent of the estimated tax liability for the current tax year. Under the second, he or she can pay 100 per cent of the previous year's tax liability. Most taxpayers take this option since it does not involve estimation of the current year's liability. Under the third option, the taxpayer can spread the payments over the tax year by using the direct debit system.

In that case, an amount equal to 105 per cent of the pre-preceding year's tax liability can be used as a basis for the instalment arrangements so as to give sufficient certainty for the taxpayer to start the instalments early in the current year. The direct debit scheme allows a person to spread the preliminary tax payment over a period of 12 months and facilitates the management of cash-flow throughout the year.

If the correct amount is not paid under any of the above options or if the tax is paid late, then interest is charged at the rate of 1.25 per cent per month or 15 per cent per annum. This is a statutory rate of interest which is chargeable on late or insufficient payments in the case of all taxes administered by the Revenue Commissioners. The charging of interest underpins the whole tax collection system and the rate needs to be set at a level which will encourage the highest degree of compliance. The amount paid is not allowed as a deduction in one's accounts. It is a dead tax that cannot be claimed back.

The charging of interest on late or insufficient preliminary tax payments also ensures equity with the PAYE sector and avoids a situation whereby the majority of self-employed taxpayers who pay the correct amount of tax on time are at a disadvantage in their trading activities as against those who do not pay on time. However, exceptional and unforeseen circumstances can occasionally lead to a situation where the self-employed taxpayer gets his calculation of preliminary tax wrong, or pays late, despite his best efforts. I am informed by the Revenue Commissioners that they are prepared to consider such cases sympathetically. If the Deputy has a particular case in mind he should bring it to the attention of the Collector-General's Office in Sarsfield House, Limerick, setting out the full circumstances involved.

The Commissioners have also indicated that where a taxpayer has not met the preliminary tax payment for 1996/97 and a topping up payment in respect of that year is made by 1 November 1997 in conjunction with the preliminary tax payment for 1997/98, Revenue will have regard to this in assessing compliance for 1996/97.

I am advised by the Revenue Commissioners that the preliminary tax requirements are extensively published and that each taxpayer under the self-assessment system is advised of those requirements and the interest provisions arising from late or inadequate payments, when the Notice of Preliminary Tax issues each year. In addition, an advertising campaign is currently under way to make taxpayers aware of the consequences of failing to meet the preliminary tax criteria under self-assessment.

I am satisfied that the statutory provisions relating to the charging of interest in cases where the payment of preliminary tax is either insufficient or late are reasonable and effective. The operation of the provisions will, of course, be kept under review.