Oireachtas Joint and Select Committees
Wednesday, 20 November 2013
Joint Oireachtas Committee on Finance, Public Expenditure and Reform
Proposed Changes to Pay and File Tax Date: Discussion with Irish Tax Institute
We will now move on to No. 8, the proposed changes to the pay and file tax date. I welcome Mr. Mark Redmond, chief executive of the Irish Tax Institute, who is accompanied by Ms Cora O'Brien, Mr. Billy Irwin and Ms Sandra Clarke. Mr. Redmond and Ms O'Brien will make some opening remarks which will be followed by a question and answer session. I remind members, witnesses and those in the Gallery that mobile telephones must be switched off as they interfere with the broadcasting equipment in the committee room.
I wish to advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if a witness is directed by the committee to cease giving evidence in regard to a particular matter and continues to do so, the witness is entitled thereafter only to a qualified privilege in respect of his or her evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
Since we agreed to accept the witnesses' request to appear before the committee, correspondence has issued from the Department of Finance stating that there will be an amendment to the change and file regime in 2014. However, following the consultation process, the Minister has decided that he will not introduce a Committee Stage amendment this year and that the new filing system will not come into place in 2014. He has indicated that the change will take place in 2015. I wanted to let Mr. Redmond know that if he had not been informed of it already. I invite Mr. Redmond to make his opening remarks, followed by Ms O'Brien.
Mr. Mark Redmond:
I thank the Chairman and members for the invitation to appear before the committee. We really appreciate the engagement of members of this committee and their colleagues in the Oireachtas in the consultation process over the past months which has led to today's welcome announcement. This announcement will be very good news for small businesses throughout the country. I also thank the hundreds of members of Irish Tax Institute who engaged with members of the committee and other Members of the Oireachtas on this issue. I am joined by Ms Sandra Clarke, Irish Tax Institute council member and a tax practitioner with BCC accountants in Ashbourne; Mr. Billy Irwin, a member of the institute and a tax practitioner with OBI in Limerick; and Ms Cora O'Brien who is director of policy with the institute.
The pay and file system ensures that 600,000 income tax returns are filed correctly and on time every year. The compliance rate is 98% and the money due is paid on time. The pay and file system has been described as a public private partnership that works. It delivers for the State year in, year out because of the collective effort of the three groups, namely, the self-assessed taxpayers, Revenue and the tax adviser community.
We understand why change was proposed. The Government wants as much certainty as is reasonably possible in regard to tax outturns when presenting future budgets in mid-October. However, because of their understanding of the pressures facing the self-employed and small businesses and their knowledge of the pay and file system, our members explained why there should be no change to that system.
Change would have put businesses under severe cash flow pressure. It would have undermined the high level of compliance and impaired the quality of tax returns being filed. Other organisations share that view. The Irish Farmers' Association, the Small Firms Association and the chambers of commerce, to name a few, all said that any change would have been bad for business and for their members. The impact any change would have had is best told by those who helped deliver a 98% compliance rate.
With the Chairman's permission, I will invite Ms Sandra Clarke and Mr. Billy Irwin to make a brief statement before Ms Cora O'Brien makes her contribution.
Ms Sandra Clarke:
I am here to talk about my clients, mainly small and medium business people, and the process of preparing their tax returns. The process begins for us in January of each year when we send out a questionnaire to our clients asking them to complete the return with the information we need to ensure the accuracy and completeness of returns. This process takes a few months as the level of questioning is quite detailed and a good deal of information must be gathered to accompany the questionnaire in order to complete the return.
In addition to that, the taxpayers and we, the advisers, need to get information from third party intermediaries to complete the returns. This information is only made available to us very late in the day. To give an example, if somebody has a United Kingdom property and a UK tax return to complete, we need the information from their tax return for 5 April, prior to the filing date, and they have until January after the October deadline to file that return.
To give members an idea of how complex tax legislation has become in recent years, in 2003 the tax return form had 347 possible boxes to be completed. In 2012, that figure has reached a staggering 635, which shows the enormous changes that have taken place in tax legislation in the past decade.
If estimates are used in returns, that will lead to a good deal of going back and forth with Revenue to correct those returns. It will also lead to inaccurate returns and in some cases, if those returns are not corrected, it will fall back on the small businessperson. That could lead to them being selected for audit. Members will see on their screen an example of a car dealer, called "Michael", based in the midlands. If he has an average pay and file bill of €40,000, does his best to get all the information to his adviser but despite best efforts it does not happen and the return is wrong, is selected for audit three years later and an underpayment of €8,000 is discovered, there could be an additional cost to "Michael" of a penalty of approximately €1,600 and interest at 8% per annum, coming to €1,920, giving a total additional cost of €3,520, which is a good deal of additional pressure on the small business payer. Mr. Irwin will explain the cash collection side and the payment of tax.
Mr. Billy Irwin:
I am a tax adviser based in Limerick and, like those of Ms Clarke, many of my clients are small and medium businesses. I work in a pay and file system that works very well because of the input of three groups, namely, the taxpayer, the Revenue and the tax adviser.
I will concentrate on the pay side of pay and file. The collection is outstanding. It is an extremely effective mechanism that has worked and been developed over the years among all the stakeholders.
The collection of tax fits into a natural cycle. Good advice has always been that if one has money to collect, collect it when the money is available. To illustrate that, I will fit the cycle of farming to the collection of the taxes, and it can be applied to many small businesses. In farming, income is typically low in the earlier part of the year. There is a good deal of expenditure and a lot of work carried out. Contractor, veterinary and other expenses are incurred in the early part of the year but the flow of income starts to run from late April, May and June through to the autumn. The expenditure is incurred in the early part of the year but the contractors, the veterinarians and the small businesses that supply them are paid over the course of that income flow during the summer.
The suggestion to bring pay and file into June and that people will be asked to pay taxes on money they have not got is a high risk strategy that endangers breaking a system that is working very well. People are attuned to the cash flow cycle in October. They manage their businesses with that in mind but, most importantly, they have earned the money to pay their bills and their taxes, and they are doing it to a very high degree of compliance.
Ms Cora O'Brien:
We have surveyed and spoken to our members and they have told us of their serious concerns about the changes proposed. Ninety per cent of our members said that small businesses would suffer major cash flow problems, and two thirds said that business activity would be reduced, in some cases even to the point of closure. It would be extremely difficult for businesses to pay 90% of their full year's tax liability earlier than the current October or November dates.
As well as the cash flow problems my colleague has spoken about, there would also have been a great deal of risk in introducing these changes for a number of parties - taxpayers, advisers and Revenue, but also the Exchequer. We have talked about the financial consequences for taxpayers of getting the return wrong - interest, penalties, the risk of an audit. Tax advisers would have lost accuracy in the preparation of returns in a shorter timeframe, and Revenue would have had to deal with many more amendments to returns as taxpayers try to rectify errors after the event. For the Exchequer, there would have been more and not less uncertainty from the proposed move.
Mr. Mark Redmond:
To conclude, we welcome today's announcement. This institute and business organisations have demonstrated that change would have been bad for business. It would have had a negative impact on the self-employed. It would have damaged a pay and file process that delivers but, fundamentally, it could have hindered the economic recover that is under way.
I thank Mr. Redmond. I propose that we take ten minute slots. Is that agreed? Agreed. To get the business under way, Mr. Redmond has been involved in the consultation process with the Department of Finance on the issue and the concern is that what is a system change could result in a credit flow problem. We all have to adjust to system changes but the net consequence of this change can be a credit flow problem. From Mr. Redmond's engagement with the Department of Finance, what does he understand to be its rationale for moving this forward?
Mr. Mark Redmond:
The main driver for the change is greater certainty on the tax yield projections when the budget is being presented from now on in mid-October. That is the only driver that has been articulated. When we look at that, and this has been a surprising feature of the consultation process for many participants, the amount of tax we are talking about is less than 4% of the total tax yield in any given year and because of investment in both personnel and technology, we have got much better at projecting tax outturns than might have been the case previously. If one were being pessimistic, one might have an under or over-estimate of between 3% and 5% but that is 3% and 5% of 4%, so to speak. That is what is at stake.
Will Mr. Redmond explain to me the modelling in terms of the predictability? Ms O'Brien spoke about certainty. We all try to get certainty but how has the modelling improved? Ms Clarke stated that the forms have become more elaborate. How has that modelling given greater certainty? I think the point Mr. Redmond is trying to make, putting aside the credit issues, is that it does not matter whether the filing took place in June or October because the modelling is so good the predictability can be got anyway. Mr. Redmond might explain to us how the modelling is done.
Mr. Mark Redmond:
There are a few elements to that. First, there has been an investment in greater economic know-how and statistical analysis both in the Department of Finance and Revenue. Second, and more important, is the public private partnership aspect. Business and taxpayers are providing a great deal more information now to Revenue, primarily electronically, which allows for far greater analysis, projections and certainty in terms of what the future may hold.
Of course the Revenue Commissioners, as an organisation, should be commended on joining up the dots. That has been a feature of the investment that the Revenue Commissioners and the Department of Finance have made in technology and personnel over the past number of years.
Mr. Redmond made the point, in his opening remarks, that there is a 98% compliance rate. With businesses starting up and collapsing, that is probably as close as one will get to 100% compliance. What compliance difficulties are envisaged in moving to a date in June?
Mr. Mark Redmond:
The Chairman's question comprises a few elements. Ms Clarke and Mr. Irwin have outlined the coalface reality. A fundamental issue is the amount of pressure that businesses are under. I have a graph showing that around 5,000 tax advisers manage around 600,000 personal tax returns. That number is increasing but the process is pretty tight. If the process were accelerated earlier in the year there is a risk that full and accurate information would not be available and, therefore, the quality of information would be impaired.
Mr. Billy Irwin:
Earlier I tried to make a point about this, and gave the farmer application as an example. One can apply the same theory to the tourism industry in terms of cashflow. For example, asking guesthouses to estimate and pay their tax liability in June, when their season has just begun, would, I believe, be penal in the extreme. I shall outline one of the difficulties that might arise which could pose a danger to the system and lead to a breakdown. We are all interested in ensuring the system works, because it is in everybody's interest, including the taxpayer's. If the filing date had been last June, rather than October, then people would have filed their returns and paid their taxes for 2013. They would have been required to estimate the tax liability because they are in the middle of the year, but they do not have the benefit of the big investments that have been made in the Department of Finance and the Revenue Commissioners with regard to estimating. Last June they would have made very modest estimates, and tax returns as a result would have been considerably lower, as things have proved. Then we would run into the issues of penalties and charges that arise due to underpayment because things improved later in the year. That is a difficult position for taxpayers.
If the proposal came into effect in June of next year there would be very obvious difficulties with people trying to turn things around in a very short period. Now that the proposal has gone to 2015, are the concerns different because the date has been pushed back?
Mr. Billy Irwin:
It is still a matter of cashflow, pay and file issues and the gathering of information in that period. Let us remember that there are a wide variety of taxpayers and that some information will have to come from other agents. A partnership must give information to a number of tax advisers, and the same applies to foreign and investment income. All of that information must come from third party intermediaries, and this takes time to collect. Aside from that, in a small accountancy practice, the period between January and June - the earlier part of the year - is taken up with filing P35s or employee returns. A larger client will typically be a corporate entity so it must make bigger investment decisions and wants its audit done quickly. If the period runs into April or May then other work will need to be done. In March we start writing to the taxpayer to seek information; some practices write earlier. Accounts must also be prepared for persons in a trade.
Can Mr. Irwin say with some level of certainty this afternoon that some clients will have to borrow in 2015 in order to meet their tax liabilities - clients who in normal circumstances would not have to borrow?
I welcome Mr. Redmond and his colleagues from the Irish Tax Institute. On behalf of the Fianna Fáil Party I welcome today's announcement by the Minister that there will be no change for 2014 at least. I regard the announcement as a stay of execution. The Minister has again reaffirmed in his statement his intention to bring forward the pay and file deadline. There should be no loss of momentum in the efforts made by him and the members of the institute. In recent weeks the Government took notice and agreed not to implement any change next year. Credit for that is largely due to the institute, the professional accountancy bodies and representatives of small businesses. All of those groups made the effort to contact individual Members of the Oireachtas. That led to the making of a Government decision in record time, because the consultation period ended only 12 days ago.
I would like a final decision to be made on the matter, because an element of uncertainty remains. For example, uncertainty will remain for the next year about the arrangements for 2015. We should not allow the matter to drift well into 2014 without knowing the position for the following calendar year. I regard the matter as important.
Fianna Fáil made a submission on the issue in which we recommended no change in the pay and file arrangements and substantiated the reasons. It is my view that the current system operates on the basis of goodwill. In many respects, members of the institute and the professional accountants who provide taxation services carry out the work of the Revenue Commissioners. That is the nature of the self-assessment system and it is one of the very successful features of the Irish tax system. Any change must be carefully thought through.
I have a few questions. What percentage of returns are done online?
Mr. Billy Irwin:
The pay and file system works because there is one date. Let me give a practical example of what would happen if we split pay and file dates. If I advised a client in the month of June that he or she had a tax balance of €3,000 and would have to pay a preliminary tax for the current year of €30,000, that would mean a total payment of €33,000. It would be much easier for him or her to make the payment in October because he or she will have the cashflow to do so. I do not know of any client who would write a cheque for €33,000 - admittedly, it would be by direct payment - who would not want it all explained again a number of months later. In addition, he or she would have addressed his tax for the year. Splitting dates would mean a regurgitation of almost the entire process. The client will be committed to the payment but will still want it properly explained. If any of us were told now that something would happen in the future, we would live with the information.
Let me extend that logic. If the Minister wants the complete picture of tax returns in advance of the budget, presumably he would have to bring the pay and file date forward to the end of September. What would such a change mean for the institute's members and customers?
Mr. Mark Redmond:
As many as 70% of our members have said they could not cope with that proposal, because September is the filing season for companies. The funnel is simply too narrow to operate pay and file for personal tax returns at the same time. Plus, there is the cashflow cost for small businesses.
I was surprised to see June suggested as an option in the consultation document. Mr. Irwin outlined the requirements that must be filed. People must pay preliminary tax for the current year and, to avoid surcharges and penalties, that must be at least 90% of the final liability for the current year or 100% of last year's liability or 105% of the year preceding that. People must also tidy up issues relating to the previous year. The farming community, for example, has no idea in June how to estimate liability for the year. Much depends on factors that are outside their control, such as weather and harvesting. It strikes me as completely impractical and I am sure many members of the Irish Tax Institute and the accountancy firms doing this work are relying on staff who are going through their qualification process. They do their exams in June.
Income tax from self-assessed returns amounts to approximately €1 billion. There could be a variation from forecasts of 15%, amounting to €150 million. This is 0.4% of total tax revenue and, in the context of a budget, it is around the margin of error. It is not significant enough to warrant the enormous destruction and risks outlined in the submission during the formal process and again today. The most important point to take away from today is that the Department of Finance statement is a victory but only a temporary stay of execution. We have no absolute certainty about the arrangements for next year. For the members of the Irish Tax Institute and other professionals providing taxation advice and services and for the businesses, they need certainty over a longer period of time. The witnesses should go back to the Minister with that point of view and maintain the pressure to get a final decision.
The decision to bring the budget forward to mid-October was a Government decision even if it flowed from the two-pack. The legal requirement was that a draft budget be given to the European Commission by mid-October. The Irish Government decided to bring the whole thing forward and have the publication of the budget in mid-October. It is incumbent to work with the stakeholders to deal with this issue and the risks on the Government part in sticking with the current regime, which works well, is minimal. It is not worth making any changes because we are risking the whole functioning of the system.
Ms Cora O'Brien:
The UK has a ten-month filing period, similar to Ireland, and in the UK 50% of preliminary taxes are paid in the year whereas in Ireland the figure is 90%. Other countries are a mixed bag of regimes and it is difficult to pinpoint dates. Germany has a filing date of May in the following calendar year but all sorts of extensions that may apply. Using a tax adviser gives another six months and companies of a certain size get another extension.
Ms Cora O'Brien:
The last big change was when we moved to the calendar year basis in 2001. At the time, we moved from a year-end of April to a year-end at December but we maintained the ten-month filing date. We talked earlier about splitting the pay and file date. When we moved to the calendar year, the decision was taken that everything should happen on the one date. We had one preliminary tax date, one filing date and another date for the balance of the tax. This amounts to three different dates and they were brought into one date in October, which has worked well. Everyone understands it.
No other European country has changed its filing dates. From the point of view of cash flow for the SME sector, which is under pressure, there is an element of certainty with the current date. It fits into the business cycle for many of them.
Mr. Irwin made reference to a typical accountancy office with a mixture of client companies such as solicitors, sole traders and those making personal returns. Can Mr. Irwin give us an idea of the cycle in terms of the filing date for companies?
The vast majority. The view of the witnesses is that it is impractical from the point of view of companies' cash flow and the logistics of dealing with it. The last time the filing date was changed, the ten-month timeframe was maintained.
What is a general perspective on how the system functions with Revenue?
Mr. Billy Irwin:
They are all areas we and the Revenue would like improved. The Revenue online system, ROS, is what makes the system work. It was a major investment but it works. I am long enough in the business to remember assessment and appeal. We did not know how good we had it and we had great fun but the country would never have developed economically with that sort of system.
I want to tease out the discussions with the departmental officials and officials from Revenue. The irony is lost on no one that, in order to provide more certainty for Government, we expect 600,000 people to do this in the middle of the year and to get it right. What was the response of the Department when the witnesses talked about cash flow? Where does the Department expect people to find the money to pay the full year's tax in the middle of June? I am curious about the Department's response with regard to a case where someone makes an error in June and how it can justify the volume of penalties described by Ms Sandra Clarke when we expect people, based on the new pay and file returns, to guesstimate.
People might get it wrong based on not knowing what will happen between 1 July and 31 December. I would like to know what the Department's reaction was when these issues were raised with it.
Mr. Mark Redmond:
The Deputy has hit the nail on the head in terms of the need for a communication exercise with small business around the 3% to 4% issue, which is what is at stake, and the reason people are being put through this pain in the current climate.
I pay tribute to the consultation process. As the Deputy will be aware, we consulted not only the Department of Finance and the Revenue Commissioners but also this committee and other Members of the Oireachtas. While I am fully cognisant of Deputy McGrath's observations, the consultation process has, in our opinion, in terms of the announcement made today, worked. It was a learning process for us all.
As stated by the Chairman and Deputy McGrath, it remains for all stakeholders to address the 3% to 4% of total tax yield issue. The other point made is critical. We have made public before this committee that the tax system is weighted against the business person in a fundamentally inequitable way. As was seen from the example on screen which Ms Clarke took us through, business people are being hammered in terms of heavy interest and penalties. If they overpay their tax it is nigh on possible for them to get any interest on that overpayment, which is a fundamental problem for small business in terms of the manner in which the tax system operates.
I thank Mr. Redmond for his response. What responses, if any, were obtained from the departmental officials who engaged in the consultation process? Was their response that this is not their problem? Fundamentally, people are expected to pay their tax returns at the end of June but they do not have that cashflow now. A shorter tax year might work if a person only had to pay what was reaped in until the end of June. Given that we were going to expect people to pay tax returns up to 31 December in respect of money which they have not yet taken in, from where did Revenue expect them to get that money?
Mr. Mark Redmond:
The Minister speaks for the Department. In fairness, he has spoken today. He said he listened to the people who engaged in the consultation process and made his announcement on that basis. While, as stated by the Chairman, the issue is still on the table, an announcement has been made in respect of the coming year, which in fairness needs to be recognised.
I welcome Mr. Redmond, Mr. Irwin, Ms O'Brien and Ms Clarke to the committee. Their presentation, in terms not only of content but style, was excellent and engaging. While I cannot speak for everybody present, there is a great deal of support in this committee and the Oireachtas in relation to the demand. I commend the witnesses on their lobbying campaign and the information they presented which provides us with the tools with which to make arguments to the Minister. I welcome the announcement by Government today that this proposal is off the table for next year. It is to be hoped - I do not wish to use the word "U-turn" because it then becomes a political game - it is a way of moving away from this issue altogether. I believe that if the Minister has taken it off the table, he obviously has listened to the concerns and in doing so will find it impossible to put it back on the table next year. It is to be hoped today's announcement is a face-saving exercise and that if it is off the table for a year, by the time we come to it next year, it will be off the table permanently.
Many of the issues have been addressed but I would like to put a couple of questions to the witnesses. The Small Firms Association has commented on this matter and has stated that for every week the payment date is brought forward, there will be a funding cost of at least €1 million and that bringing in earlier tax payment dates will destroy jobs and damage prospects for recovery in the domestic sector. The fact that statement is included in today's presentation would indicate the institute concurs with it. Perhaps Mr. Redmond would elaborate on that cost of €1 million per week if the Government were to bring tax payment dates forward.
Mr. Mark Redmond:
It echoes what Mr. Irwin has said, namely, that if the date is accelerated, businesses will have to borrow to pay the accelerated liability. That is the basis on which the Small Firms Association has estimated the aggregate cost to small business of the implications of bringing forward the payment date.
We all concur with that. The documentation provided includes live feedback from chartered tax advisers. As stated by the Small Firms Association, if the payment date were brought forward, it could result in job losses. The accountancy sector could also suffer as a result of job losses. I refer in this regard to the feedback from the practice in Cork in particular which states that tax advisers would have to cram a year's worth of work into six months, which means it would be unsustainable for a firm to retain accountants for the other six months. How real is that?
Ms Sandra Clarke:
It is very real because what we would be doing is squeezing ten and a half months work into six months. While those employees would be needed to work some overtime in the initial six months, there would little or no work during the other months. Staff holidays are normally taken in the months of July and August because it is difficult to engage with clients over the summer months, in particular small family-run businesses in respect of which it is impossible to get information during those two months because, perhaps, one spouse may be looking after children while on school holidays. In the months of September, October and into mid-November, we deal in the main with tax compliance. If all of that is moved back to the first six months of the year, there will be no work for employees from June to Christmas. The introduction of this measure would definitely lead to staff being let go.
I was also alarmed by the feedback from the practice in Dublin which states that on the last day of October, one third of its clients' accounts have been filed, one third of them are in hand and one third of clients have yet to send in data, and that the one third yet to stand in data may be sticking their heads in the sand as they know they cannot pay. While the issue for this year has been resolved and we will continue to pursue it in the year ahead, I would be concerned if it is the case that one third of people are sticking their heads in the sand. I know from other feedback that many only engage in the last few days in October, which puts pressure on the industry. If it is going to cost €1 million per week for every week the date is brought forward, we will need to dig a very big hole for these people to stick their heads in. Does the feedback indicate this is systemic across advisers?
Ms Sandra Clarke:
There will always be a certain percentage of people who engage at the last minute. Obviously, the last few years have been traumatic for an awful lot of small and medium-sized businesses, many of whom are still struggling to make tax payments. I agree with Mr. Irwin that it would not be the norm but obviously some practitioners are having that experience.
The witnesses have heaped praise on the Department officials. They are great lobbyists in terms of their praising the right people at the right time. I agree that the Department deserves praise because its forecasting, which has increased dramatically, has been more or less on target this year.
We can all concur with what has been said about the Revenue online service. As an employer, I think it is a fantastic system to interact with.
Given that the Dáil is currently considering the Finance (No. 2) Bill 2013 - the Committee Stage debate begins next Wednesday - I would like to hear more about the pay and file issues that are of concern at the moment. Issues like the interest and penalties imposed in cases of overpayment and underpayment are about to be taken off the table for at least 12 months. I invite the institute to send us some information in that regard. How would it make the system more beneficial so that it better serves business and helps the domestic economy?
I would like to return to the question of what will happen if my view on the bringing forward of the pay and file date is wrong, and the Minister digs his heels in and brings the date forward to June or September. The statement from the Department makes it clear, unfortunately, that "the Minister's intention to bring annual Pay & File dates forward remains". It does not clarify what month the date will be brought forward to, but clearly it will be some time before October. If the Department cannot be moved in that respect, what will the institute say to try to limit the impact of this change on the firms to which it provides services?
Mr. Mark Redmond:
The benefit that is meant to arise to the State must be considered alongside the pain that will be felt by small businesses throughout the country. I am sorry if I sound like a broken record when I remind the committee that we are talking about 3% of 4% of the total tax yield. I think it is a question of €30 million from a total of €37 billion. That is what we are talking about.
I can advise Mr. Redmond that one can repeat oneself in here forever before one is heard for the first time and one is told one is making an interesting point. Every Deputy will agree that there is a need to repeat what one is saying. Perhaps some members of this committee repeat themselves a bit too often.
I welcome the representatives of the Irish Tax Institute. I appreciate their presentation. Perhaps I will sound like a broken record if I focus on the issues of compliance and cash flow. As Mr. Redmond said, we are talking about €30 million in money terms. During the institute's consultation process, what was identified as the reason this is anticipated to be brought forward? As a first-time Deputy, I do not think anyone said at a parliamentary party meeting that the taxation and pay and file dates should be brought forward in order to comply with the two-pack. If this was not created at political level, I imagine it was done by the Department. Has the Department explained to the institute why it wants to do this?
Historically, forecasting is not something we have got right in this country. Over the last three years, however, the Department of Finance's projection of the likely tax take has been very accurate by comparison with how it ended up. Over the past four or five years, there was one major year when the projection was inaccurate. In 2008, the projected return was something like €3 billion but it ended up being approximately €1 billion-----
Mr. Mark Redmond:
The Deputy is right. It is hard to conceive that between 2007 and 2009, this country lost one third - 33% - of its tax yield. To be honest, nobody saw that coming. We are in a very different place right now. If one examines the income tax figures for the past three years, one will find that the projections have been right. The accuracy of the projections has ranged from 0.8% to 2.3%. That improvement has resulted from the stabilising of the economic position, thankfully, as the recovery has got under way. It has also resulted from greater investment in information technology and human resources on the forecasting side.
I am coming at this from several perspectives. I am a former banker. I own a small business. If my accountant asked me to project sales levels in my business, I would have to point out they are largely determined by the tourism season and by weather forecasting. Anybody who has read The Mayor of Casterbridge will recall Henchard saying that only "a fool" would bet on what the weather will be. I would not like to have any hand, act or part in the idea of interest and penalties kicking in after the suggested date. As a nation, we want to be compliant. That is why I am happy for the date to stay where it is. This proposal might be appropriate for the purposes of projection, but I am not convinced about the benefits of the amount of money we are talking about. To look at it objectively from a financial perspective, the Department's coffers might take in another €30 million, as well as the associated interest and penalties, but that is a small amount of money in the context of the hardship it would cause. It does not stack up, in my opinion. We will work with the institute and the Department on this matter again next year. When Ms Feehily comes before us again, we will press upon her the idea that businesses need to keep the date where it is at the moment. I thank the representatives again for the good presentation they have made. If there is anything we can do to help this organisation, I am sure we will try to do so along the way.
I welcome the members of the delegation and compliment them on the information they have provided. If one wanted a template for how to consult Members of the Oireachtas, we have certainly seen a good example today. They have made their case in a constructive and factual manner, rather than being emotional about it. Their presentation has certainly helped me to get to grips with this issue quickly. I congratulate those who prepared it. From an early stage, my attitude to this issue has been "if it is not broken, don't fix it". If the forecasts are right and the money is coming in, why start tampering with the system? It is pointed out in the documentation that has been supplied to us that the previous date change, from 31 January to 31 October, was implemented over a three-year period. The filing date moved back a month each year. If there is an overwhelming argument for moving the date back once more, would it be appropriate to use that mechanism or template again? I am not saying it would be ideal for the institute's members if the date were moved back by a month each year, but if the date has to be moved, perhaps it would be more manageable if it were done in this manner.
Ms Cora O'Brien:
We probably ended up with a better and simpler system at the end of the process of moving to doing this on a calendar-year basis. We preserved our filing period. It was the right thing to do. It is hard to see how this change, which would inflict pain on small businesses, would result in a better system for them. We have explained how there would be a risk of inaccuracies. We do not want anybody else in the system to go through that pain. The previous change was a little different in that respect.
Ms Sandra Clarke:
Business people like the idea of organising their activities from January to December. If a calendar-year approach is adopted this year but is changed next year, it could affect their whole psyche. The current system suits them because it works. That is why the change to the calendar-year basis worked as well as it did.
I accept the logic of the argument, especially in industries like tourism and farming. The amount of milk a cow produces is related to the weather, just as the success of the tourism industry is. I accept it would be very difficult for those involved in those industries to estimate in June what their income will be and pay on that basis. This is probably an example of the type of reform I want to see in this House. We should have an opportunity to discuss the implications of the draft budget and possibly make amendments to it before it is implemented. We should be striving to make reforms that lead to that kind of process. The budget that is published should be seen as a draft. We should have time to discuss and debate it with the experts in advance of the implementation date. This is a fine example of how that can be done in a positive manner.
I would like the witnesses to help me get my head around one of the examples they used. Would the person in the example not have an opportunity to tidy up their tax affairs? When one makes a payment, one is required to look back early the following year to ascertain whether it was accurate and possibly make another payment on that basis. I am always worried about these things.
If examples are to be provided, I would like them to be presented in a factual manner. It is important to keep interaction as factual as possible. Michael Maguire, who I assume is a fictional person, would have had an opportunity to tidy up his affairs long before the audit that took place three years after the event because his tax advisers would have seen his annual accounts. Is that not the case?
Ms Sandra Clarke:
It is possible though not certain. If one is dealing with a set of figures and an estimate has to be made, the estimate is made and there would be an intention to return to the issue and have it fixed. However, one does not know what is happening in Michael Maguire's day-to-day business and the position moves on the following year.
Mr. Mark Redmond:
In the ideal world, the Deputy would be absolutely right. Unfortunately, in the real world, Michael Maguire will have moved on and will be worried about the following year. He may not have the wherewithal or time to re-examine the issue. In such circumstances, one must ask why he should be pressed to provide information at an early date and subsequently correct it. Why not allow him time to compile the correct information and submit it on time?
Is that not part of the role of the tax adviser? Having assisted a client in making an estimate, he or she then does the tidying up when one makes a forward assessment. I am trying to understand the role of the tax adviser.
Mr. Mark Redmond:
If I may, I will draw the Deputy's attention to a fundamental element of all good tax systems. Tax systems should make it as convenient and easy as possible for the taxpayer to meet his or her obligations. Taxpayers should not be given a false or an early deadline and asked to correct their tax return after the event. They should be given enough time to get it right first time.
Mr. Mark Redmond:
Ms Clarke was trying to explain what would be the position if we were to move the deadline to an earlier date. In such circumstances, Michael Maguire would be under pressure to make a submission and the return would be less accurate than if he had the same time available to him as he has under the current system.
As I am not a member of the joint committee, I am very grateful to the Chairman for facilitating me. I welcome Mr. Redmond and his team. Their presentations are always very clear. We enjoyed having them in Galway last year.
We heard that the role of tax advisers is to assist clients to be compliant. That is a clear mission statement. At this time of year, I meet many people, particularly in Galway, who are feeling stressed as a result of their experience with the pay and file process. People under revenue audit are feeling especially stressed. How skilled are tax advisers in recognising the impact of stress on clients caused by making tax returns?
Mr. Mark Redmond:
I will respond to the Senator's first question. As our profession is a broad church, I cannot state with certainty that my next point is true of all our members. A large number of our members are doing this work for nothing, out of a sense of good will and loyalty to small business owners who have been under severe pressure for the past five years. I am not seeking sympathy but stating a fact. Our members are helping clients who are in severe economic difficulty to meet their compliance obligations, deal with Revenue audits and banks and manage serious cash liquidity problems. To answer the Senator's question as to whether they understand the psychology involved, they certainly do because they are living it every day with the owners of small businesses. While this imposes a strain on the system, it is one that is being borne and we get on with life.
That is highly laudable. I note there has been an increase in the number of tax audits on subcontractors or one-man shows, particularly those who are contracted to multinational companies. This creates stress. I did not know that one-man shows must establish companies to deal with multinational companies. In two cases that have been brought to my attention, the individual had to bring another family member into the operation to form a company. One of the individuals I have encountered has multiple sclerosis. The tax audit has increased stress levels and had a knock-on effect on his health. How do tax advisers work with such clients and Revenue? What can be done to improve the position for such people? This is highly stressful for them.
Mr. Mark Redmond:
The Senator raises several issues on which I will comment briefly before handing over to Ms O'Brien.
Deputy Michael McGrath made a point about the need for certainty in the system. The Senator has also made a point about certainty. Taxpayers deserve certainty about how their businesses operate from a tax perspective. Uncertainty is unhelpful to the system.
There are a number of checks and balances in the system to protect the taxpayer, although our view is that they are not sufficient. There is, for example, a charter of taxpayers' rights and obligations in place. One element of the charter is a presumption of honesty to which all taxpayers are entitled.
Ms Cora O'Brien:
We are very aware of the project to which the Senator refers in respect of the contractors' industry. We have had a great deal of feedback both from contractors and our members who deal with them. We have made representations to Revenue in which we stress that while we fully appreciate that Revenue has an obligation and a requirement in a self-assessment system to audit and carry out checks, people also need to know what are the ground rules. These rules must be applied consistently across all sectors to avoid surprises and ensure everybody is treated in the same way. If there is an issue to be dealt with and behaviour of any description needs to be changed, let us deal with it, move on and make the rules clear in order that everybody will know what they are doing.
The Senator is correct that the profile of those involved in the contractor sector shows that they tend to be young and have young families and many of them have debt. There has been a great deal of stress around the project to which the Senator refers. As recently as last week, we made a comprehensive submission of 17 pages featuring much comment and feedback from people on the ground who are living with the project at the moment.
Is revenue taking this feedback on board? In all of the cases I have come across taxes were filed in previous years. The individuals in question are concerned they may have underpaid, perhaps arising from mileage allowances or similar issues, and penalties may now arise. Penalties cause the greatest stress. Is it easy to secure a payment plan?
Ms Cora O'Brien:
Yes, contractors need to bring a template to the Collector General. The issue of the contractors is tricky because of the people involved, who are young and do not have any money. There is a practical problem with getting a payment plan in place for them. In general, our members have found that Revenue has been flexible on payment plans in other situations and where they have looked for instalment arrangements, these arrangements have been forthcoming. The terms vary depending on the plans involved, but there is flexibility in the system allowing people pay by instalment if necessary. That is a feature of the contractors' project.
One of the top line points made this afternoon is that 600,000 people are filing returns. As there are also employees associated with these, the number involved is greater. This is not an issue of compliancy, but there is probably a risk to compliancy rather than enhanced compliancy. Another issue that has popped up is a concern with regard to liquidity and credit flow for the future. Different comments have been made with regard to the budget in October, but some industries have given the measures in it a massive welcome. The retail area has certainly welcomed them.
The Irish Tax Institute deals with tax for some retail businesses and I am sure the tax returns reflect that the retail sector has had two good quarters and will probably have its best quarter in years this quarter because of sentiment and the measures now put in place. I was talking to a newspaper owner at an event yesterday evening and he told me advertising is coming in for the Christmas market now, but in the past the industry would not have even seen that in December. There are two sides to every coin and for Irish Tax Institute members scheduling of tax returns is creating problems in some areas.
What I recommend now is for the clerk to the committee to prepare a draft report. We are extraordinarily busy, but now that we have the year end timeline the urgency has been lifted from the situation. The clerk will prepare a draft report along the points I have outlined for the committee and bring it to it before Christmas. The committee's recommendation will be to lay that report before the House so that we can have some discussion on it in the new year, because we do not want to let the issue fall off the agenda. The report will also be sent to the Minister for Finance and the Department, to Revenue and to the Economic Management Council. Therefore, it will not just be an issue that was just dealt with today. We will try to keep the issue active in the future also.
I thank Mr. Redmond, Ms Clarke, Mr. Irwin and Ms O'Brien for coming before the committee.