Wednesday, 11 January 2012
Joint Committee on Finance, Public Expenditure and Reform DebatePage of 4
Chairman: I welcome from the Office of the Revenue Commissioners, Ms Josephine Feehily, chairman, Mr. Niall Cody, assistant secretary in the planning division, and Mr. Declan Rigney, principal officer in the control division, and from the Department of Social Protection, Ms Anne Vaughan, Deputy Secretary General, and Ms Patricia Molloy, principal officer in the control division. The format of the meeting will be that Ms Feehily and Ms Vaughan will make some opening remarks, after which we will have a question and answer session.
I remind members, witnesses and those in the Gallery that all mobile telephones must be switched off because they interfere with the sound production when activated. 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. If they are directed by the committee to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to a qualified privilege in respect of their 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.
I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
Ms Anne Vaughan: I thank the Chairman and members for the opportunity to address the joint committee and outline the position of the Department of Social Protection in this matter. In an overall context the Department of Social Protection has an extensive legal structure to support the sharing of data for the purpose of monitoring the entitlement and payment of benefits. The legislative provisions that allow for the specific sharing of data with the Revenue Commissioners and other Departments and agencies are contained in section 261 of the Social Welfare (Consolidation) Act 2005. In exercising these functions the Department also operates in accordance with the data protection legislation, as contained in the Data Protection Act 1988 and Data Protection (Amendment) Act 2003.
One of our primary relationships in the area of data sharing is with the Revenue Commissioners. In recent years, the Department has improved its bilateral liaison with Revenue through the establishment of a high level group at management board level, the main purpose of which is to deepen interaction between the organisations at strategic and operational levels. Both organisations are working together with a view to aligning expertise and information across their operations. In this context, a number of working groups have been established which are examining a range of specific issues, including social welfare abuse and tax compliance.
It is important to emphasise that data exchange operates on a two way basis between the Revenue Commissioners and Department and has been ongoing for many years. In terms of information provided by the Department to Revenue, information relating to short-term benefits, such as illness benefits, occupational injuries benefit, jobseeker’s benefit have been provided for some time on a weekly basis. Information relating to some other long-term schemes, including long-term illness payments, child benefit, carer’s allowance and one-parent family payment is provided to Revenue on an annual basis.
On foot of a specific data matching exercise carried out by the Department in November 2011, following work done by one of the high level group’s sub-groups, more than 560,000 records of pensioners were provided to the Revenue Commissioners. The data comprised the customer name and weekly entitlement payable for a week in November.
Although data in respect of this customer group were provided occasionally in the past, they were not previously provided on a bulk basis. However, the development of new technology in the Department has facilitated the provision of these data in a complete and continuous manner. This is part of an ongoing policy to enhance data sharing between the Department and other public service bodies. As technology develops, in the Department and elsewhere, it is expected that the exchange of data with other organisations will continue to be improved. These arrangements will, in time, also provide for any changes in the Department’s payments to be supplied on a regular basis to Revenue so that they have the most up-to-date information available.
The committee should also note that the Department obtains data from the Revenue Commissioners regularly to ensure that persons who are in employment - or who have had some interaction with Revenue - are compliant regarding their entitlement to social welfare payments. The Department has been sharing data with other Departments and agencies for many years. Since 1997, the Department obtains commencement of employment data from Revenue which is matched against social welfare claims and relevant cases are investigated. Information is also received on a daily basis on PRSI collection and on a more ad hoc basis in relation to certain tax exemptions and other tax heads.
Other examples of ongoing co-operation include data matching and sharing of information with the Irish Prison Service which provides data to the Department on a weekly basis, the Department of Education and Skills, the Commission on Taxi Regulation, the Probate Office, the Private Residential Tenancy Board, PRTB, and the Health Service Executive.
In the context of the current matter, there has been some commentary in relation to the role of the Department in notifying its customers regarding the taxation of their social welfare payments. I assure the committee that, in the case of social welfare payments which are subject to tax, the Department notifies its customers that their payments are taxable and that the customer should contact his or her local tax office in this regard. A notice to this effect is contained in the award letter issued by the Department to the customer.
The information leaflets for each of the relevant schemes also contain a reference to a potential tax liability. These leaflets are available for download from welfare.ie. In addition, when an inquiry is made about entitlement for a particular scheme, the relevant leaflet is sent to the inquirer together with the relevant application form for the schemes. The Department’s website also contains information on this issue in the scheme specific pages and on the front page in “payments explained”.
The committee will be aware that a primary objective of public service reform is to integrate services with a view to providing better service to citizens and greater efficiency for the State. Interagency co-operation among public bodies at national and local level is one of the key pillars to the achievement of this objective. In this context, the Department will continue to explore opportunities to exchange data with other public bodies with a view to ensuring that public services are delivered as efficiently as possible to those who have an entitlement to such services.
Ms Josephine Feehily: I thank the Chairman and members of the committee for the opportunity to make an opening statement. I want to try to bring as much clarity as I can to the data Revenue received recently from the Department of Social Protection relating to pensioners, our approach to analysing that data and letters we issued, and our next steps.
Revenue’s job is to collect the right amount of tax at the right time from people and businesses. In order to do that we need the correct information about people’s circumstances and about their income. In regard to self-assessed taxpayers, we get that information from the taxpayers themselves in a return every year. In regard to people taxed under the PAYE system we get employment or occupational pension information at the end of February each year from their employer or pension provider in the P35, with which most members would be familiar. In most instances, until relatively recently, we could only get information about any other income which people in that sector have from the taxpayers themselves. However, for a number of years our strategy has been to seek to get information automatically from third parties, under appropriate legal provisions, and to use that data to update our records and for risk analysis.
The strategy has been widely articulated by us in statements of strategy, annual reports, public appearances and so on. In recent years we have received information from third parties ranging from bank and credit union deposit interest, rent supplement information from the Department of Social Protection, payments from the Department of Agriculture, Food and the Marine, payments under the taxi regulators and so on. There is a long list.
Under regulations made last year we received returns from all Government bodies regarding payments made by them. All of this information is incorporated into our risk analysis and profiling system, REAP, which has 46 data sources and it chooses the information to identify mismatches which might indicate that there is tax at risk.
We have had exchange of information arrangements with the Department of Social Protection for many years, as outlined by Ms Vaughan. As part of ongoing closer working with that Department, we are now receiving regular flows of data relating to most of the long-term schemes.
Following a project carried out in Revenue relating to Department of Social Protection pensions, we asked the Department to provide us with an up-to-date file on pension payments and late last November it did so. I should clarify that. We received a test file in mid-November and the actual data on the cases on 1 December. That file provided us with 560,000 records relating to the State pension, namely, widow’s, widower’s, surviving civil partner pensions and invalidity pension, and the transition pension which is not on a printed copy.
It was an incredibly large data set and our first job was to match it with our records. When we matched it we found in three quarters of the cases we had no immediate concerns because 310,000 cases either had only a Department of Social Protection pension or the figures matched - in other words we knew about all their sources of income - and 100,000 cases are in the self-assessment system and will be due to make tax returns next October, in the normal way.
However, in 150,000 cases which are taxed through the PAYE system, the figures did not match and our immediate priority was to rectify the mismatches speedily for the tax year 2012 and beyond in order to prevent arrears building up for taxpayers. At the same time, we had to tell the taxpayers involved very quickly because they were about to see a change in their take home pay or pension. In most cases this would be a negative change. We wrote tailored letters to four groups: 20,000 cases who were paying too much tax; 30,000 cases who had never reported their Department of Social Protection pension to Revenue, and on the basis of information available to us, would pay more tax in the future; 85,000 cases who had reported their Department of Social Protection pension but had under-reported or their circumstances had changed since they reported; and 15,000 cases that did not report their Department of Social Protection pension to Revenue but as it appeared that their total income is less that the exemption limit for those over 65, they would have no liability but that there could be a temporary hiatus while we updated their records and prepared new tax credit certificates for them.
Each person was given an individual tax credit certificate setting out his or her Department of Social Protection income and the tax credits as we know them. There is an error in the printed version which states that the certificate also included their pension or their salary. It did not. It was their Department of Social Protection income and their tax credits as we know them. They were urged to examine the information and get in touch with Revenue if the information was wrong.
Everybody knows what happened next. We caused confusion and distress to some people and I am sincerely sorry for that. It is important that I make some points in this regard because there has been much comment and questioning of Revenue’s approach and our communication strategy. Revenue only wants to collect the right amount of tax - no more and no less - from all taxpayers. That is our job. The total amount of additional tax involved in this category is material in the aggregate and we had a responsibility to the State to secure it as quickly as possible. Our overarching focus was to put the cases in question on the correct basis for 2012 and we only had a few weeks to do that. Any delay, as I have already indicated, beyond January would have meant a build up of arrears for the taxpayers concerned with even more serious consequences for their take home pay or their pensions later in the year. Rightly or wrongly, we judged that a large scale public announcement that we were examining the tax records of 560,000 pensioners would have caused wide scale and unnecessary distress - way beyond what we have seen. This would have been pointless since three quarters of the cases are not an immediate cause of concern to us. I emphasise also that none of our letters used the kind of emotive language that has been used by some commentators and we made no reference whatsoever to back years in our letters, except in the letters to people to whom we owed money.
What happens next? There is no one simple answer to this question. We will review the 20,000 cases that may be owed money for 2011 as a priority as soon as we get their P35 details. We will issue revised tax credit certificates to the 15,000 cases I mentioned who seem to be exempt and we will have that completed in a short number of weeks. That leaves approximately 115,000 cases. The range and complexity of these records makes it impossible to give a simple answer and we need to understand them better.
I can tell the committee that we looked at a very small random sample of the cases that got letters to give us some insights which I could share with members today. We looked at 51 cases which showed that in four cases, we owe money, that 14 cases never told us about the Department of Social Protection payment at all and that in 33 cases, the amount of the Department of Social Protection pension is understated for various reasons because of changed circumstances. The amount of income in those cases which would not have been taxed had we not amended the record quickly for 2012 ranges from 20 cent to €17,820. A total of 19 cases, which in terms of the 51 cases is more than one third, have additional income of up to €2,000 about which we did not know. I emphasise that this was not scientific but I was trying to get some sense of the range at which we are looking.
The Revenue Commissioners' normal approach to compliance is to put the right arrangements in place on a current basis and to focus the attention of our compliance staff on the cases which represent the greatest tax risk. As part of our day-to-day compliance strategy, we regularly take groups of cases, analyse them and, on the basis on that analysis, devise a policy for other cases in the same sector.
Our approach in these pension cases is no different. Accordingly, as soon as we can, we will examine in detail the 2,500 largest cases where there is a mismatch between our records and the Department of Social Protection record and where there is non-Department of Social Protection income of €50,000 or more. In that cohort, at which we have not yet looked, we expect to find cases of very recent pensioners who will have no issue. We expect to find cases who reported their Department of Social Protection payment to us but their circumstances changed and they did not report the change. These cases may or may not be material as it depends on the change. We expect to find cases that will not have claimed appropriate medical expenses, for example, which will reduce any liability they may have. I cannot say at this stage whether we will find in that cohort cases with a material liability but I can say that whatever we find will inform our approach thereafter to the next group of cases.
What can I say to reassure pensioners? I can say to those who did not get a letter that they should not be concerned. We know some of them are concerned because they have telephoned us. There is no further tranche of letters to issue to social welfare pensioners. Some people have become quite upset and scared that because they did not get a letter, there is one on the way. I can also say to pensioners that the new arrangements with Department of Social Protection mean that we will get information weekly from now on, so changes to pension payments will be reported to us on an ongoing basis and we will take the necessary action. We will prepopulate the online return of income for self-assessed taxpayers with this information, so if one is a self-assessed taxpayer about to file a return next October on ROS, our online system, one will see this figure there.
We will collaborate with representative bodies to develop and implement a communications strategy in regard to tax and pensions with particular focus on the PAYE sector. Meetings in this regard have already taken place this week.
Much comment has focused on how many years the Revenue Commissioners will go back and what income levels will cause us concern. By law, we cannot go back further than four years, except where there is fraud or negligence but, in practice, the scale and nature of non-compliance must influence our approach to arrears. We know that approximately 11,000 pensioners only commenced their Department of Social Protection pension last year, so there is no arrears issue, and that another 10,000 only commenced their Department of Social Protection pension the year before.
As members will have heard in the media, I can also reassure pensioners over 65 with total income of less than €18,000 if they are single, widowed or a surviving civil partner or €36,000 if they are married or in a civil partnership that they are exempt from tax. It is important that I point out that the corresponding figures for the years 2007 to 2010, inclusive, were €20,000 and €40,000 - in other words, they were higher. Therefore, if one’s income in those years was below the higher figures, one has no arrears issue about which to worry.
Yesterday, we published headline results for 2011 showing that we completed 11,000 audits which yielded tax, interest and penalties of €414.9 million. That is almost €40,000 per case. In that context, the Revenue Commissioners could not justify deploying resources to pursue small amounts.
The Revenue Commissioners’ job is to collect the right tax fairly and efficiently as our mission statement states. In fairness to taxpayers generally and to pensioners who are paying tax on all their income, when we became aware that a large number of Department of Social Protection pensioners had not reported their pensions to us, even though they were advised to do so by the Department, or that the amounts we had on record were understated, we had to move very quickly to put it right for this tax year and future years. The short timescale between then and the start of the tax year became our undoing. We were not able to implement the changes with the standard of service which we would have liked and I regret that. We will review, in particular, the communications strategy and we will learn from it.
Before I come to my colleagues, I would like to make a couple of brief points in regard to what Ms Feehily said at the end that the short timescale caused difficulty and was the Revenue Commissioners’ undoing. I am curious about that. There was a project or a cross-departmental review group. On foot of that, the Revenue Commissioners asked the Department of Social Protection to provide it with an updated file, which appears reasonable. It did so in November, a point which I think Ms Vaughan mentioned also. Part of the difficulty is that an issue lay dormant for a long time and then suddenly it had to be resolved at breakneck speed. That is what concerned many people. Why was there very little activity and then quite a lot of activity? Exactly when did the Revenue Commissioners receive this information from the Department of Social Protection?
Ms Josephine Feehily: We received a test file in the middle of November. On the basis of that test file, we were able to do the kind of analysis mentioned. We were not able to do individual cases. It would have been unsafe to load it into the PAYE system; it had to be tested. The actual file on which we worked came in on 1 December. Between the middle of November and 1 December, my officials did analysis on the test file and at that stage, somewhat to our surprise, the scale of the numbers of cases and the likely tax at risk became apparent to us. The likely tax at risk was material in the aggregate. It was a serious amount of money. At that point, we felt we had an obligation to bring the fact that a material amount of money was likely to be capable of being collected in 2012 to the attention of the Department of Finance for budgetary purposes and that happened at the end of November. The amount involved was very large. To be honest, Chairman, we were not sure until the middle of November when we would get the file and, also we could not determine what state the test file would be in until we got it. We previously had done nothing on the scale of dealing with more than 500,000 records from the Department of Social Protection. If we had asked ourselves in October when we thought we would be doing work on this project, we would have thought we would be doing it in the course of 2012. However, when we got the file, we could see there was a material amount of money involved and as a result we had an obligation to alert the Department of Finance as well as putting the right figures in play for the first deductions from the PAYE system in 2012. If the figures were to be entered into the PAYE system in March or April 2012, the individual pensioners would have built up an arrears of three or four months and would then have suffered a serious hit in the latter part of the year. That accounts for the pace at which we did this work.
I should also explain our workload, the work that is normally done each year in the month of December. Our PAYE system must send material to employers by the middle of December on 2.2 million people who are in employment or in receipt of occupational pensions. The employers have to upload that information on to their payroll systems to make the correct deductions from 1 January each year. We cannot start that job until the day after the budget. After the 2011 budget, we had to upgrade the PAYE system to take account of the changes to the universal social charge, USC, which was taking more than 300,000 of the very lowest paid out of the USC system. Our over-arching objective in the middle of December is to get the correct payroll information to employers in respect of 2.2 million people, including pensioners. This was happening at the same time and that is part of the reason the narrow time window became our undoing.
Chairman: I am sure some of my colleagues may come back to that issue. Ms Feehily, as chairman of the Revenue Commissioners, knew it was her duty to engage in the process of contacting the potential taxpayers involved. There has been some debate about the notion of a public information campaign. I think Mr. Rigney stated the reasons for and against such a campaign, because it then could have been seen that Revenue was casting the net wider than was absolutely necessary and causing more concern than otherwise might be the case. Surely an advertisement could be drafted which would give basic information on the general liabilities that people face when they receive a State pension. It could reassure those who for whatever reason would not be affected and can signal a possible liability for others. We have all seen public information campaign advertisements. Surely such an advertisement could have been put together. If Ms Feehily were to face into this again, would she consider that some form of public information or signalling of an issue such as this might be appropriate?
We have had discussions on public information campaigns with the representative bodies as well. Advertising is not necessarily the best way to reach large numbers of people, when their circumstances are widely different. The chairman’s point on a public information campaign on taxation and entitlements generally is valid. We engaged in widespread campaigns a number of years ago but we did not do so last year. Having scaled back some of the public information campaigns generally, we have learned that would have helped us in this situation. I am still left with the dilemma of the possible outcome if we had made it public that Revenue now had the records of 500,000 pensioners and would be writing to some of them. The judgment call we made was that this would have frightened a very large number of people, but we would not be writing to three quarters of them. That is the judgment we made.
Would we do it differently? What we certainly would do is speak to the representative bodies, so that they would be prepared as we were for the telephone calls. We could have done that better and we could have phrased the letters better. There are things one can see when one reads them afterwards. We could have been better on the communications front. I am not sure that in the middle of December a public information campaign that said that Revenue has just got 500,000 new records would have been the wisest course of action because it would have been unfocused and would have had a greater impact on a big cohort of people who have nothing to worry about.
Deputy Michael McGrath: I thank Ms Feehily, Ms Vaughan and their colleagues for attending today at such short notice. We all acknowledge that the great majority of pensioners in this country accept their duty to be fully tax compliant. That should be the starting point of the discussion. It should be acknowledged also that many pensioners were frightened when they received these letters last week. Many of the pensioners I met, and I am sure those who telephoned the helpline over the past number of days, were traumatised by them. As the Chairman said, Ms Feehily should not underestimate the level of distress and anxiety that has been caused to a pensioner who has received an official letter from the Revenue claiming that he or she owes tax to the State. For many people that is a very grave thing and people felt it very personally. We need to provide absolute clarity to them today as to where they stand and any remaining questions should be answered.
My criticism of the handling of the issue is the actual letter that was sent to people. Unless one is a tax expert, the letter was unintelligible. Ordinary people were expected to go through the documents setting out tax credits, which were presented in a way that was not easily understood. People came to me with the letters, pointed out the figures and asked me if that was the amount of tax they owed. Of course, it was not. A letter could have been sent out that was easy to understand and that would have put many people’s minds at rest. That was an opportunity that was missed.
Let me recap the events of November 2011. Ms Feehily stated work had to be carried out on the test file received in mid-November and that the full data set was received only on 1 December 2011. Was the estimated yield in 2012 from this initiative prepared by the Revenue Commissioners and communicated to the Department of Finance towards the end of November?
Deputy Michael McGrath: It was an estimate that was jointly prepared by the Department of Finance and the Revenue Commissioners and was fed into the budget of 7 December. If the overall estimate of what this initiative could yield could be identified, would it not have been possible to communicate to people directly at that time, or when the letters were sent out, the precise implication for each individual? Given that Revenue was writing to 150,000 pensioners, surely the opportunity should have been taken to tell each person explicitly what impact it would have on him or her and how much tax each would owe in 2012 compared to what each paid in 2011? That opportunity was not taken. Instead people got a letter with complicated and confusing information that they could not easily understand. It should be said that the information was known to Government at the time of the Budget Statement but was concealed from the public; that the initiative was planned as a yield of €45 million had been identified; and that there was an opportunity for either the Revenue Commissioners or the Government to set out clearly for people that a single pensioner could have an income of €18,000 or less per year and would pay no income tax on it and that the relevant threshold for a couple would be an income of €36,000 or less per year. If people had received a clear and simple letter, their minds would have been at rest. Clearly that opportunity was not taken.
I have a number of specific questions. Based on the feedback from the helplines that Revenue set up to deal with queries from pensioners, does the original estimate of 115,000 pensioners, from a pool of 150,000, hold up? From my own work in the constituency - I am sure every other committee member has being doing the same - I can tell Ms Feehily that many people who got the letter telling them they will owe extra tax will owe nothing extra. I could read out many examples. A 99 year old widow in Cork city got the letter telling her she will owe tax to the State. The only income she has is the widow’s pension and a private pension in respect of her late husband, some €3 a week. Clearly, she will not owe tax. How many other people are there in the category who, according to Revenue would owe tax, will not?
Ms Feehily has given a figure of €45 million, between the Department of Finance and Revenue. If 115,000 people actually owe extra tax that would be an average of just under €400 extra per pensioner. Clearly, given the evidence in recent days, not all of those people must pay extra tax. How many people does Ms Feehily now estimate will have extra tax to pay? Has the expected yield changed, or is it the same amount?
There is also a need to give clarity to people as to what they will see as different in the coming weeks. My understanding is their State pension will not change and that taxation will apply to their work income and-or their occupational pension. How soon will those affected see a change in their take-home pension or to their work pension if they are still working? I assume that change will be immediate, given the new tax credits have been entered into the system and will take effect.
On arrears, the least people now deserve is to have absolute clarity. Ms Feehily has not provided that clarity yet today and she should take the opportunity to do so. She referred to cases where it is not justifiable to deploy resources to pursue back taxes. What would she regard as a “justifiable” amount to pursue? People deserve to have information. Ms Feehily has a statutory duty to collect taxes but citizens want information as to whether this is the end of the matter, or if Revenue is going to look back at arrears in cases where people owe a few hundred euro. What is Revenue’s approach to that?
In conclusion, what would Ms Feehily do differently? She referred to consulting with the stakeholders and representative groups and that would be a welcome change. Other than that, what else would she do that was different? I suggest that the type of correspondence which was sent out could be changed to make it more understandable for people and to highlight the simple fact that €18,000 and €36,000 are the relevant thresholds. People were very confused and concerned. They were caused deep distress and anxiety which could have been avoided in a great number of cases.
I shall begin with the Deputy’s question about the estimate. I spoke across him, for which I apologise. The estimate was taken from the test file on the basis of statistical analysis, aggregate data. We knew that €300 million of Department of Social Protection payments was not on our files. We did not know the make-up of it and did not have time to do the detailed analysis to see how many people involved would owe €2 and how many €8,000. We took a very prudent approach. When we started to engage with them we did not know how many of the cases involved would turn out to be owed tax, or how many cases would turn out not to have claimed medical expenses. So we took a prudent approach and advised the Department of Finance. Between ourselves and the Department, we estimated this sum. We made the estimate which we communicated to the Department. We reckoned there was about €55 million in a full year. Discussions took place between my officials and the Department of Finance at the end of November. That is how that figure was arrived at. We had hard information at that point that €300 million of taxable payments were not on our system.
That is why, in my response to the Chairman’s question, I said that we had to hold on at that point, that this was material, it was real. A budget was about to be prepared the following week. I should explain to the committee that our normal compliance activity is an annual cycle and does not fit into the budget arithmetic. Every year we do compliance activity and this is already looked after in the base. This was something new, a source of money, taxable income, that was never on our file. It was material and we had to do something about it. That refers to the estimate part of the question.
At the beginning of his remarks, the Deputy also asked about individual letters and, at the end, what we would have done differently. They are connected. As I already acknowledged to the Chairman, certainly, if we were doing it again, we would write the letters better. We could only have done individual letters if we had had about three further months to analyse the cases. We could not have done individual letters between budget day and the first day of the year because the impact of the universal social charge was going to change the situation for the low-paid, in any case. Therefore, writing individual letters that would explain what change was going to happen to a person from the first day of next year, detailing all their circumstances individually, their pension, their family circumstances, their tax circumstances, other income or dividends, or whatever, would be an incredibly big job and could certainly not have been done. There is no point in pretending that if we were to do it differently we could have done that. However, if we had had about three more months we could have done a much better job of categorising groups. We did four categories of letters. We could have done a much more refined set of categories of letters. Individual letters would have been virtually impossible without armies of people to prepare them.
The Deputy asked how many there were. I am not in a position until well into the year to make any kind of judgment about how many of the cases we wrote to will actually turn out to have a liability. One of the good things that is happening is that while we are getting a lot of contacts from distressed pensioners, as the Deputy indicated, we are also getting a lot of contacts from pensioners who are updating their records and telling us things they did not tell us before. We will have a much better record when this is over, which will enable us to provide a much better service. The positive side is about improving the service on the basis of proper information. Not until we get the responses from people, until we get the P35 data at the end of February which we will analyse by late March, and until we get tax returns from those in the self-assessed category next October, will we be able to say how much money we have got from this and how many people are likely to be affected. This is a long project.
However, going back to my tiny survey that I read out, it is instructive that 19 of the cases of the 51 we randomly picked had untaxed income of up to €2,000. It does not look as if there are that many cases from those we wrote to who owed nothing. I wish to make that point.
In regard to the impact on work income or pension income, that will happen from the first pay cheque. If cheques are weekly, it has already happened; if fortnightly, it will happen around now, if monthly, it will happen at the end of the month, and so on. On that point, and this may have been where the Deputy was going with his question, in the cases we believe to be exempt we will have new certificates out in a matter of weeks and that should be reflected in their February pension and pay situation.
As to the $64,000 question the Deputy asked about certainty and arrears, I absolutely cannot answer that today. I am not sure when or whether I will be able to answer it. My job is to collect tax. I have no authority to say I will not pursue a certain category of people for money relating to recent years. I do not have that authority. They are no different from the pensioners who paid; no different from the low-paid workers who are paying. My authority does not allow me to say that for these people, for these years, for this amount of money, I am not going to chase the money. What I do have the authority to do is to deploy my resources sensibly in pursuit of the greatest amount of tax at risk.
There was a question about a figure of X or Y that we would not chase. I would have to put that in a slightly different context. In my remarks I indicated size and nature. A small amount deliberately evaded by a person who made a return, who was asked a question and who put down “No”, is in a wholly different category from somebody who did not make a return, who disclosed his or her social protection information to us but did not tell us when it changed. The amount might be reversed, in fact. The nature and the amount will influence our approach. We will only find those instances by going through the files on a case-by-case basis. I assure the committee that we have more to be doing than chasing very small amounts from people who did not sign a false return. The question of how much is deemed to be “very small” will depend on what we find as we examine the individual cases.
Deputy Liam Twomey: I thank the officials for their attending today’s meeting at such short notice. Regardless of what might be said about the communications strategy of the Revenue Commissioners, there is no doubt that the Revenue Commissioners have the people’s attention at this time. If the officials want to say something, now is the time to say it because the public is listening. Having listened to what has been said so far at this meeting, I think there is a continuing need for further clarity with regard to the liabilities. Obviously, there is a small group of people who have significant tax liabilities. I assume they will incur penalties and interest payments.
Those of us who have been involved in the private sector in the past have undergone revenue audits. The Revenue Commissioners are pretty dispassionate. They examine the law and how to implement it. They charge interest and penalties if they feel one has underpaid one’s taxes. There is an assumption that this is what will happen here, regardless of how emotive this issue is for many people. Significant payments will have to be made from within the cohort of those who have liabilities. It would be important for the committee to be given a little more clarity in this respect.
Deputy McGrath has already asked how many people are affected. Is the correct number 2,500, 10,000 or 15,000? Can the officials give us some indication of what their potential liabilities might be? Are we looking at €5,000 or at €20,000, when interest and penalties are taken into account? We need to get those figures from the Revenue Commissioners. Those who will be incurring these costs need to know what the costs are likely to be. It is clear in the legislation that the examination will go back over four years. If I am reading it properly, the Revenue Commissioners will have no choice other than to follow the legislation. There is a serious need for these details.
The Revenue Commissioners have been accused of administering this in a sloppy manner. I appreciate they had good intentions. As Ms Feehily said, they wanted this information to get to the people involved as quickly as possible. We need to take into account all the work the Revenue Commissioners have to do each December and all the material they have to send to working people before February. This has created a great deal of confusion. There is a need for people to get extra clarity right now. I do not know how that can be done. Perhaps some kind of spreadsheet can be given to people, or posted on the website of the Revenue Commissioners, to make things clear. Every year, I receive the tax return document that was mentioned by Ms Feehily. It is quite confusing for people who are not trained in accountancy, or do not have to follow their own tax affairs on an annual basis. We need the extra clarity that Ms Feehily has spoken about.
Can the officials state the amount the Revenue Commissioners expect to raise on foot of the initiative relating to old age pensioners? If they get an opportunity, they might give us some extra information on that. Ms Feehily said that under regulations which were made last year, the Revenue Commissioners receive returns “from all Government bodies regarding payments made by them”. She said the Revenue Commissioners are searching their 46 data sources to find what she described as “mismatches which might indicate that there is tax at risk”. Are they looking at another large cohort of people? Are other groups of people likely to receive communications from the Revenue Commissioners in the coming months? While Ms Feehily has the spotlight, she might give us some additional information on who else might expect to receive a brown envelope with a gold harp in the next few months.
Ms Josephine Feehily: I would like to start by responding to the question about penalties and interest. Our penalty position is set out in the code of practice for revenue audits. Contrary to what has been suggested, we are not as literal in regard to the imposition of penalties as the law says. We have set out a code of practice. The penalties are discounted in certain circumstances. A range of penalties will arise in some cases. I would prefer to start before the penalties. A significant number of the people in this category are in the PAYE system. They never made a return. We never asked them to make a return. The PAYE system does not expect them to do so. They are asked to notify us of changes in their circumstances. Those who never made a return or were never asked to make a return - they were only asked to notify us of changes - are in a different category from those who were asked to make a return but failed to do so, or from those who made a return that was not accurate.
Our penalties take full account of innocent error. The penalty for innocent error is negligible. In fact, there can be no penalty for innocent error in a voluntary disclosure, although statutory interest will apply. We do not have a choice in applying statutory interest. Penalties are extremely unlikely to arise in these cases because most of the people in question never made a return, or were never expected to make a return. I assure people that their files will not be examined closely unless they are in the category of people who made a return leaving the income out, or the category of those who received a letter from the Revenue Commissioners asking them to make a return, even though they were in the PAYE sector, but did not do so. We send out approximately 40,000 such letters every year, mostly to people earning over €100,000 but also to people in some other categories. The returns we request do not always come back. As I have said, interest will apply to people in those categories.
I will think about whether I can do a spreadsheet. I do not know. I do not want to jump to that until we have looked at the 2,500 cases I mentioned in my opening remarks. They are the biggest ones. I have no doubt that when we engage with those individuals, many of them will say they never claimed their health expenses. We know there tends to be a certain inertia among people on PAYE when it comes to engaging with us. As I said earlier, a couple of years ago we put a great deal of effort and money into a public information campaign that was aimed at the PAYE sector. We sent out booklets, with cartoons on them, to explain how credits work. We ran television advertisements and put up posters. There was a significant increase in the number of inquiries received from the PAYE sector, and in the number of people regularising their affairs, after that. The campaign took place about two or three years ago.
Ms Josephine Feehily: We recognise that there is a great deal of inertia among people in that category. In many of these cases, I expect people will be able to claim allowances and credits. We cannot be sure until we sit down with the people in question. Until we have penalty cases in front of us - cases in which false declarations were made, or in which credits were not owed for medical expenses or something else we were not told about - I do not even want to think about penalties, interest payments and spreadsheets that might frighten people further. The message I want to send is that I do not want to talk about the imposition of penalties and interest in these cases because I do not expect that to happen very often. The Deputy is right to say that in individual cases, the law is the law. In individual cases of returns being made with declarations on them, of course we will pursue them, just as we would pursue anybody who had not disclosed income of €12,000 per annum to us for four years.
Deputy Pearse Doherty: I welcome the officials, particularly Ms Feehily. I welcome the apology she has given to the pensioners for the distress and confusion caused to many people by the Revenue Commissioners. That is at the heart of the problem. I want to respond to what has been said about interest payments and what people should do. Ms Feehily has acknowledged that the Revenue Commissioners wrote to people in the last few days to say they will have an increased tax liability. She now accepts that is probably inaccurate. We cannot quantify the number of people who have received wrong information from the Revenue Commissioners.
I am sure each Deputy has received countless letters on this matter, for example from accountants who have looked at the information that has been presented and found that their clients are and have been tax compliant. I am particularly concerned about cases in which pensioners have been told they are not tax compliant, and which the Revenue Commissioners are seeking to address in 2012 through deductions in the pay or pensions of such people. I refer to the pensioner who has been told he or she is not tax compliant, concerning whom Revenue has instructed the pension payer or employer to address the matter in 2012 through deductions in pay or pension. That pensioner may not have been tax compliant in 2009, 2010 or 2011. Some of the confusion, hurt and anxiety the Department has caused is because of the misinformation being given out. One piece of information given on RTE by a spokesperson - I do not know who it was - stated that pensioners did not need to do anything on receipt of these letters. Can Ms Feehily confirm to the committee and, more importantly, to the pensioners concerned that they do not have to contact their accountants and pay back the tax they know is owed to the Revenue for the four years subject to the claw-back terms of Revenue, 2008 to 2011? Is she telling those pensioners they are outside penalties and arrears, even if she will pursue them? There are two issues here. Will Revenue pursue people or does it expect people to make calculations in regard to their tax liabilities for the past four years and issue a cheque to Revenue for those liabilities?
The information Ms Feehily has provided the committee with today provokes further confusion. She has stated to the pensioners that €18,000 was the level this year and €20,000 in previous years. That indicates to me she does expect pensioners to go to their accountant, make those adjustments and issue a cheque to Revenue. She also stated she would not pursue people for small amounts of money. If anything is to come out of this meeting it is extremely important that Ms Feehily provide some assurance to people about what they are expected to do. There are people who know, for one reason or another, through good or bad intentions, they were not tax compliant in those years.
Ms Feehily also spoke about the indicative amount of revenue that would be secured as a result of this initiative, based on the sample set of data received in November. Now that the full data has been received - concerning whose scope Ms Feehily expressed amazement - what is the actual figure she estimates will secure additional revenue in 2012?
There is another thing that baffles me. On 7 September 2009 the Commission for Taxation issued its report. There is a full chapter dealing with the issue of taxation of social welfare payments. The chapter deals specifically with the method by which taxable social welfare payments are to be collected. It acknowledges the likelihood the tax will not be collected in the right manner; that probably some of it is collected, and to the right amount, but that there are inefficiencies, bad administration. The chapter points out specifically that this can lead to a situation where a person could be left with a bill for arrears. That is what is happening at this point.
That report issued in September 2009. The Department of Finance had the report and the recommendation yet Revenue and the Department of Social Protection were able to come together at the end of the year and put themselves into a timeframe where they have to deal with all these issues. They acknowledge the reason there has been such a mess - my word - in this area is because of the timeframe. However, this has been highlighted by the Commission of Taxation since 2009. Why was it left so late in the year to request this information?
According to Ms Feehily’s address, the Department of Social Protection has identified the areas of taxable social welfare payments concerning which Revenue has regularly informed it. For what areas of these payments has Revenue not provided data figures, and why not? Does it intend to do so and will the same matching be followed?
I wish to pick up on one point mentioned by Ms Vaughan in her address. Many pensioners have told me either that they informed Revenue they were in receipt of a pension or that they expected Revenue knew they were in receipt of a State pension. Others stated they did not know they had to pay tax on a State pension. I take people at their word in this regard. Ms Vaughan mentioned that people were informed of this when they were issued with the letter but also stated that each relevant scheme contains a reference to the potential tax liability. She went on to state that for every query received concerning the scheme a leaflet is sent out. Before I came to this meeting I printed the leaflet concerning the State pension transition and the State contributory pension, SW118. It is quite large and detailed and explains matters reasonably well. Using a word search I found five references to tax but in no part of the leaflet is it stated that a person’s income from a State pension is subject to tax. Reading the leaflet one would be led to believe it would not be thus taxed. I do not offer this as a justification for pensioners to claim they should not have paid their tax. It is a taxable payment. However, it is very important that we do not create an impression that people were told that they could be tax compliant, that this was in the leaflet and the letter and it is their fault. That is the problem. Pensioners have been made to feel they have done something very wrong.
I appreciate Ms Feehily’s point that there are many cases of people who deliberately misled Revenue but in many cases this has been a genuine error that has been handled very badly by both Revenue and the Department of Social Protection.
Ms Josephine Feehily: I hope I can remember all the parts of the Deputy’s question. At the beginning he used language that is not used in any of our letters. I must reiterate that point. We never use the kind of language that calls people “defaulters”. We never actually said anywhere that people owed us money. We stated we have received information we did not have before to the effect that people have not been paying tax on certain money and that we were fixing that from 2012. It is important not to use emotive language that will frighten people any more than they already are.
Deputy Doherty referred to a spokesperson who said people should not do anything. For one category, as stated in the letter received by people in that category, some 15,000 cases were asked not to do anything because they are the cases we believe will be exempt. We will fix that by next month, or in a matter of weeks. Those were the only cases that were explicitly told not to do anything.
The Deputy also asked about people who believe they may have an issue. We have a standing arrangement in regard to voluntary disclosures, one that would be well known to Deputies and Senators because they must come across this all the time. I certainly receive questions and parliamentary questions from them; we talk about it a great deal. We have in place a voluntary disclosure regime which is available to all taxpayers, for anybody who comes to us before we come to them. The regime is set out in our code of practice, has been out there and is well known. If anybody believes they have an issue they should come in to see us. Anybody who does so will be treated much more benignly than those we find, even if there is an issue about a return they did not complete properly. Voluntary disclosure is available to anybody at all times.
The Deputy asked about the estimate. We are still pretty confident about our estimate. It was not based on a sample file but on a test file. From the test file we were happy about the amounts of money concerned. We just were not happy enough to put it into the system because we needed to test the data. We are happy there is a large amount of money, of the order of €300 million, of taxable payments that were not on our records. We are pretty confident the estimate will hold up.
Ms Josephine Feehily: Yes. I agree with the Commission on Taxation and my colleagues in the Department of Social Protection would be aware of this. The Commission on Taxation recommended a deduction at source system for the taxation of social protection payments. That is Revenue’s view and we have made that view known in our comprehensive review of expenditure, as an efficiency measure. We would be in a position to set the department up but it is a huge issue for it. However, I agree with the Commission on Taxation’s recommendation that deduction at source should apply for social protection payments. I fully understand it is a big issue for the Department.
In the absence of that being capable of being implemented, the Deputy pointed out the timeline from 2009. It was around that time, and into 2010, that we did our first big data exchange on long-term payments in regard to lone parents. We tested this process with a smaller group and got that data in 2010. We had to see how that worked and then moved on to the big one in 2011. That is the timeline from 2009 to 2011 with lone parents first and then all the long-term payment schemes last year. Why did we not get it earlier? As I said, we put our hands up on that. I accept fully if we had got it earlier we could have done a better job. Having got it, however, we had to do something with it quickly that would put people on the right footing for 2012.
Members have indicated they have cases of individuals who have received correspondence wrongly informing them they have a taxable liability. In such cases, if they fix their record, we will send a revised tax credit certificate to them as quickly as possible. The online review is also available and it has a very quick turnaround if new information is inputted.
Ms Anne Vaughan: As the chairman of the Revenue Commissioners stated, there are points to be learned by both organisations. The Department of Social Protection will be reviewing various communications and examining our information forms to ensure they are clear.
The Department shares data on short-term benefits, illness benefit, occupational injuries benefit and jobseeker’s benefit. At the start of the year, figures are updated for the previous year for long-term illness benefit, child benefit payments and carer’s allowance. In the case of the latter two benefits, it is just a marker. A once-off file is provided at the end of each year for lone parents which is supplemented when new claimant details are available on a weekly basis.
The Department does not send information on smaller schemes and some non-contributory benefits comprising blind pension, deserted wife’s benefit, carer’s benefit, guardian’s payment, death benefit pension, injury benefit and disablement benefit. The last three benefits come under occupational injuries. Through the work of the subgroups and high level group, we will see the potential in these schemes. Obviously, we were examining the bigger schemes for starters.
Accepting the Deputy’s point, we will review all our information leaflets and communications. We have already put in a link to the Revenue online site. The Deputy may ask why it was not there before. It is now.
The Department’s main purpose is income support and to make weekly payments. There is clearly a difference between it and the Revenue. As the chairman of the Revenue Commissioners said, it is a mammoth task to deduct at source. That is not the Department’s business; it is primarily income support.
Deputy Pearse Doherty: What advice would the Revenue Commissioners give to the 115,000 pensioners who have additional tax liabilities this year and know they have additional liabilities from previous years? Should they go to an accountant?
Ms Josephine Feehily: I do not think they have to go to an accountant but they have to make that judgment depending on the complexity of their circumstances. Before we came into the meeting, Máiréad Hayes of the Irish Senior Citizens Parliament made the point to me that everyone’s occupational pension and tax position is different. I would never tell someone not to go to an accountant because I would not know how complex their arrangements are. For a simple case, however, it should not be necessary to go to an accountant. Up to 300,000 of these records matched. Those people did report their social protection income to us and are capable of engaging with us. A quarter of those who received the letters in question are under the age of 68 and half of them are under 72.
If their tax situation is simple, I do not believe they need an accountant. If they believe they owe us money, they can make a voluntary disclosure. The regime for that is well publicised in our code of practice.
Ms Feehily claimed in her opening statement the Revenue Commissioners only want to collect the right amount of tax. I must reprimand her on this. She has a job to communicate with people as to what taxes the Revenue collect and from whom. Unfortunately, we have a computer system that heretofore has not allowed the moneys in question to be collected. The Department of Social Protection now provides more information than it has heretofore.
There are three simple elements to communicating with people. One must tell people what one is doing, why, and what again. If the last Administration learned anything, it was that one must tell people what one is doing. These are the steps the Revenue Commissioners will have to follow. It is not just about the Government conveying messages; it is about Departments doing so.
There was a form of shock therapy in these letters. People are frightened when they see the harp on an envelope coming in the door. People in their 80s and 90s received these letters. If they did not have a family to go to about such letters, they found it distressing. I urge the Revenue Commissioners to embark on a public information campaign on radio and television.
As a newcomer, I believe the budgetary process in the Houses of the Oireachtas does not work very well. If €45 million was identified by the Revenue Commissioners to be collected for the first time, the finance committee should decide in September, as it does in most other budgetary processes, if it is acceptable and how the moneys should be collected.
I must also make a recommendation to the Department of Social Protection. I believe child benefit should be means tested. I do not understand why the Department can provide information on pensions but not on child benefit.
Reform that could be achieved during the lifetime of the Government relates to the capacity for cloud computing at government level, which would mean that everybody would do their jobs much more efficiently rather than the State buying bespoke software, which Ireland does more than any other European country. We buy bespoke products, which are modelled accordingly thereafter, not off-the-shelf products. I urge both bodies to do this. I hope they take these suggestions on board but I am not upset that they are asking people who owe tax to pay it.
Ms Anne Vaughan: The child benefit issue needs a little clarity. With regard to taxation or the means testing of the benefit, there are complex policy and legal issues and they need to be teased out in the first place. It is not a data exchange issue. I will outline what they are but I cannot stray into the policy.
Chairman: I do not even want to stray into a discussion of particular payments, important and all as they are. I would like to stick to today’s issue. Perhaps Ms Vaughan will note the point raised by the Deputy Spring. I only want to address the agenda we have. I have 14 colleagues waiting to come in with questions on this issue.
Ms Josephine Feehily: I take the Deputy’s point about the elements of communications and, as I said in my remarks, we are learning from this. I will leave the budget process comment to the committee as that is a matter for it.
I share my colleague’s view about the child benefit issue. We have a subgroup of officials working on the evolution of our data sharing and integrated IT systems. Somebody referred earlier to the outcome from this. The interesting question for me on the data side is how comfortable people are with that degree of integrated working because Big Brother has tended to frighten in the past and we have not tended, as a State, to be comfortable with integrated working. That is just an observation but we have officials on a working group looking at possibilities.
Deputy Joe Higgins: As public representatives, we would want to say to Revenue that we have to be very sensitive in dealing with financial issues and pensioners. Political representatives have to be sensitive not because pensioners gave a previous Government a bloody nose on a particular issue but because when people get into their 70s, 80s, etc., they are concerned that their financial affairs are in order and this is particularly the case with the present generation. The huge majority of these people paid everything they had on time and they worried about it. That is the background to the worry Revenue’s letters caused.
I imagine that among this cohort are a substantial number of former PAYE workers. While that does not change people’s responsibilities and obligations with regard to tax, this generation includes those who in the 1970s, 1980s and early 1990s, when Ansbacher men and others were salting away hundreds of millions of punts untaxed in offshore accounts on the Cayman Islands, were getting hammered for every penny and they remember that. As a society, therefore, we owe respect to the generation that went through that period.
In regard to the categories referred to by Ms Feehily, 30,000 people never reported, 85,000 under reported and there is another quotient of 15,000 who may be exempt. I understand from her explanation of the letters that this probably explains the case of one pensioner who arrived at my home with a letter in hand. The letter states, “As a result, additional tax will be deducted from your occupational pension or salary cheque” but then later states, “You should also note you may be fully exempt from tax”. That is inexcusable. The person concerned was way under the threshold of €36,000 for a couple. I respectfully say that this should have been ascertained because the 15,000 pensioners involved did not need to get such a letter. Why is Revenue planning to deduct tax from this cohort only to pay it back later, if I understand the letter correctly? Perhaps Ms Feehily will explain that to the committee.
Having put a figure of €45 million into the budget, did Ms Feehily feel under political pressure or under pressure from the Department of Finance or elsewhere to deliver that amount? Did that assist in the rush of the letters out to start this process? It would have been better to wait for the month or two she indicated would be necessary to go through the cases in order that every pensioner could have his or her circumstances accurately reported to him or her.
The Revenue used to send a tax credit certificate to every taxpayer. The last time there was a general circulation was 2008. That has been discontinued. Perhaps that could be reinstated in order that every taxpayer obtains an accurate assessment of their tax liability on a yearly basis. It would help people who may have forgotten or who may have not have themselves up to date to address this.
Ms Josephine Feehily: With regard to the Deputy’s question about political pressure, the answer is “No”. With regard to the role of Government, the answer is none. I agree with his point about sensitivity. The last time we did a bulk issue of tax credit certificates related to 2010. We issued them in late 2009 in regard to 2010. We had done some work around those with customer panels and so on and we found nobody read them. They put them in the bin. They cost us €1 million to send out so we did a significant advertising campaign at the time saying, “If you want one, ask us for it. Register for PAYE Anytime. You can download it from the website”. The registrations on PAYE anytime following that doubled and quadrupled. I do not have the numbers with me but I can get them for the committee. Large numbers of people download their own tax credit certificate from the website. We stopped the general issue not only because it was costing money but our testing of it proved it was ineffective and that only a direct communication with somebody works. A bulk issue to the entire working population resulted in most of the certificates either going in the bin being put on the shelf. It was not unusual for accountants engaged in PAYE cases to look for copies of the certificate when they did tax returns later in the year. It did not seem to work. Again, we will review whether there is a cohort of people that we should send them to automatically.
Ms Josephine Feehily: In 2009 we spent a serious amount of time and money making it more user-friendly. We sent it out together with a booklet explaining how it works. The people we are talking about here I discussed earlier with Deputy Doherty. Their concern is in the context of the past four years. There is no doubt in my mind that in the past four years, people got tax credit certificates and they got a booklet with cartoons and all sorts of things in it explaining how to read the certificate. We are not talking about new workers here; we cannot have it both ways. We did a lot of work. We then did not do it for a couple of years. Now, we need to look at it again, but targeting and focusing will be part of our issue.
To come to the point concerning the person who came to the Deputy’s door, they are the group I mentioned in my letter. Why did it happen? First, I should point out that the letter actually read: “You may find tax will be deducted initially by your pension provider or employer. Please don’t do anything. We will send out a revised certificate.” That is what the letter actually states, in sequence. It goes to the point I made in my earlier response to the Chairman about the sequencing and the work we have to do in December. By 14 December, we had issued information to all of the employers and pension providers about the deduction regime they were to apply for 2012. It was only at that point we were free to begin to analyse the 150,000 cases, and we realised that this subset probably were exempt. Therefore, we wrote them a letter.
Those committee members who are familiar with the PAYE system will understand this. When there is a change in a person’s circumstances, or when a person changes employment, it is not unusual for there to be a hiatus while we send out a new tax credit certificate, and the employer deals with the refund within the year. In this case, we expect the employers to be dealing with those cases, with that refund, within the month of February because we will have the revised exemption certificates out in a matter of weeks. Does that explain what happened?
It was a particular subset. We did not send any letter to the 300,000-odd cases that had no issue. This subset had no issue either. We could have said we will not send them a letter but, then, they would not have known that we now had their Department of Social Protection pension on record for the first time. Therefore, we were telling them that. We were also telling them that there might be a bit of confusion for the first couple of weeks. Admittedly, if we had said “a couple of weeks”, it would have made that letter 1,000% better. We did say “initially”, and we then said: “Don’t do anything. We will get out a revised certificate.” That group is one of the priority groups that we will have sorted in a matter of weeks.
Chairman: Thank you. We need to move the pace on a little. It is the first day back for the Dáil and colleagues may wish to attend the Order of Business at 4.30 p.m., and I know some members have other commitments in the Dáil. Therefore, with your permission, I will now group the questioning and will take members in threes. I appeal to colleagues to concentrate on questions at this stage. We have ventilated many of the issues so net questions will be most effective. Members can approach it in whatever way they see fit, but net questioning would seem to be the best way to proceed from here on. I call Deputy Timmins, to be followed by Deputy O’Donnell and Deputy Dooley.
Deputy Billy Timmins: I know there is no easy way to collect tax. I have three points. First, I am a little confused in regard to the position of the people who received letters. I came across many individuals who received letters, including one who is legally separated but who got a bill stating he had to pay the tax on his former wife’s revenue. What do we say to people like that? Do we tell them to contact Revenue or just ignore it? Second, is Ms Feehily satisfied that the situation of the 300,000 people who did not get letters is okay or might there be a difficulty within that group? Third, I am very interested in the estimated figure of €55 million in the one year. I suspect Revenue has made a calculation from the random sample of 51 cases as to what is the total tax liability. Based on that, we might be able to get an estimate of what is the full tax liability. If Ms Feehily has the figure in regard to the 51 cases, I would appreciate it if she would give it to us. If not, it is something that should be easily calculable within a short period and would give us an idea of the total liability.
Deputy Kieran O’Donnell: We are here today because of the whole issue of dealing with pensioners coming to our constituency offices. People have been under enormous pressure and we should not lose sight of the human dimension. Many people were genuinely not aware they were liable for tax on their pensions, and people need to be aware of that.
Ms Feehily quoted a figure of €300 million undeclared on the Revenue system in regard to pensions. She might give us the basis for the figure of €55 million. Does it just relate to taxing pensions for one year or does she include arrears? Second, who is next on the hit list? This question needs to be answered. Revenue has 46 data sources and this particular issue arose following a project. We need to know who is next on the Revenue hit list, what projects it has under way, what type of tax liability it expects to collect and what its communication strategy will be. Third, Ms Feehily has just made reference to sending out tax credit certificates. How much did it cost Revenue to send out these 150,000 letters and how much has this project cost to date? Finally, looking through the cases of the 150,000 people to whom Revenue sent letters, the group of 30,000 was the critical one. Was it necessary to send out letters to the other 120,000 people? Again, I ask that Ms Feehily would give us the basis for the figure of €55 million.
Deputy Timmy Dooley: I thank the two witnesses for the presentation. I have some sympathy for the Revenue Commissioners because they have been to the fore in developing an e-Government model that is a showcase for other Government Departments. It is a pity they find themselves on the receiving end of criticism in this case. Perhaps they have been too good at getting their systems up and running.
How confident is Revenue in regard to validity of the data it has applied to the individuals concerned? Having reviewed some of the cases over the weekend, one particular case seemed to attribute income to an individual from a pension based on the fact she had worked one day within the HSE ten or 11 years ago, and there seemed to be a disproportionate level of occupational pension assigned to that. On my reading of it, this individual would not owe any tax yet it has created confusion. I wonder about the validity of that case. Another case related to an accountant who makes a return every year. His wife died seven or eight years ago. He includes his widow’s pension on each occasion yet he finds himself receiving one of these letters. Again, I do not believe, and he certainly does not believe, he owes any tax but the fact he is within one of Revenue’s categories confuses me somewhat, based on the identifiable areas Ms Feehily has talked about today. The other areas I was concerned about in regard to Revenue have already been discussed.
With regard to the Department of Social Protection, Ms Vaughan clearly indicated that people should be aware that moneys received in social welfare through the various schemes are taxable if taken in consideration with other income. Although perhaps everyone now knows it given what has happened in recent days, did the Department give consideration, when preparing that dataset for transfer to the Revenue Commissioners, to some kind of public advertising or communication to remind people of their obligation? I can understand why the Revenue Commissioners would not do it, as an advertisement or communication from the Revenue Commissioners has a much greater capacity to generate fear than a more benign one from the Department of Social Protection stating “By the way, just to remind you, your social welfare payment, if taken in conjunction with other payments, is taxable if it goes above the aggregate threshold”. Perhaps the Department could have done a little more in that regard.
We should not take the burden of responsibility from the Government. I believe there was political responsibility on the Minister, as part of the budget speech, to make it very clear that the Revenue Commissioners, based on his information, would proceed as they did. The communication was with the Department of Finance and there was an opportunity to remind people of their obligation. Budget speeches are often used to remind people of their obligations or of changes in direction. I know there was not a change in direction in this case in that the policy in regard to tax was set out. Clearly, however, there should have been an opportunity to mention it as part of the budget speech. It was an opportunity missed by the Minister.
Deputy Mary Lou McDonald: I want to say to both Revenue and the Department that, in my view, this is a complete dog’s dinner. Despite having the facilities since 2005 to share data, we fast-forward to 2011 where there is the extraordinary situation of data being handed over late in the year, badly drafted and alarming letters being sent to tens of thousands of pensioners and then an acceptance here in this committee today that to do the job correctly, to refine the data and to make proper use of the sharing of data would have required an additional three months. I put it to all concerned that the agenda for public sector reform and public confidence would have been better served had the Revenue taken the required additional three months and sent out letters that were factual and accurate, and not alarming, to people.
Despite being asked several times, Ms Feehily cannot give reassurances in respect of the level of arrears that might be pursued or, indeed, penalties and interest. The purpose of this committee meeting is to provide clarity, not only for Members of the Oireachtas but, more crucially, for pensioners. I am beginning to wonder whether this meeting has done that at all. It strikes me that, quite aside from the badly drafted letters, the big concern among vast numbers of people is whether arrears will be pursued and whether they will find themselves in a position where they will get hit with penalties and interest. If there is to be any value in this meeting, we must get more than a “maybe” and an “if” or an “and”. Can we have a more concrete response to that?
The issue of political responsibility for this has been addressed and clearly rests with the Minister, but there is an issue of administrative responsibility. I stress again that the purpose of data sharing is to avoid precisely this type of mess which causes so much alarm and, no doubt, considerable headache for the respective staffs.
Ms Josephine Feehily: Deputy Timmins asked how sure we are about the 300,000 cases. We are sure that the data on our system matched with the data we got from the Department of Social Protection, in other words, the pensioners in question had reported their social protection income to us or they only had a social protection pension. Obviously, if there is something else they have not told us, I cannot give the Deputy any commitments about that. We are satisfied that the data matched. There was no mismatch.
The Deputy asked about a particular case to do with a separation. Some of the members will be familiar with joint the assessment situation in the tax system. The joint assessment situation has complicated many of the letters in these cases. The joint assessment system is a system that has been retained and protected for many good reasons, and we will not go back to the individualisation controversy. In most cases, the joint assessment system is an advantageous system for couples. Sometimes that means that one party is picking up a tax liability for the other party’s income, and that has certainly fed in to the confusion here in that some persons, separated or otherwise, retained the joint assessment because it suited them. Unless there is a divorce, there is absolutely nothing wrong with that. There are joint assessments situations where individuals receive letters stating they have a tax liability in a joint situation where the person who gets the letter is the assessable spouse but the pension might belong to the other spouse. That is the way joint assessment works. That may probably explain the case that Deputy Timmins mentioned.
The Deputy asked about the estimate. We did not factor arrears into the estimate. We were working blind. As I stated in my opening remarks, until we have examined the very largest cases to see whether, when we engage with them, there will be credits that persons can claim for expenses, etc., that will impact on their liability, I am really not in a position to state what, if any, arrears will arise. Our estimate was based simply on getting the right information into the system and getting it taxed from 2012. That is from where the estimate came.
Ms Josephine Feehily: The sample of 51 was simply 51 cases we pulled out yesterday so that I could say something today about the shape of the file. I have not looked at them below that. I have no idea.
Ms Josephine Feehily: It is merely 51 cases that were pulled out so that we could have something to indicate today that even in a sample as small as that, somebody had untaxed income of more than €17,000, which is material. That is why I thought it was important to do that work.
If we are to take those 51, write to them, telephone them and have a conversation with them, maybe they will have health expenses to claim as well. I must keep saying this. I apologise to Deputy McDonald that I cannot be clearer because these cases have individual entitlements and, as I mentioned earlier, because of inertia. Among PAYE taxpayers generally, there is an inertia. They probably have not bothered claiming. We must engage with cases before I can give any kind of greater clarity about that. When we have done the 2,500 biggest cases, we will have a better picture. That is where I want to take this next and then see does the estimate hold up, and take it from there.
Deputy O’Donnell asked about our hit list. He and I, and some others here, have discussed this in another committee. It is our risk analysis system. We are not doing another large-scale issue of letters. However, around the country all of the time, every week and month, Revenue regions and districts are getting cases from our risk analysis system and doing sectoral projects, particularly in the cash economy. For us, the cash economy includes the white collar cash economy - I want to be clear about that. In sectors all around the country, our local tax districts are writing out to people and saying, “We have information on our risk analysis system that is a mismatch. Is there anything you would like to say to us?”
Ms Josephine Feehily: The Taxi Regulator was probably the last big one. I do not think we have a big data set coming. The Government reporting, my colleague is reminding me, was for all payments. These would be payments to suppliers, contractors and those engaging with the Department on a self-employed basis. All of that data is now in our risk analysis system. It came in under regulations made last summer. That is being crunched up this year. It will impact on our lists for our local districts but as of now I do not envisage 150,000 letters going out, if that is the question Deputy O’Donnell is asking. I can see local campaigns arising in risk sectors. When we get information about payments from Departments, it goes into the system. The next time our risk analysis is run, which will be probably towards the end of the first quarter that information will be in there. If there is a mismatch between that and a tax return, that could cause letters to go out, but I do not think it will be 150,000 letters.
Ms Josephine Feehily: I was asked about the cost of the project. When I said earlier that the bulk issue of tax credit certificates every year cost us €1 million, that was merely postage. On the same basis, this cost us approximately €60,000 for postage and paper.
My colleague has asked me to clarify, and I arranged for him to clarify to Deputy Higgins, that I said in my engagement that our last bulk issue was in respect of 2010 but it was actually in respect of 2009. I apologise for that.
Ms Josephine Feehily: The 85,000 cases have issues. Some 85,000 cases were reported to us but we have a mismatch. It is a wrong amount on our file. That wrong amount, in some cases, can be quite substantial. All of the three categories, to get back to my opening remarks, apart from those to whom we owed money, either had not told us or there was under-reporting. The only group which we seriously considered not writing to were those we thought would be exempt. I have debated that issue with Deputy Higgins. As the 30,000 who never reported and the 85,000 who under-reported deserve to be told that we were putting into the system new figures on which their pension providers were about to act, not telling them was not an option.
I thank Deputy Dooley for his compliment. He asked an important question about the validity of our records. They are as good as our records show but we have learned from the project that many taxpayers have not kept up to date with the information recorded on Revenue’s files. Some people have not informed us that they have been widowed or separated. We are receiving a considerable amount of additional information and when this is over, I believe our records will be much better. They will certainly help us to provide a more focused individual service and, especially in the area of self-assessment, will bring us closer to our ideal of pre-populated tax returns. There are benefits to be gained in tidying up the records. I will not say they are accurate. They are as accurate and valid as the files held by us and the Department of Social Protection. The matching is working quite well in that we are not finding mismatches in terms of the wrong people being prepared.
Deputy Heather Humphreys: What consideration did Ms Feehily give to the impact these letters would have on the media? I welcome her comment that she is learning from the experience. What measures does she intend to put in place to prevent the reoccurrence of events that caused such concern to individuals, needlessly in some cases?
Deputy Sean Fleming: I thank Ms Feehily for saying sorry for the distress that has been caused. People wanted to hear an apology from the chairperson of the Revenue Commissioners. I have always been a supporter of the Revenue Commissioners because of their efficiency and good systems. They are probably one of the best examples of good practice in the public service, followed by the Department of Social Protection. However, it was disappointing that what I would describe as a flagship operation in the public service made several administrative mistakes.
The 85,000 letters issued to people who under-reported their pensions or whose circumstances had change stated that the details for 2012 had been corrected and, as a result, additional tax would be deducted from the occupational pensions or salary cheques of the individuals concerned. That statement indicates many of the letters issued were false or inaccurate. Some of those who received letters do not have any tax liability even after supplying the additional information required. Revenue’s system should have weeded out those who earned less than €18,000 in order to send them a different letter because this has caused the most distress. I do not buy the excuse that paragraph four of the letter suggested that certain individuals may be exempt. These people were upset from reading the first paragraph of the letter.
I dealt with a former public servant who received his first weekly payment for 2012 last Thursday. His former employer had deducted the correct amount to the cent having already received notification from Revenue about his new tax credit and tax band. In the middle of December Revenue notified hundreds or thousands of companies regarding pensions paid to former employees. The pay slips had been adjusted by the start of the new year, which would have required them to have been processed prior to Christmas. Revenue should have notified the people concerned at the same time as it contacted their former employers. If it was sufficiently satisfied about its information on credits and bands to notify employers, why did it not write to people at that stage?
I accept that the overwhelming majority of those concerned will not have incurred serious arrears. As Deputies and members of the Joint Committee on Finance, Public Expenditure and Reform, we have a duty to support Revenue when it pursues those who owe arrears. We passed the relevant legislation and we expect the Revenue to implement it, albeit more carefully than it did in this instance. However, the arrears date back to 2007. The letters were dated Friday, 30 December 2011, the last working day of last year, which means 2011 is in the game for the current correction. I ask Ms Feehily to confirm that the corrections extend back to 2007 given that the process was activated in 2011. My experience has been that people who contact Revenue before the end of the tax year are in the current system. Legal issues may arise in pursuing arrears dating back to 2007 where fraud is not suspected. None of the individuals concerned actually received a letter from Revenue in 2011. They are entitled to assume that 2011 is one of the four years of arrears and Revenue will be asked to prove the letters were in the postal system by the end of the year. By sending them in the last working hour on the last day of the year, it permitted itself to pursue arrears over an additional year.
On the overall budget calculations, I did not hear an answer to the questions I thought Deputy O’Donnell asked. Ms Feehily indicated that the untaxed income amounted to €300 million, with a tax liability of €55 million. That suggests that the entire amount was taxable at approximately 20%. The fact that the money is taxable does not mean tax will be paid on it. It is simply included in the tax net for the purpose of calculation.
Deputy Sean Fleming: It may not bring the individuals concerned to the level at which they pay tax. What was the figure for total income last year in the file that was transferred to Revenue? Was it €300 million or €6 billion? To what percentage of total income does the €300 million deemed assessable for tax purposes equate? We have not been given an indication of the figures in the file. How did Revenue arrive at €300 million as a starting point?
Deputy Jim Daly: It is important that we maintain a sense of perspective. This sorry saga has been blown out of all proportion, although it has not been helped by the fact that it emerged during a slow news week. I accept, however, that people are feeling a degree of discomfort. Much of the debate has been ageist, with suggestions that pensioners somehow cannot open brown letters that have harps printed on them. These people have the benefit of life experiences and they have been paying taxes all their lives.
The only issue that came up for scrutiny in this whole debate was where the system let the Department down. People who had absolutely nothing to do with this development got letters. It just so happened that a dinner guest of the Pensions Ombudsman, if I was following what was said on the radio correctly, was one of the people who got a letter despite having no liability or accrual. I would like to ask a broader question in this regard. What percentage of the letters sent out in 2011 were sent to people incorrectly? I accept that these are not the most threatening letters, but such letters, which are the most hurtful of all, go out from the Revenue Commissioners every year to people, including business people, who are compliant. They are very frightening and cause real concern. That is the precursor to the anger that is being expressed about this episode. If that issue was acknowledged and addressed by the Revenue Commissioners it would be helpful. I would like to hear some figures in this regard, although I appreciate Ms Feehily may not have them today. Such letters cause genuine distress, hurt and anger, and are an example of the system letting down not just the Revenue Commissioners but society.
Ms Josephine Feehily: We certainly expected that there would be media interest, and as soon as we came back in the new year we issued a press statement which set out the categories of letter, the number of people affected and so on. Subsequently, every single media organisation in the country came looking for spokespersons, which we provided. We did not turn down a single such request. With regard to the letters, we issued a press statement and provided spokespersons. In an earlier discussion, one of the committee members requested that we get out and use the media more.
Right now, our plans for the future for this particular group of people involve taking a lot of advice and working closely with the representative bodies, because they are best able to tell us what kind of communication works best for this category. Already we are hearing that media such as local radio are good, that newspaper advertising is not necessarily good value for money and so on. We will also be improving the quality of our information leaflets and working with the organisations because they are a good channel for us. Materials put out by various representative bodies have flagged this issue down the years. The Citizens Information Board and Age Action Ireland have comprehensive information leaflets for pensioners, and it is written in all of these that if people have tax issues they should come and talk to us. We will work with them to enhance that and see what we can do to improve it.
Deputy Fleming is right to be disappointed; we are disappointed ourselves that this has not worked out better. I can only assure him that our overarching concern was to get things right for 2012. Deputy McDonald asked earlier - I think I missed this in my response - why we did not take the extra couple of months. Those members who know the PAYE system will know that if we had done that, there would have been an arrear for three months which would have hit somebody’s payroll or pension, and it would have made things worse. That was the judgment we made, rightly or wrongly - if we could get it right from 1 January, we would at least have started on the right footing.
Deputy Fleming mentioned an employer who had calculated the tax correctly to the cent. That happens every year. In the middle of December we send out 2.2 million pieces of information to employers. Then we take a deep breath and look at the employees, or in this case the pensioners. The Deputy is absolutely right. This year’s budget was a complex one because of the changes in the universal social charge. Cumulative USC came in and 300,000 cases went out, and we had a week to do all that. That is the answer. Our focus always is to get the information to employers so that they have a week to update their payroll systems and get it right from 1 January. This is the case for all of the 2.2 million, not just the group we are discussing.
Ms Josephine Feehily: Members have given me a very useful basis for reaching that decision under our care and management powers. The letter was dated one year but received in a different year. We will do that. Because we issued it in December, the review cases in which we owe money will be taken back to 2007, but for the review cases in which we are owed money we will start with 2008.
With regard to the Pensions Ombudsman, we do not talk about individual cases, so I will not comment on that, but he has since clarified the matter. In the context of our earlier discussion, ultimately there are not that many cases, when we get into joint assessment and so on, in which there is no issue. We asked the ombudsman to meet us yesterday so we could hear his concerns, and that meeting took place. He has clarified that he is happy with the way we are approaching the issue for the future.
In reply to Deputy Daly, I would be interested in seeing examples of the letters he thinks are inappropriately threatening. I must say that I would think they are only threatening when they are appropriate. There are cases in which people owe us a lot of money, and there are cases in which people ignore us. When people ignore us, I will admit the letters get increasingly shrill. Then at some point there is a letter that mentions the word “sheriff”, and that is when people ring up saying “Oh my God.” Actually, however, one will find the sheriff is never mentioned in the first letter. There will have been a series of letters building to that point. I would be happy to talk to the Deputy about the kind of letter he thinks could be improved and see what we can do.
Ms Josephine Feehily: In any given year, given the scale of our operations, there are people who get letters in error, but they are in very small numbers. We have a good track record, I hope, in apologising early. The Ombudsman - not the Pensions Ombudsman - contacts us from time to time about cases, and we find we have got something wrong. There is a human element to all systems this size. If we send a letter to the wrong person, we will apologise. If there is a class of letters that the Deputy is interested in - if I knew the letter - I could find out how many we issued last year.
Chairman: We will come back to that in a moment. We need to finish the meeting by 4.30 p.m. and there are eight people waiting, so I will take two groups of four. I ask people to co-operate with one another. If you take a minute or 90 seconds to ask the question, that will help everybody else.
Senator Thomas Byrne: While I share the disappointment of the Revenue Commissioners at how this has worked out, I also share my colleague, Deputy Dooley’s praise for the Revenue Commissioners. It is unfortunate that politicians, particularly in the Fine Gael Party, seem to be jumping on the Revenue Commissioners and disparaging them. Deputy Jim Daly’s disparaging tone today was not appropriate. The citizenry of this State must have confidence in the taxation system. That confidence was shaken to some extent in the last week or so, but it is important that we as Members of the Oireachtas uphold the Revenue Commissioners as best we can.
Senator Thomas Byrne: Yes, I do. I do not know if anybody has asked this question yet but Deputy Michael McGrath meant to ask how many telephone calls or inquiries, in total, have been received. There were figures available a few days ago but I am anxious to find out the up-to-date figure. A number of Ministers have given their views on the issue of penalties and interest owed. Are the views of Ministers taken into account on these issues? The witness said the figure of €55 million was arrived at between the Revenue Commissioners and the Department of Finance, but can the witness confirm that the decision to put the €55 million into the budget for the year was not a matter for the Revenue Commissioners but was a political decision for the Government?
With regard to people who submit returns, be they self-employed or PAYE payers, the Revenue Commissioners took approximately 100,000 from this group. There is a perception that people do not know that their social welfare pension is taxable. Do the witnesses accept that this lack of knowledge will show up in self-assessment returns? In other words, would they expect a higher level of incorrect information than they would normally expect from the annual self-assessment returns with regard to this issue?
Deputy Stephen S. Donnelly: I welcome Ms Feehily and Ms Vaughan. Virtually all the people in Wicklow who contacted me were quite happy to pay their taxes, but they were quite appalled and angered by the process. I welcome the witness’s repeated and wide-ranging apology. It will go a long way to help in this matter. However, I urge the witness to consider a way of getting that apology across other than in this committee. Much as we might like to think that everybody is tuned into the proceedings of the finance committee, they might not be. Certainly, it would go a long way with the people I spoke to if they heard an apology, be it on radio or television. There must be some way of getting it across more broadly.
Several of my constituents asked me to pose one question in particular. On the basis that there has been an error and it has caused a great deal of distress, is there any process of accountability or a disciplinary process? Will any action be taken? I am not necessarily advocating that any should be, but I was asked by numerous constituents if any disciplinary action or other action was being taken within the Revenue Commissioners as a result of this.
Arrears have the potential to bankrupt people. A gentleman I spoke to yesterday told me that €480 was taken out in January, before he received the letter. If one counts that back over four years, it amounts to €24,000 plus interest. He is more than happy to pay the €480 per month, but would not be in a position to pay €24,000. The witnesses say the Revenue Commissioners are statutorily obliged to try to retrieve that €24,000, but will they communicate, or have they already communicated, with any other Department or political body that can find a way to ensure that people such as my constituent are not put into extreme distress?
Ms Vaughan gave a list of taxable benefits to Deputy Michael McGrath earlier. If that is not readily available, perhaps she could find a way of letting people know about them as well. I could not write them down quickly as it was a reasonably long list, although perhaps it is already publicly available.
Deputy Kevin Humphreys: I thank the witnesses for attending today. I also welcome the apology. It cannot be said too often that the language in the letter was confusing. I said to the people who came to my advice centres that I was sorry they were issued with the letter because the vast majority of them had no tax liability. A number of the letters contained a comment on the last page stating that the person was deemed exempt from paying the universal social charge. Do the witnesses have the number of people on pensions who have been removed from paying the universal social charge? It is not on any of the sample letters.
Although the language was incorrect and complicated, older people want to pay their taxes and be compliant. Why did it take so long to collect the tax that was outstanding? Really, the transfer of information from one Department to another is not acceptable if there is €55 million in outstanding revenue for the State in a full year. We are now looking back over a period of three to six years in which that revenue did not come to the State, when many services that could have been provided for senior citizens were not provided. This is the crisis or scandal, the fact that the Civil Service or Revenue Commissioners are not working together to collect the revenue, be it from people who want to pay but do not know what it is paid from or people who are trying to avoid the tax law. We must get our act together. It does not give me huge confidence if tens of millions of euro were not collected over a number of years. That is the question the Revenue Commissioners and the Department of Social Protection must answer for the committee. Why did it take so long? That is what they should explain. Why did they not match the information years ago?
Ms Josephine Feehily: Senator Byrne asked about callers. Up to yesterday evening we had approximately 35,000 telephone callers and 20,000 walk-in callers since Thursday, with the exception of Saturday when all the calls were about this issue as we had advertised widely that the telephones were available for that. This is our busy time. As I told Deputy Sean Fleming, when the employers apply the new tax rates to people’s salaries we always have a busy peak. I cannot disaggregate but not all the calls were about this issue. However, it was twice as busy as last year. On Saturday we had approximately 10,000 callers and they were all about this issue. As for the rest of the calls, it was twice as busy as last year. That is the best I can do on the figures.
The Senator asked whether the Government has a role regarding penalties. It does not. This is my problem. It is part of my role and that of my colleagues, as the tax administration, to take a view. I mentioned earlier when I discussed penalties with Deputy Twomey that we have set out our position on penalties. It is not a Government decision; it is our decision. It is our responsibility as the tax authority and we are independent in doing that.
Ms Josephine Feehily: I will not tell Ministers what to do. Ministers can have a view; they are entitled to have an opinion. What I am saying is that it is for me and my commissioners to form a view as to how we will manage the question of arrears, which are very small in some of these cases. We will form that view but in order to get to that view we must know what is involved, that is, the shape of this file and whether there are huge numbers of tiny amounts that are influencing that estimate. We will know that when we get into examining the biggest cases and then move down to the next tranche.
As regards who put the figure in the budget, that is obviously a matter for the Department of Finance. We felt we had to draw it to the Department’s attention because it was material. As I said in an earlier reply, it is not normal, and it would not be correct, for our control activities to get into the budget arithmetic because they are not recurring. However, this is a source of data which will recur, so it is valid. The Department decided to put it in and that it was valid.
The Senator asked if I thought there would be more incorrect information in the self-assessed returns. I do not believe so. The self-assessed return contains a box. If people have been making a tax return, the form contains a question as to whether the person is getting a payment and there is a box for an answer of “Yes” or “No”. There are also many notes. However, if they have not filled in that box and they have been sending in returns, they are a category to whom we will have to talk.
Deputy Donnelly spoke about people’s anger and said they were happy to pay tax. He asked about accountability. The person who asked the Deputy to pose that question is assuming that this was an error. It was not an error. It was badly handled. Somebody used the expression “administratively sloppy” and I will put my hands up for that. The letters could have been better written.
Ms Josephine Feehily: Bad writing is not an error. This data source needed to be on our system and should have been taxed. My job was to tax it as soon as possible on the right basis. The job of my officials was to get that moving as quickly as possible.
Somebody said on “Morning Ireland” last week that if this was a different group it would be a good news story. Public sector reform is working. Data is being shared. We are seamlessly, without getting returns from thousands of people, identifying a data source and taxing it appropriately from the start of the year.
The question of disciplinary action does not arise. On the contrary, I am happy to be here today to account and apologise for the actions of Revenue. I also must pay tribute to the officials in Revenue who have been working very hard in the run-up to Christmas because of the budget changes, conveying information, dealing with telephone calls and dealing with the media. I compliment the way my organisation responded. It is an organisation which can respond and turn out 200 people on a Saturday to answer telephone calls. Maybe that is not the answer the Deputy expected. We did not handle this issue in the best way but we responded to it.
On the Deputy’s question on arrears, I take it the man in question has accepted he has a liability and the figures involved. My dilemma is that if a lot of other people owed such a figure, they would pay us and would pay interest. If I understood the Deputy’s question, the figure is as high as €24,000 which is a serious amount of money. We have all sorts of arrangements in place, such as instalments. It is explicit in our code of practice that we take account of inability to pay and hardship. The man to whom the Deputy referred can put his circumstances before us on a case-by-case basis. If he wants to write to me I will be happy to receive his letter. We will apply the same criteria to him that we apply to others who might owe us a figure of that size.
Ms Josephine Feehily: The Deputy cited an individual case to illustrate the broader issue. In a way it illustrates that, within this group, there are people who have material liabilities. My job is to treat them fairly, which involves being fair to people who did report their pensions and paid tax which was deducted at source through the PAYE system from their occupational pensions. A large number of pensioners have done that. I have to be fair to the people who complied in considering our approach to arrears.
A point was made on the universal social charge. The charge does not apply to payments from the Department of Social Protection. I do not know how many pensioners were taken into the net by the budget measure but 330,000 low-paid people, including pensioners, were out of the universal social charge net.
A Deputy referred to back years. In previous years the tax thresholds and exemption limits were a little higher. The reason I mentioned that was that it was positive. I may have been misunderstood. For pensioners who are trying to look back and do their sums, the figures are €18,000 and €36,000 this year but in 2010 they were €20,000 and €40,000. I mentioned the figures to illustrate how the exemption threshold was higher in the past. The figure of €55,000 would not hold out for previous years because more people were out of the net, tax credits were higher and those below the minimum wage were exempt.
Ms Anne Vaughan: As the chairman of the Revenue Commissioners said, public service reform is part of being more joined up, in a strategic co-operative sense. The high level group I spoke about is part of that and has been in place for number of years. Data sharing is also part of it. The catalyst for what happened is improved technology within our department which facilitated the large bulk transfer. I may have said earlier that data in respect of this customer group was provided occasionally in the past on an ad hoc basis, but there was no bulk transfer. It is a combination of strategic co-operation, operational co-operation and IT enhancements.
Deputy Peter Mathews: I thank all the delegates, in particular Ms Feehily and Ms Vaughan, for their presentations. The apology is noted and is true and full. In the spirit in which it has made we accept it on behalf of the country.
The context for today’s discussion has been the severe economic collapse and collapse in revenue. It could explain the fact that there has been a delay in the sharing of bulk information. When there is a collapse in the tax base, stamp duty is gone, VAT from construction related sources declines, income tax from the construction sector collapses, we have to look in the cupboard and that is what is happening.
It is regrettable that the collection agents for a lot of PAYE and taxes on pensions are employers around the country. Live employees, namely those working as employees of companies, go to HR directors or managers to discuss updated tax certificates and all the rest. Therefore, they are the obvious buttons to press when people are becoming pensioners. When people are due to receive pensions they should be told to make sure their State pensions and everything else is put into the bundle and returned annually in order that they get updated certificates which are relevant for the amount of aggregate income they are starting off with and if there are any changes in family circumstances through the bereavement of a spouse it is something Revenue has to know about. Such information could be put in a simple bold 24-point font type.
When people are paid a pension by the Department of Social Protection they should be provided with simple information, rather than a leaflet with a lot of boxes which makes one’s eyes glaze over, stating that they have now received the approved State pension which is part of assessable income before tax. Every year they should make sure this and any other income they have is aggregated and returned. It would be very simple and prevent all this pain without trying to determine who is to blame for what and what letters were written. We should convey such information because people are not just worried about pensions but also pension funds which are going bust all over the place. This is a big message. The worry will be taken from people’s minds if they know in the future that everybody who retires can read a simple sentence in English about their situation.
I accept the explanation and apology of the Revenue Commissioners. Two questions arise therefrom. Regarding what Deputy Daly and others said, there is some stereotyping of people who get a letter from the Revenue Commissioners and in whom such letters put the fear of God. It is true about a certain cohort of those who get a letter but it belies the intelligence and life experience of a substantial majority. Perhaps it is because communication from the Revenue Commissioners is irregular, or not regular enough, that a letter puts the fear of God into people. The flip side to what members were saying about the communication being regrettable is that there may be a need for regular communication from the Revenue Commissioners so seeing the brown envelope with the harp on it will not put the fear of God into people.
I would like every citizen in the State, including the self-employed, PAYE workers and pensioners, to make a simple tax return stating his or her income for a given year. In this return, one could state one has a pension or that one’s sole income is from self-employment or PAYE income. One would submit one’s P60 or other documentation to prove it. This kind of declaration would obviate the necessity for the kind of communication under discussion.
My second question is in the context of the apology made, which is a great development at this meeting. Is it possible that those who should not have been communicated with at all could be apologised to directly?
Senator Michael D’Arcy: Regarding the 115,000 cases that had to be assessed, I am examining the 2,500 largest in respect of people with income in addition to that of the Department of Social Protection and a further income of €50,000. If a couple are in receipt of a full pension, they would have almost €24,000 per annum, or €230 each per week multiplied by 52. The exemption limit is €36,000. Those on €50,000 plus would have a minimum of €38,000 in taxable income. Are these figures correct?
Senator Michael D’Arcy: I am just running through the numbers. What is the time schedule for concluding the audit of the 2,500 people? This is important. Another 112,000 will then have to be borne in mind afterwards. Ms Feehily stated the four-year rule applies, apart from in cases of fraud and negligence. If the Revenue Commissioners discover fraud or negligence, will there be a full tax audit of the individuals concerned? If so, will the office advise those in question, whom I am sure will not claim fraud or negligence and will claim they did not know or were not told what they should have done, to make a voluntary declaration?
Senator Michael D’Arcy: I will finish in a moment. Ms Feehily stated there was no error and that it is a question of how business is done. Senator Byrne spoke about people who have been disparaging. I am glad to have an opportunity to say to Ms Feehily, chairman of the Office of the Revenue Commissioners, that there is an arrogance throughout the office that is not pleasant. I say this as a public representative who has dealt with the Revenue Commissioners frequently. It is not pleasant because the Revenue Commissioners are a bit like the Canadian Mounties in that they always get their man. It is very rare that someone who is audited gets away without paying something. That arrogance led to the communication under discussion. The communication was shockingly poor. Ms Feehily has apologised for it, which is welcome. The follow-on question concerns who and how many people are within the communications unit of the Revenue Commissioners. Is Ms Feehily satisfied it is fit for purpose in today’s economic climate?
Senator Aideen Hayden: We all agree this has been a very interesting debate. I have one question for the representatives from the Revenue Commissioners and it relates to the reasonableness of what has happened. Reference was made to the IT enhancements that led to the current situation. I am not an expert on revenue or tax law but I understand that, in the United Kingdom, leaving out the four-year rule and such provisions, the tax authority must forgive debt if it was reasonable that it should have known there was a liability on the part of an individual.
Self-reporting would have disclosed people within the system who would have had other income, be it from dividends, rent or otherwise. I refer to the kinds of individuals who would not have had massive sources of additional income. Was it reasonable in all cases that the Revenue Commissioners would not have known that the circumstances in question existed? If it was not reasonable to assume the Revenue Commissioners did not know of the circumstances, through IT system failures and so forth, surely it is not now reasonable for the Revenue Commissioners to pursue people, be it within four years or otherwise. This is on the basis that, if there were a potential liability among a particular group, or a particularly vulnerable group, as in the circumstances under discussion, the Revenue Commissioners would have responsibility in regard to circumstances of which they should have been aware. In other words, the responsibility lies with the Revenue Commissioners in addition to the individuals concerned.
We have heard from the representatives about the Revenue Commissioners’ obligation to collect revenue on the part of the Government but it also has an obligation to be aware of a certain cohort of people. If it was not aware of it, it should have been. Rather than placing all the obligation on that group, there should be, at the very minimum, a sharing of the guilt in so far as it revolves around an obligation to pay. I refer specifically to UK tax code that allows the forgiveness of debt where the revenue authorities have not been alerted, through their own failure, to a certain set of circumstances. Is that not relevant in the Irish context?
Our first task is to obtain a complete list of all the payments of which the Revenue Commissioners are not yet cognisant. Ms Vaughan mentioned another six on the list. One must go through rent allowances, farm subsidies and higher education grants. We need to know about all of these. That exercise should have been accomplished long before now. Unfortunately, this is the first step and it led to so much trouble. A comprehensive definition of income should not be outside the scope of the Government.
Consider the inviting of people by letter to “regularise” their affairs and the stating that additional tax will be deducted from their pension. The Revenue Commissioners have these powers but we live in a society in which a shopkeeper, unlike the Revenue Commissioners, cannot say to a person he believes he will have to regularise his affairs to avoid attracting huge penalties. If the Revenue Commissioners are too draconian in their approach or make mistakes, they should be dealt with on the same level as others in society who make mistakes.
In her opening statement, Ms Feehily stated had the Revenue staff been devoted to other areas, they could have taken in €40,000 per case. Yet in one of the cases in question, one pensioner’s liability was 20 cent. One general complaint about the tax system is that those - like the €40,000 tax liability cohort- who can afford tax lawyers and accountants, many of whom previously worked in the Revenue Commissioners, will not be targeted while those who owe 20 cent will be.
We need to re-establish the code that Revenue Commissioners do not work for companies specialising in tax avoidance schemes after their careers are over in the agency. While I admire the dedication and patriotism of those we heard this afternoon, it has not always happened. Micheál L. Collins from the economics department at Trinity College Dublin, estimates up to €12.8 billion in tax liabilities is sheltered from the Revenue Commissioners each year. There must be a long-term commitment by Revenue staff not to work for the burgeoning tax lawyer and accountancy industry. It would also introduce much more fairness into the system.
Deputy Richard Boyd Barrett: The bottom line is most people want to play by the rules and be tax compliant. However, a large number of pensioners had extreme anxiety caused to them by the Revenue Commissioners because of a systems failure on its part and a failure to properly communicate. I am educated to third level and yet I find tax forms and other related documents complex and difficult to deal with. How much more difficult must it be for the elderly and the frail, some of whom may have literacy or numeracy problems? Consequently, the Revenue is responsible for this matter and it owes a profuse apology for the handling of it. The onus is on the Departments in question to make it clear to people what their tax liabilities are.
I still have not received a clear explanation of how letters can be sent to people categorically informing them they have tax liabilities when they have none. One case was brought to my attention of a man who was informed he had extra tax liabilities because he had a Department of Social Protection pension when in fact he did not. When he pointed this out, Revenue informed him it was his responsibility to get the Department to confirm this. When he asked the Department to inform Revenue that he had no pension from it, he was told the Department did not do that. Eventually, after many rows with the Department, it informed Revenue he had no pension from it. Is it not reasonable to ask for a bit of joined-up thinking between different Departments and for people to be told what their tax liabilities are instead of having to work it out for themselves?
Two years ago the Revenue Commissioners stopped sending people their tax credit certificates. If people do not get these, how are they meant to know their tax position? In the case I referred to earlier, the gentlemen in question inquired of Revenue why they did not send out tax certificates anymore, he was informed it was due to cost cutting. Is it true cost cutting is partly responsible for this debacle?
Deputy Mathews asked about messages from the Department of Social Protection and pension providers. There is also an evolution of technology. Several years ago Revenue got a large amount of data that did not match and had armies of people working to match it. One could not have checked the data about pensions without an evolution in technology.
Deputy Creed spoke about the infrequency of our communications which connects with Deputy Boyd Barrett’s point on tax credit certificates. A tax return from everyone would impose a massive administrative burden which may not necessarily be of any value. However, over time we would like to move to a pre-populated tax return for people. Getting this data is part of that. It could simply be an online return system stating what we know about the person. That is, however, several years away. In the meantime those countries that have every employed person and pensioner filling in annual tax returns have huge processing centres and armies of people working on them. It does not necessarily add much if personal circumstances do not change much.
I accept we stopped issuing tax credit certificates several years ago. The categories of people in question today were actually receiving those every year until 2009. The reason we did not issue certificates in 2010 was because there were no changes to the tax credits and bands. Mass communications do not necessarily work. Targeted communications, as we discovered, have great impact. We will be working to pre-populated returns beginning with the self-assessed and then on to the PAYE sector. It will take a few years and a good deal of technology money.
I am disappointed by Senator Michael D’Arcy’s suggestion that Revenue is arrogant, particularly with audits. I have said many times the objective of the Revenue Commissioners is to leave tax compliant citizens alone and only do business with those who are not compliant. I have said it time and again. Taking a risk-based approach, particularly to our audits, has meant that the numbers of audit cases where we get a nil or negligible return has reduced considerably. Virtually all the cases chosen for audit have a liability because we have so much information and because of our risk analysis system. If, in the conduct of an audit, we appear arrogant, I would like to hear those cases and examine them because we write an audit letter to a person and say we are going to start an audit. We give them an opportunity to take 60 days out and make a voluntary disclosure before we go near them. Our audit process is documented and it is out there in our code of practice.
The other area where we are accused of writing difficult letters, which we discussed earlier, is when people have a debt and have not answered the first or second letter. If there are individual cases the Senator perceives as arrogant, I would like to learn about them. To say that the whole organisation is arrogant in the context of individual experience in an audit would be unfair on Revenue staff and I would not like that.
Ms Josephine Feehily: I beg the Senator’s pardon. I hope to be in a position to give an update on three issues and I do not know what that update will be - whether we will have done audits or what we will have done - by the time we publish our annual report in the first half of April. The three issues are the exempt cases I discussed earlier, the repayment cases - we cannot look at those until we get the P35 data in March - and an update on what we have found in the 2,500 cases. I do not say we will have handled the audits. We will publish our annual report in the early part of April and I will include an update on those three items at that point.
I am not familiar with the reasonableness part of the UK code. However, I know our code, which covers a self-assessment system, is based on people being advised regularly, perhaps not often enough, to tell us about changes in their circumstances. Having specifically been advised by the Department of Social Protection, whatever we think about the communications, that the pension in question was taxable, my reasonableness test also has to take account of the people who read that and acted on it. They told us about it and made a return. I can only talk about it in the context of our system and, in our system, additional income should be notified to us. Up until 2009 people got a bit of paper every year which said that to them. Maybe it did not say that as elegantly as it should but in 2008 and 2009 - Deputy Fleming will recall this because he was involved - we went to serious efforts to upgrade that information and improve the communications.
Deputy Boyd Barrett referred to the cost issue. I explained there was a specific decision. Nothing changed that year; it was not just cost. However, we found that it did not work. We want to make it easy for people to do the right thing. I accept tax is complex. Much of the complexity, which feeds into some of the Deputy’s questions, relates to tax expenditures. Many people, including me, were more comfortable with tax allowances. Credits are much fairer but they are much harder to explain. People understood allowances because they were dealing with them for years but credits are very hard to explain. Making the system more technically fair and sophisticated from a tax policy point of view - and credits are fairer- makes it much harder to explain. I accept the complexity but much of it is due to the design of the system. The tax expenditures to which Deputy Boyd Barrett referred are there.
I want to come to the question of Revenue staff. I am not a lawyer but have no authority, nor could anybody have authority, to say to somebody who leaves public sector employment that he or she cannot go and earn a living. This raises various restraint of trade issues. We have a code of practice, the Civil Service code of practice. People who leave Revenue and decide to take up external employment are asked to get in touch with me to give me the details of the employment they are about to take up. I write back to them and say whether that is an issue or what things they should be cautious about. I believe that the people who work in Revenue have a lot of integrity and that follows over if they go to work somewhere else.
In 2010, we employed some private sector staff and tax practitioners were concerned that they would bring their private sector information into Revenue. They asked for assurances in this regard. It would be a much richer environment if people moved between the two systems more often. Apart from being Revenue officials, they are members of professional bodies and the standards of those bodies require them to behave with integrity. I like to think that this integrity follows. If people intend to work in the private sector, I believe they will tell me and my advice to them would be that they should not handle cases in the private sector that they handled in Revenue. With that simple rule, people’s inherent integrity and the standards of their professional bodies, we can manage that.
Ms Josephine Feehily: I have a small communications unit. I cannot recall off the top of my head how many people are in it. Between the press office and the communications unit, there might be a dozen people. However, I need to clarify that every letter that goes out from Revenue is not reviewed by the communications unit. Individual managers of projects and divisions are responsible for their own letters.
Senator Sean D. Barrett: Are there more of these coming down the line? Ms Vaughan had mentioned six social welfare payments that have not been brought to Revenue’s attention. Should rent allowance, farm subsidies, higher education grants and so on be included in the comprehensive audit?
Deputy Kieran O’Donnell: In 2010 and 2011, if someone approached Revenue to say he or she had a social welfare pension, how would he or she know his or her tax credits were adjusted if no tax credit certificate issued? What is the basis of the €55 million figure in the €300 million that Revenue could not reconcile?
Deputy Kevin Humphreys: A number of tax allowances were mentioned. For example, Senator Barrett referred to rent allowance. In case we are starting to put the fear of God into many people, rent allowance is only for people who are on social welfare and there is no tax liability-----
Ms Josephine Feehily: We will send the committee a list of all the data sources we get and the ones in regard to the Department of Social Protection that we do not already get. I can tell the committee that, with the exception of supplementary welfare allowance, there are now no large-scale ones that we do not get. There are ones with smaller groups - about half a dozen. The supplementary welfare allowance one is probably not relevant because it is a payment of last resort.
Deputy Kieran O’Donnell: No. This is a very relevant point. Revenue stopped sending out tax credit certificates in 2010 and 2011. If someone came to Revenue and said he or she was now in receipt of an old age pension, would the person get a credit certificate from Revenue?
Ms Josephine Feehily: Somebody asked earlier if I had any messages and I did not deal with the question. I have been jotting a few down. As I said in my remarks earlier, this could have been handled better and for the distress we caused, I am sincerely sorry. I would like to repeat that.
We would like to get the message out there so there is no surprise that data sharing will grow. We will be giving data, and the next big piece will be going the other way when we start to give data, coming out of our risk analysis systems, to the Department of Social Protection and the Health Service Executive, where we are now in discussion. This is an evolution.
We think most of the pensioners who got these letters are likely to have entitlements they have not claimed. That seems to be a feature of the PAYE system. Claim them. We have been saying this and we have said it before. Collect your health expenses bills and claim them, or be ready to claim them in the context of responding to these letters. To the self-assessed group, which we discussed with Senator D’Arcy, it is in your interest to make a voluntary disclosure or to make a proper return. If you are a new pensioner, make a proper return as soon as you like, but certainly by next October. If you want to do something about back years, the sooner the better in regard to the self-assessed - come back into us. Anyone who wants to file a return or ask for a review, get in touch with us.
The final message is to check the pension figure on the letter - bad and all as it is, have a look at it. If there is something in it that is not correct, please correct it, and we will correct your record if everything is not okay with the content.
Chairman: I thank Ms Feehily, Ms Vaughan and their respective colleagues for attending what has been an extremely useful and informative session, and in particular thank them for their attention to the 22 different sets of questions they had to answer in the course of the afternoon. I know they are doing their job in a good and professional way and that they would regard it as part of their work, but it should be said it was important that both bodies should be here this afternoon to contribute to the public information and to the teasing out of the issues that have arisen.
I propose to read out an e-mail in order to put it on the record. I would not normally do this but I will do so as it relates to some of the issues that arose in regard to the staff in Revenue. I will not say which part of the country it came from and I will not read out any names. It was addressed to me today at 8.30 a.m. and states:
I am very happy to put that on the record. I believe that has been the experience of very many people who have contacted the service in the past few days. It is important that it should be acknowledged.
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