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APPENDIX 3Mr Cathal MacDomhnaill Chairman Office of the Revenue Commissioners Dublin Castle Dublin 2 11 April 1997 Dear Chairman I am directed by the Chairman, Mr Denis Foley T.D. to refer to a recent meeting of the Committee where Paragraph 6 of the Report of the C&AG in relation to Non-Commercial State-Sponsored Bodies (copy attached) was discussed. At the conclusion of its consideration the Committee agreed the following:- APPRENTICESHIP LEVY “The Committee is aware that FÁS has very little input into the collection of this levy, and would like to stress at this point that it is incumbent on the Revenue Commissioners and Social Welfare to provide an accurate and efficient collection system for this levy - something which they have obviously not provided to date. The present system of relying on estimates of compliance to determine the payover to FÁS is unacceptable and an alternative should be sought as a matter of urgency. This Committee would like to see greater effort being made to attain full compliance in respect of this levy in as short a time frame as possible. This Committee is unable to conclude on this paragraph without hearing from the Revenue Commissioners and the Department of Social Welfare on how this situation was allowed to develop.” The Committee has requested your comments in relation to this matter and would be grateful for a reply before 30 April 1997. Yours sincerely _____________ Clíona O Rourke Clerk to the Committee
Cliona O Rourke, Clerk to the Committee of Public Accounts, Leinster House, Dublin 2. 30 April 1997. Dear Ms. O Rourke, I refer to your letter of 11th April 1997 concerning the FÁS Apprenticeship Levy. As you are aware, the Office of the Collector-General collects PRSI and associated levies (i.e. Health, Employment and Training and in the case of certain designated trades, the Apprenticeship Levy) through the PAYE/PRSI system. The Collector General receives a global sum in respect of the PRSI and levies which is paid to the Department of Social Welfare, which Department has responsibility for the allocation of the levies to the appropriate Departments and to FÁS. However, a particular difficulty arises in relation to the Apprenticeship Levy because it is not an across the board liability, and is confined to employers in certain sectors, and indeed within some sectors, only to certain employers. From the outset, it had been recognised by all concerned and was indeed pointed out in discussions and correspondence on the introduction of the Levy, that identification of those liable and separate tracking of receipts from the Levy through the PRSI system, would be problematical. The PRSI system is designed to collect about £2bn annually on a cost efficient basis and at best estimate, the amount due from the Apprenticeship Levy would be in the region of only £4m. Revenue are committed to supplying the Department of Social Welfare with an analysis of the FÁS Levy payments from the annual P35 returns. The full computer development to accompany this will be complex to implement and is being incorporated as part of a major computer development (Integrated Taxpayer Processing) currently underway. The pressures on Revenue’s computer systems including the Euro and the Year 2,000 systems changes do not allow for separate development of the Levy. In the meantime, in order to assist the Department of Social Welfare in determining the amount due to FÁS, interim arrangements are in place to determine the Levy amounts collected and to advise the Department of Social Welfare of the amounts to be paid over to FÁS. These arrangements rely on the use of existing trade classification codes, to identify those liable for the Levy, and applying the rate of compliance from a sampling exercise, to determine the amount collected. I would have to point out that the nature of the classification codes in use (i.e. EU economic sector analysis codes) cannot accurately identify the businesses liable for the FÁS Levy, and this factor is taken into account in our final calculation of the amounts collected. In order to validate the accuracy of our sampling techniques, arrangements have been made to carry out a manual scan of the 146,000 P35 returns for the current tax year 96/97 which are currently being processed. This will also help to identify the larger employers who appear not to have paid the Levy. Because of the imprecise nature of the application of the Levy, FÁS will be requested to validate the list of employers for further contact. Again, as this will be a labour intensive operation, we will concentrate on the larger employers only. From our experience of the operation of the PAYE/PRSI system, it is clear that many employers are not aware of their obligations to pay the Levy. This is an issue to be addressed by all the parties concerned. Arrangements within Revenue have been made to publicise the FÁS Levy through the Revenue periodical, “Tax Briefing”, which is issued to all Tax Practitioners. Material on the FÁS Levy is also included in the explanatory material issued to all employers with their P35 Return. Revenue have also agreed in consultation with the Department of Enterprise and Employment and FÁS, to issue a mailshot to the relevant employers concerning the Levy. Work is ongoing in identifying accurately the target audience for this mailshot, since Revenue is concerned that issue of the letter to too broad a range of employers will cause confusion among customers and lead to complaints about the administrative burden imposed on employers for PAYE/PRSI purposes. Pending completion of the mailshot list, the publication of the information through Tax Briefing, referred to above, should ensure that the relevant information reaches most of the target employers. These efforts and the publicity efforts that I hope FÁS and the Department of Enterprise and Employment will employ, should impact on the 1996/97 compliance rates. However, I expect that the ongoing discussions between the interested parties, including Revenue, will include a fundamental review of the FÁS Levy scheme, to overcome the many serious deficiencies in the scheme. Revenue are committed to providing whatever assistance is necessary to resolve the current difficulties. However, I am mindful of the additional overhead this effort will impose, and the commitment of resources to the collection of the FÁS Levy must be commensurate with the yield from this tax and the overall maintenance of tax compliance levels. My officials will continue to liaise with the Department of Enterprise and Employment and FÁS, to further progress matters.
Cathal McDomhnaill, Chairman. Mr Edward McCumiskey Secretary Department of Social Welfare Aras Mhic Dhiarmada Dublin 1. 11 April 1997 Dear Mr McCumiskey I am directed by the Chairman, Mr Denis Foley T.D. to refer to a recent meeting of the Committee where Paragraph 6 of the Report of the C&AG in relation to Non-Commercial State-Sponsored Bodies (copy attached) was discussed. At the conclusion of its consideration the Committee agreed the following:- APPRENTICESHIP LEVY “The Committee is aware that FÁS has very little input into the collection of this levy, and would like to stress at this point that it is incumbent on the Revenue Commissioners and Social Welfare to provide an accurate and efficient collection system for this levy - something which they have obviously not provided to date. The present system of relying on estimates of compliance to determine the payover to FÁS is unacceptable and an alternative should be sought as a matter of urgency. This Committee would like to see greater effort being made to attain full compliance in respect of this levy in as short a time frame as possible. This Committee is unable to conclude on this paragraph without hearing from the Revenue Commissioners and the Department of Social Welfare on how this situation was allowed to develop.” The Committee has requested your comments in relation to this matter and would be grateful for a reply before 30 April 1997. Yours sincerely
Clíona O Rourke Clerk to the Committee
Ms. Clíona O’Rourke Clerk to the Committee Committee of Public Accounts Dáil Eireann Leinster House Dublin 2 Dear Ms O’Rourke I refer to your letter of 11 April 1997 concerning the views of the Committee of Public Accounts on the Industrial Training Apprenticeship Levy. I note that the Committee feels that it is incumbent on the Revenue Commissioners and the Department of Social Welfare to provide an accurate and efficient collection system for the levy and that relying on estimates of compliance is unacceptable. In addition, the Committee would like to see greater effort being made to attain full compliance. I also note that the Comptroller and Auditor General, in his report, points out that the responsibility for collecting this levy rests with the Office of the Revenue Commissioners, and that the issue of improving compliance was being addressed by FAS and the Revenue Commissioners. PRSI and the Social Insurance Fund Pay-Related Social Insurance (PRSI) is collected by the Revenue Commissioners from employers and employees who pay tax under the PAYE system and from the self employed who pay tax under Schedule D. The moneys collected are paid into the Social Insurance Fund, which is administered by this Department. As a matter of convenience the Health Contribution (1.25%) and the Employment and Training Levy (1%) are also deducted, where appropriate, from employees’ earnings and remitted to the Revenue Commissioners along with PRSI contributions. The Apprenticeship Levy (0.25%) is payable by employers in certain sectors, to be remitted by them in addition to PRSI and Health contributions and Employment & Training levy. The Social Insurance Fund acts as a conduit through which levy moneys are passed from the Revenue Commissioners to FÁS. The overall amount of money, which is paid into the Social Insurance Fund throughout the year, is determined by the Revenue Commissioners by reference to the returns they receive from employers and the Self-Employed. With the exception of moneys paid under Schedule D (Self-Employed) this Department decides on the appropriate allocation of the money collected in respect of Social Insurance, the Health Contribution and the Employment & Training Levy by reference to data supplied by the Revenue Commissioners. Health contributions and Employment & Training levies, collected under Schedule D, are not paid into the Social Insurance Fund but are transferred directly by the Revenue Commissioners to the Departments of Health and Enterprise & Employment respectively. Allocation of money collected All information relating to PRSI collection is captured in the first instance by the Revenue Commissioners. The money collected in respect of PRSI Contributions, Health Contributions and Employment & Training Levies is not apportioned on an individual case by case basis. The total amount is divided between the three components on a global basis. The Revenue Commissioners provide a computer file of information relating to the various PRSI classes, and this Department allocates the money between the three components based on an analysis of this information. Apprenticeship Levy The above mentioned computer file does not provide any information about the Apprenticeship Levy. This Department understands that major programming changes would be required to the Revenue Computer Systems in order to provide for information relating to the Apprenticeship Levy. In addition, it would be necessary to make substantial changes to the entire PRSI system itself. Basis for collection of Apprenticeship Levy When introducing the Apprenticeship Levy the Government decided that the collection of the levy would operate through the PRSI collection system. A number of issues arose because of the sectoral nature of the levy. These included the identification of liable employers, the method(s) by which those employers would be made aware of their liability and the means by which levy money collected could be identified separately from the existing contributions and levies. This Department agreed to pay an estimated amount to FAS on the basis that the Revenue Commissioners would subsequently provide confirmation of the actual sums collected so that any necessary adjustments could be effected as provided for in the Government decision. Difficulties The principal difficulties are liability and compliance. It is not possible to determine, with an acceptable degree of accuracy, the amount of money which the levy would yield in a given tax year if all liable employers paid the correct sum. This problem arises because there is no mechanism whereby liable employers can be readily identified by the Revenue Computer System. Consequently, as the Revenue Computer System cannot identify liable employers it is not possible to determine the compliance level i.e. how many liable employers have paid the levy or how much money they may have paid. Estimate of levy amount for 1994/5 This Department carried out an exercise using its Central Records database to provide an estimate of potential yield from the levy. FAS also carried out an exercise to arrive at its own estimate of potential yield. Consequent on these exercises, this Department agreed to pay £3.6m in respect of the 1994/95 collection year on the basis that any under or over payment could be adjusted as soon as actual information became available from the Revenue Commissioners. It subsequently transpired that the Revenue Commissioners were unable to provide the necessary information. Estimate for 1995/96 Various attempts were made to find a method which would provide accurate information regarding the liability figures and compliance rate. This Department carried out a small survey in early 1996 which showed a compliance rate of the order of 50%. The Revenue Commissioners also carried out a sampling exercise on some of the employer returns which indicated a similar compliance figure. A further exercise was carried out by the Revenue Commissioners and this indicated that the actual level of compliance may have been lower than previously suspected and that only 39% of employers were compliant. If this compliance rate were applied to the estimated liability figure, which was used to determine the moneys already paid to FAS, it would mean that the Social Insurance Fund overpaid FAS and that the other recipients (Social Insurance, Health and Employment & Training) were left short. Clearly this type of situation is neither desirable nor acceptable. Payment of the levy for 1995/96 was suspended accordingly. Situation for 1996/97 I understand that the Revenue Commissioners will manually scan the 1996/97 tax returns in order to validate the sampling techniques used for their estimates. While the reliance on estimates for both the liability and compliance figures is not entirely satisfactory, it is the only way, at present, of providing a basis upon which moneys can be allocated in respect of the Apprenticeship Levy. With regard to the problem of compliance, I understand that the Revenue Commissioners in co-operation with FAS and the Department of Enterprise & Employment will continue its efforts to make liable employers aware of their obligations. This Department will continue to work with the various parties to try to resolve this matter in a way that is satisfactory to all concerned, having regard to the need to strike a balance between the amount of work involved in effecting collection and the amount of money actually collected. Yours sincerely
E. Sullivan Secretary 3 June 1997 |
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