Committee Reports > List of Committees > Joint > 2007 > Committee on Finance and the Public Service > Report No. 8 - Interim Report on Under-Claiming of Tax Credits, Allowances and Relief by Taxpayers

APPENDIX IV

Presentations Made to the Joint Committee

Remarks by the Irish Taxation Institute at the Joint Committee on Finance and the Public Service, January 17, 2007

Introduction by Dermot O’Brien, President, ITI

Chairman and Members of the Committee,

On behalf of the Irish Taxation Institute (ITI), I would like to thank you for the invitation to join you here today. We look forward to discussing with members the important issue of unclaimed tax reliefs and to offering our thoughts and suggestions of how best we can ensure PAYE taxpayers get their rightful entitlements.

As President of the ITI, I wish to commend the Chairman and members of this Committee for taking an active interest in this subject. Your initiative in putting the issue of unclaimed taxes on the formal Oireachtas agenda is a reflection not only of the importance of this subject, but also recognition of the central role played by the most important stakeholder of all in our tax system — the PAYE taxpayer.

I am joined today by Mark Redmond, Chief Executive of the ITI and by Cora O’Brien, a Director with the ITI. If the Committee is agreeable, my colleagues and I propose to use the time allocated for our opening address to offer some brief background information on the ITI, our work to date in the area of unclaimed taxes, our views on the current administrative system for claiming tax reliefs and finally to put forward some specific measures we believe could be taken to offer real improvements for PAYE taxpayers. We will be happy to take any questions members of the Committee might have arising from our presentation.

The Irish Taxation Institute

As the leading representative body on taxation affairs in Ireland, and an organisation with 5,500 members nationwide — the ITI’s key function is to create a deeper understanding of how our tax system works. Now in our 40^th year, ITI educates, represents and sets standards for qualified tax advisers and works to inform and assist PAYE taxpayers in their day-to-day dealings in taxation matters.

Through our nationwide branch network and comprehensive committee structure, our members are actively involved in developing and advancing research on taxation. The practical, everyday experience of our members also means that the ITI has a very important role to play in outlining its views on the administration of our tax system.

For sometime, it had been clear to our members that people are losing out on significant amounts of money every year by not claiming their tax entitlements. To ascertain the scale of the problem, last June we decided to conduct the first ever survey of PAYE taxpayers, details of which my colleague Mark will present to you shortly. The findings of this survey, whilst stark, have brought real attention to this issue for the first time. Furthermore, they have placed an onus on all of us who believe in an efficient and fair tax system, to take meaningful action to address the issue of unclaimed taxes.

To detail how we can best achieve this objective, I would now with your permission Chairman, like to hand over to my colleague, Mark Redmond.

Mark Redmond, CEO, ITI

Thank you Chairman.

Chairman, in your letter of invitation to the ITI to appear before your Committee today you asked us to specifically brief you on three key areas:

•The level of non-claiming of tax allowances

•Ignorance among taxpayers about tax relief in general

•The level of support offered by the Revenue Commissioners to taxpayers in informing and assisting them in the area of tax reliefs and allowances.

My colleague, Cora O’Brien and I will now address these issues.

The level of non-claiming of tax allowances

ITI believes that individual taxpayers are entitled to receive all necessary information in a clear and timely manner to enable them to meet their tax obligations but equally to avail of their tax rights and entitlements. We also believe that individual taxpayers are entitled to an efficient and timely service from the Revenue Commissioners and to independent oversight and monitoring of their rights as taxpayers.

As the members of the committee will be aware, the ITI has, in recent years, engaged in a number of initiatives designed to provide individual taxpayers with clear information on their obligations and entitlements. For example, in early 2006, as part of our PAYE Tax Return Week campaign, we published a series of tax guides written for the ordinary taxpayer. These guides covered issues such as “Understanding Health Expenses” and “Understanding childcare entitlements” — and were made freely available throughout the country though the network of Citizen Information Centres and through our website. We also had these guides translated into Polish, Czech, Slovak, Latvian and Lithuanian.

The response from the general public to these initiatives confirmed statements that had previously made by a number of members of this Committee, namely that a substantial number of our more than 2 million PAYE taxpayers were, unknowingly, paying too much tax.

As Dermot has alluded to, it was against this backdrop that we commissioned Red C Research to carry out an opinion poll measuring the level of understanding amongst PAYE taxpayers about the tax system. The key findings of the poll will not surprise members of the Committee as they confirm what we all suspected — hundreds of millions of Euro have been overpaid by our PAYE taxpayers. This deep-seated problem needs to be addressed in a systematic and sustained manner. The key poll findings regarding non-claiming of tax allowances, first published in the Sunday Business Post of 25 June 2006, were as follows:

•50% of taxpayers are not claiming tax relief on medical expenses

•55% of taxpayers are not claiming tax relief on bin charges

•Two in five (42%) taxpayers leave their tax affairs to their employer yet a similar number (43%) are not sure if they are getting all their entitlements

We have estimated that the tax overpaid as a result of non-claiming of medical expenses alone could be €50m per annum. However we must stress that this is a non-scientific measurement and could be conservative. The chairman of the Revenue Commissioners, Frank Daly, stated at the Public Accounts Committee on November 9 last that the amount of PAYE tax overpaid by employees could amount to €100m per annum.

Ignorance among taxpayers about tax relief in general

Our poll results show that one of the contributory factors to the non-claiming of tax credits is lack of awareness and understanding of the system amongst ordinary taxpayers. The key poll findings in this area are as follows:

•1 in 2 PAYE taxpayers or 1 million people do not understand the tax system

•700,000 PAYE taxpayers (35%) do not understand all the tax information on their P60

•37% of taxpayers do not understand their tax certificates

These findings are consistent with those of other studies. For example, market research published by Irish Life this month reports that almost 60% of taxpayers don’t understand how tax relief for pension contributions works.

Support offered by Revenue

In the period following the publication of our findings, specific actions were taken by Revenue. In August 2006, Revenue launched an information campaign designed to inform individual taxpayers of their entitlements and to claim refunds that might be due. We also believe that Revenue deserve credit for their on-line filing system which, to date, has been unavailable to the PAYE taxpayer but we understand Revenue will widen the system to include PAYE taxpayers in the coming year.

The ITI strongly welcomes the commitment made by the Minister for Finance in his Budget 2007 statement that: “The Government is determined to make it easier for ordinary taxpayers to claim and receive their rightful entitlements”.

In his Budget, Minister Cowen announced further changes to help taxpayers get their entitlements at source. For 2008, Revenue has indicated a plan to move, where possible to automatic payments in respect of certain hospital and other expenses that qualify for tax reliefs. The Minister has also tasked Revenue to bring about similar measures for nursing home and other medical expenses.

Following the Minister’s Budget statement, Revenue announced that over the coming year they will be engaging in a process of consultation to make the system simpler — we strongly welcome this and we will offer whatever support and assistance we can. It is of critical importance that this consultation includes the identification of the obstacles, real or imagined, deterring ordinary taxpayers from claiming their entitlements and steps to remove them — this can only be done by consulting extensively with ordinary taxpayers.

Each of these are steps in the right direction, but the onus is on everyone concerned to explore options which would lead to lasting change.

We would like to remind members of the Committee that any material delay in addressing this issue will cost ordinary taxpayers a significant amount of money. As a result of changes introduced in Finance Act 2003, taxpayers are only entitled to claim tax overpaid in the previous four years — previously they were entitled to go back ten years. In real terms, this means that those who have incurred expenses in 2002 can now no longer get tax relief on these expenses.

ITI believes that Revenue has the key responsibility to make the system easier and my colleague, Cora O’Brien, now offer some suggestions as to how this might be achieved.

Cora O’Brien, Director, ITI

Power point presentation (available to members).

Summary by Mark Redmond

Members, it is clear from what we’ve seen that our tax administrative system is not customer focussed. As it stands, the language of tax is confusing and intimidating. Equally, tax forms are cumbersome and complex. This need not be the case and were it to continue to be so, we would be failing PAYE taxpayers.

To tackle this issue once and for all, ITI is today proposing four key tests which the system must pass.

1.Quantify: If the problem is to be effectively tackled it must be scientifically quantified. We recommend that a body such as the ESRI be commissioned, in cooperation with Revenue, to quantify the amount of tax relief foregone

2.Simplify: we must adopt a “one claim, one form” approach to claiming tax reliefs. Red tape must be replaced with a concise, jargon free format for getting your entitlements

3.Swift: if you make a claim, you should receive your refund in a timely manner.

4.Educate: we have got to educate PAYE taxpayers in a targeted, imaginative and most importantly, sustained manner about the tax system and their entitlements. The more tax wise PAYE taxpayers become, the better the system

These four tests can only be passed by taking a proactive, more customer focussed approach to the tax system. Central to this must be ensuring that suitable structures exist to protect taxpayers and to monitor the system as a whole. This can be best achieved through a “Tax Advocate” type figure, independent of Revenue. Useful models for such a role exist in other countries. We believe this role could be created without additional “red — tape”. For example, it could come within the auspices of the Ombudsman.

Simultaneously, Revenue should take the lead by establishing a PAYE Customer Satisfaction Unit within its Office. A proper functioning, adequately resourced PAYE Customer Satisfaction Unit would be tasked with delivering a major simplification of the tax relief process following consultation with taxpayers through a process of customer panels.

These types of proactive measures are now needed in the interests of our 2 million PAYE taxpayers.

Thank You.

The Consumers’ Association of Ireland

17^th January 2007

Certain realities regarding Consumers, Tax Relief’s and their ability to Claim Those Relief’s and/or Rebates.

Some consumers would not know or believe that they might be entitled to tax back - therefore, they don’t look for the information because they see no need;

Some consumers would be of the mistaken belief that they are in receipt of credits and allowances when in fact they are not;

Some consumers would be of the opinion that an allowance or credit has been abolished;

Some consumers assume that their employer looks after everything;

Many consumers DO know or suspect that they might be due some tax back but are time poor, not knowledgeable and therefore forget about or ignore it;

Others do not know how to claim back taxes, leave it aside for another day and forget about it.

There is an overabundance of information which leads to:

Consumer inertia — ‘I don’t understand tax’

Confusion /Misinformation - ‘I thought I WAS getting the tax relief’

There is the extraordinary over-sold perception that everyone from the above scenarios, leaving aside all of these difficulties, are entirely computer literate, are confident and with ready access to www.revenue.ie.

It has been acknowledged by many consumer representatives, financial consultants and financial institutions that there is simply an overabundance of financial information and with much of it in a language that is unacceptably technical and lacking in basic simplicity for the average consumer to read and/or comprehend.

As a result, many consumers have no tools with which they can personally manage their finances and are in a position of loss — financially and educationally.

This scenario, to a degree, applies also to the claiming of tax benefits.

This is why solutions are required which will empower the average consumer.

Possible Solutions:

An Advocate

Of primary importance would be the appointment of an advocate to spearhead a campaign of awareness amongst taxpayers of their entitlements just as much as their statutory requirements to be compliant.

This would be a trusted and recognisable individual with a voice clearly supporting the taxpayer.

Public Appearances

A series of small road-shows to local communities;

A radio slot of 5-minutes each week on local and national radio stations;

Stands at Over 50’s Show, First Time Buyers Show, Ploughing Championships etc.

Education

Schools involvement/investment e.g. Transition Year projects and Competitions; The Consumer Associations’ own school Membership has proven to be hugely successful and producing a multiplier effect in that the student raises awareness in the home.

A free DVD to all homes or, if too costly, to schools;

A free leaflet in all ESB Bills

Direct Resolution

An in-depth review of the system with the goal of providing more tax relief’s at source e.g.

All private health insurance, automatic issue of claim when courses registered etc. etc.

Summary

These are just some brief points presented here to the Members for consideration as part of what would require to be a more determined review by a group brought together especially for the task.

However, the CAI would be firmly of the view that the independent consumer voice be represented and an intricate part of such a review body.

Presented by:

Dermott Jewell

Chief Executive

Consumers’ Association of Ireland

Joint Committee on Finance and the Public Service — Allowances and reliefs for taxpayers — 24 January 2007

Opening Statement of Norman Gillanders, Assistant Secretary, Office of the Revenue Commissioners

Introduction

1.I would like to thank the Committee for the invitation to this meeting and for the opportunity to make this opening statement. I am Head of Revenue’s Operations Policy and Evaluation Division. My Division includes the Customer Service policy branch. I’m accompanied today by Mr. Declan Rigney, the Principal Officer in charge of Customer Service policy. Customer Service policy of course includes PAYE and my Division has overall responsibility for improving our services to PAYE taxpayers.

2.I would like to give you a quick summary of where PAYE is today and how Revenue handles and facilitates claims for reliefs and credits.

3.I would also like to comment in passing on some statements made at the Committee’s session last Wednesday, which appear to us to be either incorrect or give a mistaken impression — for example, in relation to the PAYE Form 12, the Med1/Med 2 claims procedure and the responsiveness of our phone service.

Context: Size/complexity of the PAYE taxpayer base and seasonal peaks

4.In recent years, Revenue has put a major effort into modernising our PAYE computer systems and contact channels and making it as easy as possible for people to claim their due entitlements. This is in the wider context of a very significant growth in the number of PAYE taxpayers (including a large immigrant component) and far greater mobility in the workforce, with many more people now changing jobs frequently and holding multiple part-time jobs. All of this has undoubtedly put greater pressure on PAYE administration. And the changeover to a calendar tax year from 2002 has had the effect of increasing that pressure during the first quarter of every year: the issue of now almost 2.5 million tax credit certificates in January/February each year (incorporating budget changes finalised only a few weeks beforehand) naturally generates significant contact with Revenue; and this also tends to be the peak time for claiming repayments/reviews for the previous tax year.

Claiming Credits/Reliefs by Phone

5.We began reforming the administration of PAYE in the late 1990s. In 1999 we took an important decision in regard to claims for tax relief. We eliminated, as far as possible, the need for written claims for tax relief and began to encourage claims over the telephone. This was more convenient for taxpayers and also more efficient for us. I emphasise this Chairman because I am surprised to say the least at the overemphasis on claim forms and tax returns at last week’s meeting and in subsequent media comment.

6.Since 2003 Revenue has had four regional lo-call phone numbers in operation where telephone claims for relief can be made. The service is backed up by modern telephone (VOIP) and scanning technology; for example, as a call comes in the computerised phone system automatically opens the taxpayer’s computer record and displays it on screen to our caseworker. A scanned copy of any recent letter from the taxpayer is also displayed on screen. This is up there with the most advanced customer service technology in use in Ireland today.

7.Typically the PAYE 1890 service handles 50,000 calls per week. I assure the Committee that there is no difficulty in getting through to our PAYE telephone service: we are now consistently answering about 90% of calls offered. In practice, this means that most people get through the first time they ring and almost everybody gets through on the second ring. In fairness to the many dedicated Revenue staff who man this service, claims that it is breaking down simply do not accord with the facts.

On-line and other self-service initiatives

8.At the end of 2005 we completely rebuilt our PAYE computer system so that we could extend full on-line facilities (ROS) to PAYE taxpayers. We launched this in the middle of last year. So contrary to the impression conveyed last week that ROS is not available to PAYE taxpayers — it is, and has been since last May.

9.In the last two years, we have also brought in a range of other self-service options for those who do not avail of the full PAYE ROS service, for example;

•PIN-based self service channels for claiming a number of tax credits (e.g. Bin Charges, Trade Union Subs, Home Carer Credit, Age Credit, Dependent Relative Credit) by mobile phone texting, voice-recognition telephony, or the revenue.ie website.

•These PIN-based services also allow for self-service change of address, tracking correspondence with Revenue and forms/leaflets requests.

Of course, we have kept the traditional channels of contact. Taxpayers can still write to us or call into our public offices and hundreds of thousands of people do every year. We are significantly extending and upgrading our Dublin information centre in O’Connell Street to deal with a big increase in “walk in” customers. The management of the Dublin region plans to open an “internet café-type” facility in the O’Connell Street office as part of the refurbishment and extension of the building. This is due for completion within a few months.

Forms

10.Chairman, I would now like to comment briefly on two forms that featured prominently in the presentation from the Irish Taxation Institute last week. First, the Form 12. The impression given was that most PAYE taxpayers have to fill up a Form 12 in order to claim credits/reliefs or to request a balancing statement or make a repayment claim. This is absolutely not the case. Forms 12 are required only from higher income earners and people who claim the higher value and more complex tax reliefs. The vast majority of workers never see one. Last year less than 5% of all PAYE taxpayers complete a Form 12.

11.The second form I would like to refer to is the medical expenses claim form Med1/Med2. Yes, the Med 1 is a four page form, but two of those pages consist of explanatory material, and the first page simply asks very basic name/address etc. information. So the form insofar as it relates to the claimant’s medical expenses is essentially a relatively simple one-pager. As regards the Med 2 (which is completed by a dentist for qualifying dental expenses) there is no longer any requirement to send this into Revenue; it is sufficient to keep it (along with other medical expenses receipts) in case a claim is spot-checked by Revenue. Stocks of Med 2 forms are always kept by dentists and are completed by them. The branding of the Form 12 and these Med forms last week as real barriers to people claiming reliefs has bemused us in Revenue. And Chairman while I am referring to matters inferred to the Committee last week can I also mention the matter of “swift” repayments. Again contrary to the impression given, all repayments are prioritised and are very swiftly repaid — directly into people’s bank accounts if they so wish.

Relief at Source

12.Members of the Committee will be aware that from 2001, we moved to a system of tax relief-at-source (TRS) for certain reliefs such as mortgage interest and medical insurance premiums. This was facilitated by the relatively small number of “intermediaries” involved.

Budget announcement

13.As announced in the Budget, starting in 2007 credit institutions will be allowed to operate DIRT-free accounts for the over 65’s and incapacitated persons; and all age-related credits and credit for trade union subscriptions will be given as far as possible automatically. We are also making arrangements so that the non reimbursed amounts paid on prescribed drugs under the drugs refund scheme can be automatically refunded at the person’s marginal rate of tax. And for 2008, the plan is to move to giving automatic repayments in respect of certain hospital and other medical expenses. Other automatic relief options (such as in respect of nursing home payments) are also being explored.

Overall Approach

14.In summary then Chairman, the hallmarks of our service to PAYE taxpayers are;

•There is no need for claim forms for most credits; any suggestion of “one claim, one form” (the Irish Taxation Institute’s proposal) would in fact be a backward step and out of tune with Revenue’s more modern thinking.

•Our philosophy regarding credits is (wherever possible) “claim once, keep forever”. This works well for standard credits with fixed amounts, where a person’s circumstances are unlikely to change from year to year. Any suitable credit, once allowed, is generally carried forward from year to year by the Revenue computer system.

•We operate a self-assessment ethic — we assume people are honest and allow them to claim their due. A small proportion of claims are checked.

•Relatively few PAYE income tax returns (Forms 12) are issued or required. 95% of workers never need to complete one.

•Where we do require a form to back-up a claim, we generally “prompt” the claimant to complete the form every year. For example, anyone who claimed medical expenses relief in excess of €1,000, will get a claim form in the post every year. The same thing happens where an elderly person claims DIRT exemption.

•As already mentioned, claims for refunds are prioritised as indeed are requests to get people off emergency tax.

Public Information and Campaigns

15.Chairman this meeting is also focused on what Revenue does to make people aware of their entitlements and to encourage claims. Well, of course, the starting point is that every year each one of the 2.2 million PAYE taxpayers gets a tax credit certificate showing the credits that they have been given (2.5 million are issued because a substantial number of taxpayers have more than one employment). They also get a short leaflet explaining all the standard credits that are available. It is quite simple to check the credits given against those available and taxpayers are encouraged to do this. This is a chance for people to let us know if there’s something they feel they are entitled to but that we don’t know about. Credit Certificates for 2007 will be in the post in the next few weeks and, as usual, we will have advertisements in the papers and on radio telling people about this.

16.From time to time we have public information campaigns; in 2006 the Revenue Chairman wrote to every person on the PAYE tax record telling them about the new ROS and other self-service options for employees. During August and September we launched a nationwide campaign to encourage take-up of health-type reliefs, the bin charge credit and rent relief. The response to this campaign was encouraging. We will be running something similar again this year.

17.A wide range of publicity booklets can be found in our public offices and on our website. Leaflets and claim forms for medical and dental expenses are available in clinics, surgeries and pharmacies. More limited information is on teletext. Increasingly, the booklets and leaflets are becoming available in other languages or contain directions to where there are web-versions of the text in other languages. The ROS letter issued by our Chairman, contained pointers to web-based information in Polish, Lithuanian and two dialects of Chinese. Revenue already employs Polish people and we are looking to recruit some Chinese staff.

18.Wherever it makes sense, we work through trade fairs, representative bodies and employers to get the message through. More than 500 employers were visited countrywide in 2006 to meet with Payroll staff and employees who wished to discuss their tax issues. Over 4,000 people for example visited the Revenue stand at the National Ploughing Championships in September last year. Also in 2006, Revenue staff participated at Jobs Ireland FAS Workshops for people contemplating working in Ireland.

Concluding Remarks

19.Despite our efforts, some people just don’t claim what’s due to them. There can be many reasons for this. Human inertia means many won’t bother to claim amounts that, some, by today’s standards, regard as small. Some people are not comfortable with anything to do with numbers and some people do prefer to stay away from officialdom (including Revenue). Taxpayers should be assured that if they look for what’s due to them, we would allow their claims without fuss. That is what our presumption of honesty means. There is a small chance that we will look for some evidence to back up a claim. But there is no prospect of us launching a major investigation into an ordinary PAYE worker who claims the standard reliefs due to him or her.

20.Chairman, Revenue faces many challenges these days in all areas of our work. There is a general recognition of our successes on the compliance front and indeed Deputies on all sides have been complimentary about this. From time to time it is inferred that we don’t have the same enthusiasm on the service side. Not so. I assure the Committee that we bring the same energy, the same innovation and the same commitment to customer service. Our service is modern and improving all the time. Our objective now, as in the past, is to encourage people to claim and help them to claim what’s due to them. We naturally want to encourage people to use our on-line and other self-service channels as much as possible - but we fully recognise that some people are still more comfortable talking to us either on the phone or in person and for as long as they wish to engage with us this way we will provide them with the personal service and courtesy they are entitled to.

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