Time to Scrap Tax Clearance Certs?

June 26, 2013

Revenue have this morning confirmed that from next Monday, 1 July, Tax Clearance Certs will not issue to taxpayers who have failed to pay the 2012 Household Charge.

From next Monday, all unpaid Household Charge bills become Local Property Tax (LPT) liabilities and are then collectable by Revenue.

While we can’t blame Revenue for doing all they can to collect outstanding Household Charge and LPT bills, its unfortunate that the conditions for obtaining a Tax Clearance Cert are becoming more and more onerous and bureaucratic – so much so that their original function has been almost forgotten.

Time to Scrap Tax Clearance Certs?

Tax Clearance Certs were introduced in the 1980s as a measure to combat blatant and widespread tax evasion. In those days, it was common practice for individuals and firms to dodge tax on State contracts and income.

The requirement to produce a Tax Clearance Cert quickly forced these cowboy operators to clean up their act. It was very successful in doing so and helped greatly in cleaning up tax evasion in that era.

However we have since learned that having a certificate is no guarantee of tax compliance and probity.

Successive high-profile scandals exposed countless politicians and business people who had blatantly evaded tax while holding tax clearance certs.

Indeed ex-TD Michael Collins was prosecuted and found guilty of obtaining a tax clearance certificate under false pretences, by falsely claiming to be tax compliant.

Mr Collins had in the meantime admitted to owning a bogus non-resident account, and later made a substantial tax arrears settlement with Revenue.

The Collins case demonstrates the futility of using tax clearance certs as a tool to combat wilful evasion. In fact they have become little more than a bureaucratic box-ticking exercise.

If your tax record is clear on a specific day, your certificate will issue. On the other hand, a tiny residual tax balance, an unpaid Household Charge bill, or a mislaid tax return will block its granting.

There is no allowance for materiality or overall compliance. And no sanction for persistent late filing of VAT, PAYE/PRSI or Income Tax returns, once the wrongdoer can contrive to regularise their tax position in the nick of time to ensure their certificate is renewed.

Worse still, those remaining cowboys who nowadays abuse the tax system, in a far more sophisticated and elaborate manner than their 1980s counterparts, still find the tax clearance cert system only a minor obstacle to their crimes.

I believe that the time has come to rethink the whole logic behind tax clearance certs, and devise a better system to police and reward tax compliance.

Todays’s Revenue eBrief is here.

Taxman’s Big Brother Plan to Tackle Fuel Criminals

January 23, 2013

A tough Revenue crackdown on fuel smuggling and laundering is now underway. This month sees the introduction of a new fuel movements e-reporting system for all petrol, diesel and oil traders.

All fuel warehouse operators, distributors and forecourt retailers must now file online, a monthly Monthly Return of Oil Movements (ROM1) showing, for each fuel product type:

Taxman's Big Brother Plan to Tackle Fuel Smuggling

  • Opening fuel stock balance.
  • Closing fuel stock balance.
  • Date, quantity, invoice, supplier details for each fuel stock movement inwards.
  • Similar details  for each fuel stock movement outwards.
  • Aggregate details for forecourt fuel sales.
  • Aggregate details of sales to domestic customers and smaller commercial customers who receive less than 2,000 litres per month.

All Auto Fuel Trader’s Licence and Marked Fuel Trader’s Licence holders must now be registered on the ROS system and must use ROS to file their ROM1 returns.

The requirement for traders to report each individual movement of fuel is intended to make it much harder for illegal fuel smugglers and launderers to market their product through legitimate fuel retailers.

It will now be very easy for Revenue to match the dispatch of each fuel consignment from a wholesaler or warehouse to its receipt by forecourt retailers and end users. Tax officials will also be ready to pounce if and when they notice unrecorded fuel movements along the public roads and where unexplained gaps or anomalies within traders’ returns indicate a risk of illicit behaviour.

The ROM1 system represents the latest strand of Revenue’s Strategy for combating the illegal oils trade, and follows recent lobbying by legitimate petrol retailers for action to stamp it out.

I expect that it is also an indicator of Revenue’s likely strategy to combat tax evasion and other business criminality in the future.  With a vast, and ever-expanding, range of Big Brother-style technology at their disposal, it is now easier than ever before for Revenue to monitor and detect all illicit business activity – and it’s only a matter of time before the criminals and dodgers have nowhere left to hide.

Tax Audits and Late Payments Keeping Revenue Busy

January 18, 2013

9,000 audits, 499,000 enquiries and 1 in 5 late payments & returns in a busy 2012 for Revenue

Revenue recently published their Headline Results for 2012, which includes some very interesting statistics.

Tax Receipts

In 2012, Revenue collected €36.7 billion in taxes. Income Tax raised €15.2 billion, just ahead of the combined total from VAT & Excise duties, which amounted to  €14.9 billion. This reflects the increasing role of indirect taxes in supporting the public finances in the current recession.

Revenue Audit Tax Inspector smallLate Payments & Returns

Last year, more than one in five tax payments and returns were filed late – in fact only 80% of normal tax returns and payments were made within 1 month of the due date.

However there was much higher compliance amongst larger taxpayers. A 95% on-time rate was recorded for “medium case” taxpayers with annual combined tax liabilities (including Income Tax/Corporation Tax, VAT, PAYE/PRSI etc)  over €75 ,000. The compliance level was higher again (at 98% rate) for “large case” individuals and businesses who pay over €500,000 each year.

This reflects the fact that larger businesses have much more to lose by failing to pay tax or file returns on time, as their % surcharges and interest bills will be much higher.

I wouldn’t be surprised if the comparatively low rate for “small case” taxpayers prompts Revenue to target this sector in 2013. That said, Revenue mustn’t forget many small businesses are struggling badly at the moment and any over-zealous approach on their part could prove both damaging for these businesses and counter-productive for Revenue.

Revenue Audits

Revenue completed a total of 9,065 audits in 2012.  These audits raised a total of €359.1 million, less than 0.1% (or one-thousandth) of the entire tax take. However, each audit raised on average a sum of €39,613, which includes liability for tax arrears, interest and penalties.

This is a substantial sum, especially when it is noted that most audits raise little or no liability for the taxpayer. If “zero settlement” audits are excluded from the figures, I would expect that the average liability sum would rise sharply.

Obviously hardcore tax evasion is still rife in Ireland, but once detected, evaders face severe financial consequences. On the other hand, court prosecutions for serious tax evasion remain relatively rare, with only 25 convictions secured in 2012, while another 156 prosecutions for alleged serious evasion were before the Courts at the end of 2012.

The vast majority of Revenue activity was in the form of Risk Management Interventions (ie querying apparent anomalies) and Assurance Checks (eg verifying claims for credits etc against supporting documentation). Revenue completed almost 499,000 such exercises in 2012, raising over €110 million.

In addition, Revenue last year implemented their new PAYE Compliance risk system, designed to identify and pursue tax underpayments by PAYE workers. This system enabled almost 30,000 tax return checks. These yielded €22m in extra tax, an average of €750 per case. I expect that these checks will become much more commonplace in 2013 and future years.

Tax Collection

In 2012, Revenue used special collection enforcement measures in almost 32,000 cases, to collect €210 million in taxes.  Over 22,700 such cases involved Revenue Sheriffs, who collected €149 million, with the remainder collected through a further 5,000 cases via solicitors and 4,000 cases involving attachment orders.

The full Headline Results document is available online.

UK Tax Amnesty for tax-dodging Plumbers

March 14, 2011

Interesting news from the UK, where HM Revenue & Customs (HMRC) have recently launched a tax amnesty programme for plumbers and others with tax arrears.

The HMRC’s ‘Plumbers Tax Safe Plan’  is aimed at people working within the plumbing, heating and gas trade industry who have undisclosed tax liabilities and who now want to bring their tax affairs up to date.

The plan offers the following benefits for participants:

• a 10%  penalty cap on tax arrears (20% in cases of deliberate evasion);

• the opportunity to pay the tax arrears in instalments; and

• a 6-year time limit on arrears.

Even though the plan is  primarily aimed at plumbers, it is actually open to all taxpayers with undisclosed income or tax liabilities. The HMRC website includes a guide to the plan, and a guidance pack including application forms.

I wonder how long it will take for the Irish Revenue to follow the example of their UK counterparts?


Why Gerry Ryan “tax bill” story is unfair

May 11, 2010

“A troubled Ryan owed the taxman €300,000” screamed the front page headline in the Sunday Independent at the weekend.  According to the report, the recently-deceased RTE presenter Gerry Ryan was “beset by financial worries in his final days, particularly in relation to an outstanding debt of around €300,000 he had owed to the Revenue Commissioners”.

'A troubled Ryan owed the taxman €300,000' - report

This story troubles me, for a number of reasons.  First of all, Mr. Ryan is dead, and not in a position to defend himself against any allegations in relation to his tax situation.  Had any such allegations been been made while Mr. Ryan was still alive, I have no doubt that he would have robustly defended himself against them.  Perhaps it takes less courage to attack a man when we know that he can’t fight back?  It is sad to note that the Irish custom of not speaking ill of the dead seems to be a thing of the past.

In addition, I was under the impression that all individual’s tax affairs are confidential between themselves and the Revenue Commissioners.  I have no knowledge of how the newspaper obtained and verified its story in relation to Mr. Ryan’s alleged “tax bill”, however the publication of this report,  literally within days of the man’s death is likely to be very distressing for his grieving relatives and family.

Finally, as this story is now in the public domain, it will be interesting to see how RTE and the other Irish mainstream media deal with it as it unfolds and develops.  An increasingly shrill media hubbub usually follows Revenue’s quarterly publication of tax settlement lists. Perjorative terms like “tax dodgers” and “evaders”  are used with abandon and if a particular settlement list includes a celebrity or public figure, they can expect a media circus on their doorstep.

Don’t get me wrong – tax evasion is indeed a serious crime against society, and evaders must be punished severely (as they invariably are).  The Revenue practice of publishing tax settlement lists  is an important deterrent against wilful evasion.  That said,  I cannot help noticing how rarely such media coverage takes into account the fact that many tax settlement cases involve at least some element of extenuating circumstances.

I have worked for many years as an accountant and tax advisor. In this time, I have seen quite a number of cases where people have ended up in serious difficulty with the Revenue Commissioners, by neglecting their tax affairs and obligations.  I have noticed that many of these cases arise from siginificant personal difficulties including business failure, marital or family breakdown, bereavement, depression or addiction problems and indeed basic human error.

As the current recession deepens, and  we read more and more accounts of seemingly “prosperous” people finding themselves in financial and tax difficulties, I sincerely hope that the media will exercise some level of decency and responsibility in reporting their woes.

“I have spread my dreams under your feet, Tread softly because you tread on my dreams.” W.B. Yeats