Backdated tax hike will be hard to collect
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Minister for Finance, Brian Lenihan announced significant increases to the income levy in the Budget.
Despite indicating that these would have effect from May 1, the changes have been backdated to the start of the year.
The actual rates have thus been recast, and range from 1.67pc to 5pc, as outlined below:
- The first €75,036 will incur an income levy of 1.67pc
- The next €25,064 @ 3pc
- The next €74,880 @ 3.33pc
- The next €75,149 @ 4.67pc
- The remainder @ 5pc
The alteration will affect businesses that accelerated bonus and other salary payments to avoid the Budget increases.
That a significant number of individuals 'front loaded' salary and other payments is unlikely as many businesses simply did not have the cash to do this.
It is more likely individuals who got genuine performance-related bonus or dividend payments before April 7 will be penalised.
Concern has been raised in many quarters about the fairness of the change and the impact on individuals who received taxable redundancy or compensation payments in the first four months of 2009.
Those persons may face assessments from Revenue for the shortfall in the income levy next year. Similarly, because of the operation of PAYE, a large number of employees will have underpaid the income levy in the first four months of 2009.
Interestingly the financial resolution specifies that employers must operate levies under the old system up to 30 April. For salary payments made on or after May 1, the income levy must be deducted at the following rates:
- 2pc up to €75,036
- 4pc from €75,036 to €174,980
- 6pc above €174,980.
There is no provision in the financial resolution requiring employers to re-compute the correct levy on payments made in the period from 1 January 2009 to 30 April 2009.
It remains to be seen how the Revenue Commissioners will implement the changes.
Inevitably, company directors and other persons required to file income tax returns will be brought to account. Revenue would not have the resources to administer the collection of the shortfall from the wider PAYE community.
Derek Andrews is tax director at Grant Thornton
- Derek Andrews
