DOMINIC COYLEanswers readers' queries

Alarm at Revenue pursuit of tax on State pension

Q

I am very alarmed at the news that I may be subject to additional tax this year as a pensioner. I am one of those affected by the reports in the media last week because I am in receipt of both a State old age pension and a pension from my employer.

As a PAYE taxpayer, I always assumed my tax was calculated on my full income. Why should I be penalised because the Revenue cannot get its act together? Have I any appeal in this situation?

While not on the breadline, I am, like everyone, finding it harder to make ends meet with new charges and higher prices.

- Mr SD, Galway

A

You have put your finger on what is a problem for, it appears, as many as 115,000 pensioners in the State. People on PAYE generally do not file tax returns and have spent their working lives comfortable in the knowledge that their tax liability is deducted at source.

Unsurprisingly, many assume this continues in retirement – and it should. Unfortunately, it is a classic illustration of what is wrong with the public service – different departments have long been allowed to run systems and purchase technology that does not “speak” to each other. It is a ridiculous situation and one that casts a poor light on the notion of centralised planning that should be at the heart of the Civil Service, particularly in a welfare state such as ours.

Now that they have finally gotten their wires connected, it appears a number of pensioners have been assessed by Revenue for tax only on some of their income because Revenue was not aware they were also in receipt of a State pension. This is something that should have been easy for Revenue to clarify with individual taxpayers as they turned 66, even with the deafening silence from the Department of Social Protection which manages State pensions.

Having said that, assessment and payment of tax is at all times – even under PAYE – the responsibility of the individual taxpayer. It would be simpler if we had the US system where, even with PAYE, people had to file an annual return. However, the absence of this provision does not relieve anyone of their responsibility to address Revenue liabilities.

On more practical issues, you should not yet be too alarmed at media headlines pointing to impending bills for liabilities of €8,800. This will be the case only for people assessed as married couples whose income is taxed at the higher 41 per cent rate. Clearly any additional income would also be taxed at this rate.

Most of the 115,000 people understood to be affected will obviously face additional tax on a more modest scale – and it will be deducted at source by their occupational pension provider.

Notwithstanding the mix-up between Revenue and the Department, all people are being asked to do is pay their correct tax liability.

Where the big problem will arise is in any decision to chase money due for previous years. Revenue has declined to rule this out, although it does note that in many cases it simply would not be worth the cost and administrative hassle involved.

Still, given that the mix-up is entirely down to a failure of communication at State level, it seems unreasonable for the Revenue to pursue this lost income from people with limited means and very little, if any, additional earning potential. My guess is that a pragmatic decision to forgo such action will be taken but the current worry caused is unfortunate and unnecessary.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@irishtimes.com