Non-PAYE high earners are a moving target, able to duck and dive and take all kinds of evasive action, writes FINTAN O'TOOLE
TWO DAYS after Brian Lenihan reversed course and announced that there would, after all, be a supplementary budget, the accountancy firm Farrell Grant Sparks (FGS) sent a circular e-mail to its clients. Its purpose, like that of similar e-mails that were presumably sent by every accountancy firm in the country, was to advise those clients on the best way to dodge the bullets that the unfortunate Minister was preparing to aim at them. This is a perfectly legitimate exercise, but it is nonetheless rather instructive.
FGS’s advice to its clients is summarised under six headings:
- "Bonuses: If due, pay immediately.
- Accrued Remuneration: Draw down and pay tax immediately. After tax amount can be left - outstanding by way of a loan if necessary.
- Dividends: Declare dividend so that DWT [withholding tax on dividends] arises in March, to be paid by April 14th. After tax dividend can be left outstanding by way of a loan if necessary.
- Deposits: Consider closing deposit account so that interest today can be paid subject to current DIRT rate of 23 per cent. Probably applicable only to significant deposit amounts.
- Approved Retirement Fund (ARF): Withdraw funds in March either to use up the remainder of the standard rate or suffer a lower top rate.
- Investments: If exit charge includes tax at standard rate of 20 per cent, consider exiting in March.”
These suggestions are undoubtedly very helpful for people with significant incomes. If you’re a company director, or a well-paid executive, or a self-employed business person, you’re probably already taking some or all of these measures to make sure that whatever Brian Lenihan does on April 7th won’t hurt too badly. People can burble on about patriotism and the meitheal spirit as much as they like, but the simple truth is this: the more money you have, the more choices you get.
If you’re outside the PAYE system, you can shift cash around, draw down pension funds, time your bonuses right, turn payments into loans and loans into payments. And if you’re not, you can’t.
In 2007, PAYE made up over €10 billion of the €13.5 billion raised in income taxes and levies. Most of the tax that gets paid comes from the broad swathe of middle- and upper-middle wage earners. These are the people who are the softest touch. Taxing them is a relatively simple matter of sending instructions to their employers and slicing up the payroll. They tend not to whinge very much. At best, they’re proud to pay their taxes and contribute to society. At worst, they know they have no choice anyway.
These people are largely taken for granted. In a way, this is as it should be – taxes are a normal part of civilised life, and the burden has been relatively light. The problem is that the other taxpayers, the ones who pay less than a third of what the poor dumb PAYE people pay, are not taken for granted. They have a standing army of advisers and those advisers are very influential indeed.
The Revenue, for example, has a special forum for “tax practitioners” to air their views, the Tax Administration Liaison Committee (TALC, as in baby powder) which meets with officials about four times a year to discuss “issues relating to the administration of the tax system”. The Commission on Taxation, which is examining the whole system and will have a key role in shaping the debate, has a very heavy presence from the tax and financial advice industry, including Julie Burke from JMB tax solicitors, Tom Donohue of Russell Brennan Keane accountants, Eoin Fahey of KBC Asset Management, Colin Hunt of Macquarie Capital Group, Feargal O’Rourke of PricewaterhouseCoopers and Mark Redmond of the Irish Taxation Institute (ITI).
These are all fine people, and their expertise is clearly useful. But their way of thinking is shaped by the interests of that minority of taxpayers who have choices.
The ITI was out last week, for example, demanding cuts in interest rates on late tax payments. Russell Brennan Keane boasts of its “substantial experience in advising owner-managed businesses, SMEs, property developers/investors and high net worth individuals on all aspects of taxation”, including the way to “structure their businesses and investments tax efficiently so as to maximise their after tax return”.
For a Government in desperate need of cash, it is far easier to hit the real “old reliables” – the PAYE workers – than it is to face down the formidable talents ranged on the side of those who can move money around. It is easier to bring low-paid workers into the tax net (forgetting that so many of them are out of the net because they are working part-time or are simply on very low wages) than it is to look, for example, at capital gains tax or approved retirement funds. Non-PAYE high earners are a moving target, able to duck and dive and take evasive action. PAYE workers are sitting ducks.
Given a Government whose shooting skills make Dick Cheney look like a ruthless hitman, it’s not hard to guess who they’ll aim at.