Who will be most disappointed with Budget 2018? The self-employed and residential landlords

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Sarenco said:
Maybe I'm misunderstanding these posts but are people really arguing that it is acceptable and appropriate to impose a surcharge on a tiny minority of taxpayers because the cohort of which they form part have a greater opportunity to evade taxes? Really?!

Bear in mind that we are talking about taxpayers with a declared, self-assessed, income of more than €100k - we are not talking about the odd nixer.
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I dunno, I only read the last few posts before mine, and I just like arguing (especially with Tommy!), so.... :D

Here's a real kicker about the USC surcharge: it also applies to income from employments outside the state, because these are taxed as Schedule D Case III rather than Schedule E.

A relative of mine was working through a Norwegian payroll in their oil industry in a well paid job (150k - 180k), whilst also being tax resident here. He'd already paid hefty deductions in Norway, and you would think that he had no further liabilities here under the DTA... however, he was hit for USC on the whole lot, including the 3% on the amount over 100k. I think that would most likely fall foul of EU treaty principle freedom of movement of workers, as I don't see how he could be taxed at a higher rate for being employed abroad than here. Not sure if it would apply to Norway (EEA but not EU), but would surely apply to EU.
 
Sarenco said:
Maybe I'm misinterpreting these posts but are people really arguing that it is acceptable and appropriate to impose a surcharge on a tiny minority of taxpayers because the cohort of which they form part have a greater opportunity to evade taxes? Really?!

Bear in mind that we are talking about taxpayers with a declared, self-assessed, income of more than €100k - we are not talking about the odd nixer.
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I agree that this can't be the official justification for the surcharge though it possibly explains why there is not a general outcry against what appears a purely discriminatory imposition.

So what might that official justification be? Technically the only tax difference between PAYE and Non PAYE income is precisely as it states, the former is paid more or less as you earn it whilst with the latter you have use of the taxman's money for say another year. This was certainly the justification for the original PAYE allowance when interest rates were very high. I presume for the constituency we are talking about (high flying businessmen) the use of the money for over a year is of considerably more value than current negligible bank deposit rates. The saved interest on any loans suggests itself as a benchmark. Is 3% surcharge proportionate to this benefit?

Let's face it the true political origins are as follows. The 3% surcharge was justified for all high earners at the time of our crisis. But senior civil servants had already borne the brunt of the correction, so it was felt they had had enough. The only constitutional way to exempt them from the surcharge was to exempt all Non PAYE income. That's my take. I Googled for justifications of the surcharge and found none.
 
The Minister recently explained the origins of the 3% USC surcharge in response to a PQ:-

"The 3% USC surcharge is payable on self-assessed income in excess of €100,000. When the USC was introduced in 2011 it was accompanied by a series of other reform measures designed to simplify the tax system and widen the tax base in order to raise the revenues required at that time.

One of these measures was the removal of the €75,000 income ceiling for employees, above which PRSI was not payable. This ceiling was removed for all employees in 2011, with the result that employees on incomes in excess of €75,000 became liable to an additional 4% charge on that portion of their income. At the same time the PRSI rate for self-assessed income earners was increased from 3% to 4%.

The 3% USC surcharge on non-PAYE income in excess of €100,000 was introduced in tandem with the removal of the PRSI ceiling of €75,000 as, in the absence of this measure, self-assessed high income earners would have benefitted when compared to their PAYE counterparts from the tax package introduced in Budget 2011. On the basis of fairness, this could not have been countenanced at the time."

Or to put it another way:–

Employees were put in the same position as the self-employed in 2011 (there was never a PRSI ceiling on self-assessed income) but optically that didn't look good, so we slapped a 3% surcharge on self-assessed income above a random point!

http://oireachtasdebates.oireachtas.ie/debates authoring/debateswebpack.nsf/takes/dail2017071200083
 
The Minister then went on justify the ongoing discrimination on the following grounds:-

"With regard to equality of treatment, the Deputy will be aware that, while Employer PRSI contributions of 8.5% and 10.75% are payable in respect of employees, no similar contribution is payable by the self-employed. In addition, the self-employed also continue to benefit from a broader expense deduction regime than that available to employees."

The first argument is a complete red herring. If the Minister wants to re-calibrate the rate of PRSI contributions by employers, on the one hand, and employees/the self-employed, on the other, then he should go ahead and do just that. Imposing a USC surcharge on self-assessed income above a random cut-off point does not achieve anything like the same result.

The second argument is completely disingenuous. The self-employed can only claim deductible expenses on the basis of receipted expenditure that is incurred "wholly, exclusively and necessarily" in the business. How could claiming legitimate business expenses possibly justify a surcharge?

So why is there no outcry about this obvious ongoing discrimination?

Well, to be fair, the accountancy bodies have been pointing to this unfairness for a number of years (e.g. http://www.cpaireland.ie/media-publications/institute-news/2017/10/10/budget-2018-continued-tax-discrimination-against-the-self-employed-very-regrettable).

However, I suspect the real reason is that there is little sympathy for any taxpayer that is fortunate enough to have self-assessed income over €100k and the numbers involved are too small to matter much politically.
 
torblednam said:
That's not a very valid rebuttal. Firstly, by definition, anyone with a self employed income source greater than 5k is as self employed as any other self employed person anyway.

The fully self employed person has much greater scope i.e. opportunity to evade tax, as none of their income is subject to tax unless / until they file a tax return (or Revenue come and find them).

The person whose primary source of income is from employment has much less scope, proportionately, to evade tax, as the majority of all their taxes due are deducted at source. The scope for such people to have a nixer trade on the side at a level that should see them registered for VAT is very limited, and likewise the scale of evasion they can indulge in is limited by the time available to them to engage in their nixers.

Scope to do a thing, and likelihood of getting caught for having done it are two very different things.
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That's not a very valid counter-rebuttal. :p

I would argue that the scope for a self-employed person to effectively and sustainably evade tax is heavily limited by Revenue enforcement. Put simply, its a mug's game, on a par with drunk driving.

And you didn't address my point in relation to the householders VAT evasion "cash job" phenomenon. The naive plumber or painter who falls for this scam will be nailed to the wall whenever they are found out.

This will include being made stump up all VAT arrears. (And all may take is one or two complaints to the Revenue to put them on their case.)

But the householders who induced or conspired with them to give a "no VAT" price will never be touched - unless of course they themselves are self-employed.
 
Páid said:
Specifically which section of the Constitution?
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Somebody mentioned constitutional challenge. I'm not a constitutional lawyer but I presume it would be non constitutional to tax fair haired people differently from dark haired folk. Possibly the same can be argued of the 3% surcharge though the issue is intertwined with other different aspects of the taxation of PAYE vs Non PAYE such as PRSI, expense deductions, timing of payments etc.

As Sarenco's helpful posts illustrate, the authorities certainly seem to think they need to "justify" the surcharge.
 
I'm not a constitutional lawyer either.

It seems to me that Revenue are allowed to discriminate e.g. age tax credit - isn't this one of the nine grounds for discrimination?
 
Páid said:
I'm not a constitutional lawyer either.

It seems to me that Revenue are allowed to discriminate e.g. age tax credit - isn't this one of the nine grounds for discrimination?
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Well, of course, the whole tax and social protection system is riddled with discrimination - disability allowance, child benefit, non contributory OAP etc. etc As already stated I presume using colour of your hair as a factor would breach some of Dev's wise creation.

Personally I think there would be no chance of the surcharge being deemed a breach of the Bunracht. Besides the complication alraeady mentioned it is not even a surcharge targeted at individuals. It is targeted at Non PAYE income and even "PAYE people" can have that.
 
torblednam said:
Revenue administer the tax system, they don't make the laws. Did you see Revenue deliver the budget on Tuesday?

That's like saying the Gardai make laws.
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You could have said that Revenue were not responsible and that Finance (possibly ?) are.

The important point is well made by Duke of Marmalade above.

Duke of Marmalade said:
Well, of course, the whole tax and social protection system is riddled with discrimination - disability allowance, child benefit, non contributory OAP etc. etc As already stated I presume using colour of your hair as a factor would breach some of Dev's wise creation.

Personally I think there would be no chance of the surcharge being deemed a breach of the Bunracht. Besides the complication alraeady mentioned it is not even a surcharge targeted at individuals. It is targeted at Non PAYE income and even "PAYE people" can have that.
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Páid said:
You could have said that Revenue were not responsible and that Finance (possibly ?) are.

The important point is well made by Duke of Marmalade above.
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Finance, as in the MINISTER for finance? I.e. Politicians rather than civil servants.

I'll try another analogy; if you were being sued tomorrow, it'd by the person suing you, not their solicitor or barrister, or the trial judge.
 
I meant the Dept. of Finance. You're just obfuscating the point at this stage.
 
Paid,
Irish laws, including tax law, are made by the national parliament, the Oireachtas; not government departments.
 
Not all laws - Statutory Instruments are introduced by Departments and bye laws are introduced by local councils (among others).

The point is that taxes may be discriminatory irrespective of who introduces them.
 
Páid said:
Not all laws - Statutory Instruments are introduced by Departments and bye laws are introduced by local councils (among others).
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Statutory Instruments are secondary legislation which allows either a government minister or bodies to whom legislative power has been delegated by statute to legislate in relation to detailed day-to-day matters arising from the operation of the relevant primary legislation.

However, they cannot change primary legislation.

For instance, the Income Tax (Employments) (Consolidated) Regulations 2001 (S.I. No. 559 of 2001) deals with the detail of how the PAYE system is to operate but it cannot introduce, amend or abolish tax reliefs.

Páid said:
The point is that taxes may be discriminatory irrespective of who introduces them.
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Of course they may. They discriminate between residents and non-residents, between those of different personal status - married, single and widowed, those who have children and those who do not, the employed and the self-employed, companies partnerships and sole traders, et seq.

That is the nature of taxation systems worldwide.
 
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