Payback time for hard-pressed taxpayers

With the squeeze on everyone's wallet, why not investigate if the taxman owes you, for a change? You might be pleasantly surprised, writes FIONA REDDAN

GIVEN THE pressure on resources that is likely to worsen in the next budget, now is an opportune time to shore up your finances by looking to get back any monies you may have overpaid or paid inadvertently.

Looking for a tax refund is one of the most obvious ways of getting money back, given that so much tax is overpaid each year.

Ensuring you haven’t been overcharged by your bank or financial institution, or suffered a significant capital loss due to the mis-selling of an investment product, may also return dividends.

With respect to tax refunds, last year some €585 million in refunds was granted, up from €530 million the previous year, according to the Revenue Commissioners, indicating that many people are eligible for significant refunds.

If, for example, you have changed jobs, lost your job or got married recently, you may be due a refund, while you may also have forgotten to claim certain credits.

One simple way of claiming a refund is to contact the Revenue and ask for a balancing statement, or a P21, for the past four years. A P21 is a statement of total income, tax credit and tax paid for a particular tax year, and by requesting one the Revenue may discover that you have not fully claimed all your tax credits and may therefore be due a refund.

Did you know, for example, that if your employer pays health insurance on your behalf you may be entitled to a tax credit, or if one member of a married couple has lost their job and becomes a stay-at-home parent, they might be entitled to a tax credit of €900?

While some credits, such as the PAYE tax credit, are given automatically, you do have to claim for others – such as tuition fees, rent relief, trade union fees, as well as those outlined below. Remember, back claims can date back four years, so just because the situations outlined below don’t apply to you now, you may still be able to claim for previous years.

Home carers’ credit

If you or your spouse has been made redundant during the year, you may be unaware that the employed spouse can claim this credit on behalf of the other person, notes Ciarán Medlar, head of tax with BDO Simpson Xavier.

Provided that the spouse works in the home caring for one or more dependent persons – a child, a person over 65 or someone incapacitated – and doesn’t earn more than €5,080 in a year, the employed spouse can claim a credit worth €900. A reduced tax credit applies where the income is between €5,080 and €6,880 in 2008 or 2009.

To claim this credit, you can use the Revenue’s PAYE online service, or text “info credit home carer” to 51829 for instructions on how to claim by text message.

Income protection

If you are one of the thousands who took out an income protection policy over the past year to protect against a possible loss of income due to accident, injury or sickness, you should check that you’re getting tax relief on your premiums.

Provided that the policy is approved by the Revenue as a Permanent Health Benefit Scheme, you will be entitled to relief, at your highest rate of tax, if you are paying the premiums yourself.

Tax relief is given on income protection premiums up to an annual limit of 10 per cent of total income. So, for example, a 30-year-old male civil engineer who is paying €56.51 a month for cover of €25,000 (50 per cent of income), should only be paying €33.34 a month, once tax relief is factored in.

To claim this credit, you will need to notify your local Revenue office of the relevant details by phone, e-mail or in person, or by completing your annual tax return.

Service charges

You are entitled to a tax credit if you pay service charges to either local authorities or other independent contractors. Relief is given for charges paid in full and on time in the previous calendar year, at the standard rate of tax.

So, if you spent €350 on service charges last year, you are entitled to a tax credit of €70 for this year. Relief is subject to an overall limit of €400.

To claim your credit, text the word “credit” followed by your PPS number, your PAYE pin number, “bin”, and your bin charge amount, to 51829.

Medical expenses

Although medical expenses are now subject to relief at just the standard rate of tax, you can still claim up to 41 per cent back on expenses incurred up until the end of 2008.

Most medical expenses, with some exceptions, such as routine dental and ophthalmic care, qualify for relief, provided that the expense hasn’t already been reimbursed by a private health insurer.

To claim your refund, you need to fill out a Med 1 or Med 2 form (for medical and dentistry respectively) if you are a PAYE employee, or include your expenses as part of your tax return if you are self-employed.

If you had total medical expenses of €2,500 in 2008, and received €600 back from your health insurer, you will be entitled to a refund of €779, if you pay tax at the higher rate.

Health insurance

If you are a member of a private health insurer and pay your premiums yourself, you will receive tax relief on the cost of these premiums, at source. So, a €1,000 annual payment to the VHI will, in effect, cost you €800, which is the same as giving tax relief at the standard rate of tax (20 per cent).

If, however, your employer pays for private health insurance on your behalf, you will not have been allowed tax relief at source and will incur a benefit-in-kind charge on the cost of the premium, which means that you can still claim your medical insurance tax credit, says Medlar.

Take, for example, an employee, John, whose employer pays €1,600 a year (gross premium is €2,000) for health insurance cover for him and his family from the VHI. The employer pays the VHI “net of tax relief premium” of €1,600, and then pays the tax relief at source (€400) attributable to the premium to the Revenue Commissioners. The employer then charges PAYE/PRSI on the €2,000 notional pay to John.

However, John has not received his 20 per cent tax relief, and so is entitled to a tax credit of €400. The relief can be claimed either via the internet through the Revenue’s PAYE self-service facility, by phoning your regional PAYE service, or by submitting a form IT5.

Expense allowances

Did you know that if you’re an engineer, electrician, nurse or teacher, you can claim back an annual expense allowance to cover expenses such as uniforms and tools of your trade etc, which are not normally covered by your employer?

Flat-rate expenses apply to a wide range of professions which, in addition to those mentioned above, includes doctors, clergymen and those working in the hotel industry.

So, if you’re a teacher, you’re entitled to an annual allowance of €518, or €279 if you work part-time, while if you’re a dentist, you can get an allowance of €376. Musicians in the RTÉ National Symphony and Concert Orchestras benefit from one of the greatest allowances, at €2,476.

To check out if your profession qualifies for such a deduction, check the Revenue’s website, or contact your local tax office.

Termination payments

If you have been made redundant and paid tax on your redundancy payment, you may be entitled to a tax refund under the “top slicing” provisions, says Phil Lynch, a tax manager at Deloitte.

“Essentially, the taxable element is eventually taxed at your average rate of tax for the three years prior to retirement. For example, if someone has paid tax on a termination payment at 41 per cent and their average rate works out at 30 per cent, they will receive a refund of 11 per cent,” she says.

PRSI refunds

If you make an additional voluntary contribution (AVC) pension payment at year-end, where relief is not given through the payroll, you may apply for a PRSI refund once you obtain a balancing statement from Revenue showing the AVC payment as a deduction, notes Lynch.

It is also possible to get a PRSI refund on maintenance payments. According to Lynch, if someone makes a maintenance payment under a legally enforceable agreement, and the spouse receiving the payment is taxable on it, the person making the payment can receive a refund of PRSI on production of the relevant assessment/balancing statement.

Financial services claim

Another possible source of cash is to look for a rebate on overpaid bank charges, or to seek redress for the mis-selling of a financial product.

Overcharging of customers by banks has been a constant issue over the past number of years. Most recently, Bank of Ireland admitted double-charging its own customers on Laser transactions, following a similar incident in September in which 120,000 customers were affected.

According to the bank, its own internal compliance monitoring process includes regular checking to ensure that, for example, correct interest rates, fees, charges and concessions have been applied correctly. This means that once an incident has been identified, it issues refunds with fair value interest as promptly as possible.

“Where we are aware of any issue, we would never expect the customer to make contact before refunding,” says a Bank of Ireland spokesperson.

Nevertheless, customers should keep a close eye on charges. If you think you have a legitimate claim, take action. The Financial Regulator recommends a three-step approach to complaints, with the first port of call being the person you normally deal with at your own financial institution. If your complaint is dealt with inadequately, and you think you received insufficient redress, you can complain formally to your financial services provider. Following this, if you are still unhappy, you can bring your case to the Financial Services Ombudsman.

This is a statutory body and can investigate a complaint about:

• the provision of a financial service;
• an offer to provide a financial service; and
• failure to provide a financial service that has been requested.

Unsurprisingly, given the collapse in asset values over the past two years, the ombudsman has seen a dramatic rise in complaints, reporting a 42 per cent increase in claims in the first half of the year.

Common complaints include the mis-selling of investment products to the elderly, and poor financial advice.

In addition to requiring a financial institution to reimburse a customer to rectify a complaint, the ombudsman can also make compensation awards of up to €250,000. Since its inception in 2005, the ombudsman has received more than 23,000 complaints and made reimbursements of at least €55 million.

Take, for example, an elderly couple who were advised by their bank to move their life savings of €345,000 from a deposit account into a managed Irish property fund. However, two years later the investment had dropped to just €265,000, and an early encashment penalty of €9,000 applied to the investment, which was to run for five years and nine months.

Following a complaint from the couple, the ombudsman ruled that the full amount should be refunded to them, given that it was an inappropriate investment for their risk profile; the fact the introduction to the products was at the instigation and initiative of the bank; and that the sales pitch and financial review had been carried out at the home of the complainants.

Some other cases in the past year include granting a refund of €300,000 for a six-year investment bond wrongly sold to an 85-year-old; an award of €90,000 for not explaining the downsides of a €150,000 geared property fund; and €60,000 for an unsuitable €75,000 high-risk property fund investment.

If your complaint concerns your pension, you should contact the Pensions Ombudsman, which has also been very busy of late, reporting a 56 per cent increase in complaints in the first half of 2009. There is no cost for the services of either ombudsman.

Companies offer to chase up your refunds - but prepare to pay

WHILE YOU can contact either the Revenue Commissioners or the Financial Services Ombudsman and claim credits or refunds, an easier but more costly method is to avail of the services of a specialist firm.

Acting as an alternative to the ombudsman, a newly launched company, Refund.ie, provides an avenue for redress for customers who feel they have been mis-sold financial products or simply ill-advised. While there are hundreds of firms offering such services in the UK market, Refund.ie is one of the first to do so here.

If you have a complaint – regarding payment protection insurance, investment bonds, credit cards, bank charges, life insurance and life assurance policies, for instance – Refund.ie will provide an initial consultation and, if the case is deemed viable, a flat fee of €242 will apply.

If the claim is successful, however, the company will receive a percentage of the compensation – 22.5 per cent – on a no win, no fee basis, and the flat fee will be refunded. Managing director John Prout says mis-selling of financial products and ill-advice from financial institutions is rampant, and is most common with payment protection insurance.

"This [type of] insurance is to cover people being out of work, and yet it's being sold to people who are retired, who are not working and yet who have the finance behind them to pay for it."

Many people give up making legitimate claims because of the red tape involved in following up on them, Prout says.

"I think the ombudsman comes in after a complaint to an institution. People are sometimes intimidated by taking on large corporations.

"We're going to fill that gap and we're going to approach the institutions and corporations on their behalf.

"We find that institutions do not sit up and take notice of individuals, whereas we're going to put a professional body behind them, and we'd like to think they're going to stand up and take notice of us, because we will pursue everything with financial experts, and we also have legal teams around the country. If [we] need to go the courts for a positive result, we will," he says.

Information from financial institutions will be obtained under the Data Protection Act. This will only be used for the purposes of the claim and only kept for the period required by law, after which time it will be returned to the customer or the financial institution.

Customers' information will only be passed to individuals employed by the company in pursuit of the claim and will not be disclosed to any third party.

In addition to taking on business from companies and individuals, Refund.ie is also flagging those working within the financial services with clients whom they feel would benefit from such services. So-called "introducers" will likely receive a fee for their involvement.

There is now a number of providers offering tax refund services in the Irish market, boasting significant reimbursements for clients.

Taxback.com, for example, says it gets an average refund for customers of €840 for PAYE and €320 for PRSI, while the average refund for Red Oak Tax Refund clients is €880.

If you decide to hire the services of a firm to go after your refund, there will be a cost. Taxrefund.ie, for example, charges 15 per cent of your refund, while Taxback.com imposes a fee of 10 per cent plus Vat at 21.5 per cent, subject to a minimum processing fee of €50 plus Vat.

Red Oak Tax Refunds charges 15 per cent of the refund, though there is no minimum fee, while Revenue Refunds charges a flat rate of €50.

Some of the firms offer free refund estimations online, so it's worth assessing how much you may be owed before committing to using the firm.

If you have worked abroad at some point, such firms are also useful in claiming back any taxes you may be entitled to.

Taxback.com, for example, which started in this area, offers services in a wide range of countries, including the US, Canada, the UK and Germany.

FIONA REDDAN and PAMELA DUNCAN