Clarification on levy rates sought

The Department of Finance has this afternoon sought to reassure PAYE workers that they will not be affected by the Government's plan to backdate the new income levy rates to the start of 2009.

A statement from the Department said that PAYE taxpayers who are not in a position to manipulate their income-only pay levy at new rates from 1st May will pay at composite rate."

Confusion reigned today following the issuing of a note to clients from KPMG yesterday that warned anyone who has received a lump sum payment in the first four months of 2009 could be affected by the Government's decision to backdate the revised income levy rates introduced in last week's supplementary Budget.

The Government had previously indicated that the new levy rates would come into force on May 1st.

The plan is aimed at ensuring that business owners and company directors who were urged by tax advisers to "front load" their 2009 income ahead of the emergency Budget to avoid the higher levies would have to pay their way.

However, the KPMG statement noted that people who had received bonuses and those who had been taken voluntary redundancy could also be impacted by the move.

In its statement today, the Department said: "[Where] a self employed person or a director has brought forward their income into the first four months so as to avoid paying levies properly due on any payments after 1st May , at the higher rates of 2 per cent, 4 per cent or 6 per cent, the annual 2009 rates come into play to ensure they pay their fair share."

While statutory redundancy payments are not subject to the income levy, many of those taking voluntary redundancy will pay the levy on part of their lump sum.

"Ex-gratia redundancy payments in excess of the statutory redundancy amount are exempt from income tax, and therefore also the income levy, up to certain limits" the statement said.

The basic exemption is up to €10,160 plus €765 per complete year of service in excess of the statutory redundancy or 1/15th of the person's annual income for each year of employment less any tax-free lump sum which is received or receivable under any approved or statutory pension scheme.

The basic exemption can be further increased by up to €10,000 if the person is not a member of an occupational pension scheme.

It is still not clear how bonuses will be affected.

Opposition parties had earlier today raised strong objections to the decision to backdate the new income levy rates, particularly given the impact it will have on voluntary redundancy packages.

"Thousands of people who have been made redundant by the end of April are likely to have the new income levy backdated on a portion of their redundancy payments, even though the higher levy only kicks in on May 1st", said Fine Gael's deputy leader and finance spokesman Richard Bruton.

He said the public needed to know if Mr Lenihan had made a mistake by including people receiving redundancy sums in the measure, which is primarily designed for people who make annual tax returns, or whether he "deliberately intended to sneak in this retrospective tax".

"The Government cannot be allowed to impose this scandalous measure, which is in breach of all known principles of tax fairness. Minister Lenihan must come clean on this matter and move to rectify the situation as quickly as possible," he said.

Labour Party finance spokeswoman Joan Burton said any attempt by the Government to backdate the higher rates of income levy to the beginning of the year would be "morally unjust and legally dubious".

"If the Minister for Finance was genuinely worried that some wealthy people front-loaded payments ahead of the budget, then it should have been possible to include an anti-avoidance provision in the Finance Bill that would prevent this without hitting taxpayers generally," she added.

Separately, Sinn Féin called on the Government to amend the Finance Bill to ensure that people who have been made redundant this year will not be hit with a hefty bill as a result of the decision to backdate the increase in the income levy.

"I don't think this was the intended purpose of increase in the income levy and the Government should move to ensure that those people who have been made redundant earlier in the year are not unfairly penalised," said the party's finance spokesman Arthur Morgan.