If in doubt, consult a qualified tax adviser
Accordingly, if anyone is in receipt of a pension from the department and they have additional income, a tax liability may arise.
If the individual has no additional income, then no income tax liability should arise and there is normally no need for concern. However, where someone is in receipt of income from a private pension (or another source), they may be affected.
If this is the case, the income from the state is added to any other income. If this total exceeds €18,000 for an individual or €36,000 for a married couple, then a tax liability may arise. If the total is less than these limits the payments will continue to be exempt from income tax.
Even if these thresholds are exceeded, a tax liability may not arise in some cases, for example where some or all of the person’s other income is tax exempt or where they have unusually high tax credits.
Revenue have now sent a letter to each individual affected by the new pension information having been updated against his or her Revenue records.
For those who pay tax under the PAYE system, the Revenue Commissioners have amended the certificate of tax credits for 2012. This information is provided to their private pension provider and then, if tax is to be deducted, it will be deducted at source.
The pension provider will deduct the tax at source and return it to Revenue on their behalf. No further action is required by the individual.
It should be noted that individuals aged 66 or over are exempt from PRSI on income from any source.
Pension and other payments made by the department are exempt from the universal social charge.
However, income from other sources may be liable to the charge.
When the Revenue representative was asked on RTÉ’s Morning Ireland as to whether they would be delving into previous tax years, he refused to rule it out. He did say they would be focusing on 2012 and future years, but gave the impression people with sizeable past underpayments would not escape their attention.
If in doubt, it is advisable to consult a qualified tax adviser, who will be in a position to let you know where you stand.
In general terms, it is preferable to contact the Revenue Commissioners before they contact you. It is important any disclosure regarding tax underpaid is comprehensive and accurate. Such disclosures should also include payment if other taxes are unpaid.
In the short term, pensioners possibly affected by this development should attempt to establish what their sources of income have been for all years since they began to receive the state pension.
They should seek P60s from private pension providers, certificates of interest from banks and other financial institutions, details of dividends from firms in which they held investments, etc.
It is probable the Revenue will take a sympathetic approach to pensioners, who in most cases were unaware that they had not been fully tax compliant.
Accordingly, where the Revenue does look for payment of taxes for historical liabilities, it is hoped they will take account of individuals’ limited means to pay in these recessionary times, and will set aside any interest or penalties to which they might be strictly entitled.
It is possible that some people will be entitled to income tax refunds as a result of incorrect tax credits provided to private pension providers.
The Revenue have said they will examine the position for 2011 in such cases and pay the refunds on their own initiative.
For 2010 and prior years, they have indicated the individuals concerned should make a claim in writing to their local Revenue office.
*Gerald Owens FCA, AITI, and John Butler B Comm, AITI, are registered tax consultants with FDC Tax Department Ltd, Cork.
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