Tax liability of essentially employed public sector employees for incorrectly declared rental subsidies

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QUESTIONS TO BE ASKED OF THE PRESIDENT OF THE POLICY AND RESOURCES COMMITTEE ON TUESDAY, 4th FEBRUARY 2003 BY

DEPUTY P.N. TROY OF ST. BRELADE

Question 1

Would the President –

1. give details of any correspondence, meetings anddiscussions (inclusive of dates) betweenthe Policy and ResourcesCommittee, the Comptroller ofIncome Tax and Finance and Economics Committee concerning the tax liability of essentially employed public sector employees for incorrectly declared rental subsidies?
2. advise membersof the numberofemployees concerned and the total cost as advised to hisCommitteeby the Comptroller for paymentofthe liability for a five year period for all employeesaffected?

Answer

1. Having first been alerted tothe problem by the HumanResourcesCommittee, the previous Finance and Economics Committeeconsidered,on 18th September 2002, a paperpreparedby the Comptroller ofIncome Tax.  Subsequently, a  meeting was convened  at  the request  of the  President of the  new  Finance and Economics Committeeon 13th January 2003. Those who took part included the Presidentofthe Finance and Economics Committee,who chaired the meeting, the Presidents of the Policy andResourcesCommittee, the Education, Sport and Culture Committeeand the Health andSocialServicesCommittee. In addition, senior officers from the Education, Sport and Culture Department, Health andSocialServicesDepartment,Housing Department, StatesTreasury, States HumanResourcesDepartment,and the Income Tax Comptrolleralso attended that meeting.

T hereafter, the Finance and Economics Committee, on 15th January 2003, considered whether it would be

appropriate to meet the tax liability from the General Reserve and the Policy and Resources Committee considered on 17th January 2003, whether the employer should meet the tax liability. Both Committees had Papers relating to these matters before them when they took their decisions.

T he above sets out when the main discussions took place on this matter between the main parties concerned.

2. At this time, I amunableto confirm the exact numberofemployeesconcerned,nor the overall costs. This is because  individual  departments are  currently  collating  information  that  will allow  the Income Tax Comptroller  to determine accurately  what  the  true  position is. However, it  is most unlikely to exceed £500,000.

Question 2

Can the President –

1. advise whether there is any legal obligation for the States of Jersey to pay the tax liabilities of third parties (in this caseemployees)?
2. inform  members whether the Committee recommends that  public  funds be utilised  in  payment of the employee liability and, if so, wouldhe give the reasons for this decision?

Answer

1. I confirm that therewas originally nolegal obligation topaythe taxes in respect of States employees. However the Committees considered that there was a strong moral obligation todo so. They took into account the fact that the Income Tax Comptrollerhas allowed private sectoremployersto meet the tax liability of their

employees in similar circumstances. The decision of the Committees has subsequently been made public, so that

the affected employees have been given to understand that their liabilities will be met. It is a settled principle of law that there is a requirement for consistency and fairness in relations between the individual and the state, and once the employees have been given a legitimate expectation that their liabilities will be met, they may in this way acquire a legally enforceable claim

2. The Deputy will have noted that I am making a statement to the Assemblyon this matter later in the agenda. I will confirm, however, that the Policy andResourcesCommitteehas requested the Finance andEconomics Committee to utilise public funds to pay the tax liability of essential employees' in respect ofthelast five years, and theFinance and EconomicsCommittee has acceded to this request. The reasons for doingsoare set outinmy statement. However, in essence, these are that –

(i ) m any employees were not advised by their employer that the rental subsidy arrangements gave rise to a

tax liability;

(i i)  s uch employees were genuinely unaware of their liability;

(i ii)  the methods of payment chosen by departments to pay the rental subsidy were confusing from the point

of view of identifying that the employee was receiving a benefit from the employer; and

(i v)  it is important to retain the commitment and support of these key members of staff. Question 3

Would the President confirm that some employees have correctly declared their rental subsidies on tax forms submitted to the Comptroller and paid all taxes due, while others have failed to do so, and if so, is he able to offer any explanation as to why some were aware of their responsibility to pay tax on the rent subsidy and others were not, given that since 1998 every tax form states If your employer pays rent due under a lease in your name, that is taxable'?

Answer

I confirm that a small number of employees have correctly declared their rental subsidies whilst others have not. As  I  have stated  earlier,  in  discussions with  employees,  it  was  apparent that  there  was  a  genuine  lack  of knowledge that such subsidies gave rise to a tax liability. This was not helped by the fact that their employer had not provided them with the information that would have assisted them in understanding their position. Indeed, in some circumstances, the method of paying the subsidy was convoluted and would certainly not have identified to employees that they were in receipt of a benefit that should be declared for tax purposes. It should be noted that some rental subsidy arrangements give rise to a tax liability whilst others do not.

Question 4

1. Can the President advise whether thereis any legal obligation toreimbursethoseemployees whohave correctly paid tax on any rental subsidy received and advise whether the Committee recommends reimbursementfor this group?
2. If so, would the Presidentadvisehowmanyemployeesareinvolved, how manyyears would bereimbursed, and the total cost ofreimbursement?

Answer

1. I confirm that thereisno legal obligation toreimburse those employeeswhohave correctly paid their tax. However, the Committees felt that therewas a strong moral argument not to leave them in a worseposition than thosewhohadnot paid their tax. It has, therefore, been decided to reimburse them for the tax that they have paid.

2. As I have already pointed outinmyresponseto Question 1 (b), details are still beingsought in connection with all those who are affectedby these decisions. However, information so far received suggests that there are a relatively smallnumberwho have paid tax on their rental subsidiesand,the additional costs associated with this groupofemployeesare not, therefore, expected to be significant and are expected to fallwithin the overall figure referred to in myresponse to Question 1 (b).

Question 5

1. Can the President explain why such animportant matter concerning the useofpublic Funds hasnotbeen brought to the States Assemblyfor debate, particularly asit involves a decision to utilise publicfundsto extinguish a liability notoftheStatesbutof third parties?
2. Would the President agree to prepare and present to the States a comprehensive report on this matter explaining in greater detail the background and legal position in relation tothe parties concerned,andwould he give an undertaking to members that no action to inform the employeesconcernedformally,tocommit the States of Jersey to any particular action, or to implementany decision, willbe taken untilsuch time as all States membershavehad the opportunity to assess thereportand decide what action is appropriate?

Answer

1. The Finance andEconomics Committee has determined that this is a legitimate useofpublic funds.
2. Although I am prepared to bring a comprehensive report to the States shouldStatesmembers request it, the Policy and Resources and Financeand Economics Committees have been advised that a legal obligation now probably exists. (Please see myanswertoquestion2(a).)TheCommittees therefore believe that the payments should bemade and I do not believe a further report will beofanygreatvalue in the circumstances.