Income Tax (Payment Of 2019 Liability) Regulations Review Report (S.R.7/2021): Response of the Minister for Treasury and Resources

Findings

Comments

1

Regulation 11 may not properly take into  account  all  of  the  personal circumstances of some pensioners with outstanding 2019 liabilities who may not have the ability to settle from their estate.

All  taxpayers  are  obliged  to  settle  their  tax liabilities during their lifetime and their executors are  obliged  to  settle  any  outstanding  (tax  etc) debts  from  taxpayers'  testamentary  estates.  In Jersey, islanders seldom fail to settle their dues. However,  where  a  taxpayer  cannot  settle  their debts during their lifetime or upon death, existing long-standing  debt-management  procedures would be followed.

2

Taxpayers  who will retire during the repayment  term  of  the  2019  liability could be unable to make payments as they fall due under Regulation 3, as they will become reliant on a fixed income pension  which  may  not  include provision  for  the  2019  liability  and could result in an inability to pay the remaining balance. This could result in a substantial liability for those due to retire  in  the  next  five  years.  No provision  has  been  made  in  the Regulations for a final payment from the estate on death in this circumstance

It must be remembered that PYB taxpayers who have benefited most from the abolition of PYB are self-employed people and PYB employees. The PYB liability – since 1928 – has always needed to be settled either partly on retirement and then finally on death or by other means. Most people – particularly lower and middle-income taxpayers do  pay  down  their  PYB  tax  liability  as  they approach retirement. The Regulations provide a long  and  generous  "time  to  pay"  arrangement which was not available to previous generations. If paid over 17 years, for the vast majority of pensioners and people approaching retirement, the annual payment represents a fraction of one per centage point of current income. The value of the

Findings

Comments

and the taxpayer is therefore reliant on negotiations with the Comptroller.

payment  will  reduce  in  real  terms  over  the payment period on account of no interest being charged.

3

It is difficult at this stage to predict the impact  of  the  Regulations  on  self- employed  taxpayers,  but  some  are likely to be detrimentally affected and unable to settle the 2019 liability.

The abolition of PYB was accelerated primarily to help self-employed who could have faced severe hardship in November 2020 or through 2021 had the PYB basis not been abolished. They have been allowed to keep money in their pockets (tax based on 2019 income) which was due to be paid over in 2020 or 2021. The payment provisions available in the Regulations make it improbable that people would be unable to settle the 2019 liability under the  terms  provided  by  the Regulations  but,  as always,  Jersey's  debt-management  procedures make  ample  provision  to  treat  debtors sympathetically.

4

The  Regulations  provide  for  the exercise of the Comptroller's discretion in  allowing  a  second  or  subsequent payment holiday for the 2019 liability. The matters which would be taken into account  are  not  prescribed  by  the Regulations, so affected taxpayers are not in a position to understand whether they  are  likely  to  benefit  from  these arrangements  before  applying,  or  to challenge a decision against them.

The Comptroller will issue further guidance based on  existing  guidance  on  debtmanagement procedures.

5

There is no mechanism presently set out to remind taxpayers who have elected for  deferred  payment  of  the  need  to build up funds to make payment when it falls due for the 2019 liability. This represents a risk to the collection of the 2019 liabilities at a future date.

This will be addressed in the next stage of project work when payments systems are developed and surrounding  standard  operating  procedures  are developed.

6

Regulation 7(5) does not recognise that a  taxpayer  unable  to  pay  the  2019 liability twelve months after reaching pensionable  age  may  already  have made  some  payments  towards  the liability.

This eventuality is covered by existing law and practice  but  the  Minister  welcomes  CSSP's amendment for clarification of the matter.

Findings

Comments

7

The  Regulations  do  not  currently provide a mechanism for collection of the 2019 liability if deferred beyond 31 December  2041,  if  there  is  doubt concerning the taxpayer's ability to pay the 2019 liability as it falls due.

It is most likely that any such cases would be handled  using  the  debtmanagement  processes obtaining at the time the liability does fall due. However, the Minister is prepared to review this issue when the Regulations are reviewed at their tenth anniversary.

8

There  is  currently  no  satisfactory mechanism for dealing with a disputed tax  liability  between  a  couple  in the event of divorce or dissolution of a civil partnership. The Regulations leave the husband or Spouse A liable for the 2019 liability. This poses a risk when couples divorce  and  may  exacerbate  the practical and financial difficulties the couple are facing. This could adversely affect the mental health of individuals and  may  also  impact  negatively  on children of the relationship.

As  set  out  in  the  Report  accompanying  the primary statute (P. 118/2020), the liability rests with Spouse A but Article 42 of the Income Tax Law does allow the Comptroller to determine who should be pursued in the collection of that debt and so can be used where a separating couple cannot reach agreement between themselves as to how to deal with any unpaid taxes. This means that the Comptroller can pursue Spouse B for the proper share of a tax liability or debt, based on analysis of tax returns which separately identify the incomes of Spouses A and B.

All such apportioned tax assessments are capable of review on request; and are also appealable to the Commissioners of Appeal for taxes and to the Royal Court.

In extremis, the Comptroller – with the consent of

all parties – would advise a separating couple and

their  lawyers  of  his  view  of  the  correct

apportionment of liabilities by reference to Article 42.

In practice, this has seldom occurred and not as far he  is  aware  during  the  tenure  of  the  current Comptroller.

The  general  concern  expressed  by  CSSP  is  a consequence of the correct but archaic operation of so-called "Married Man's Taxation" which will be abolished in due course as announced by the Minister on 8 March 2021. Treasury and Revenue Jersey debt-management procedures are sensitive to the stresses cause by divorce and separation but the law does require outstanding tax debts to be pursued in a fair and proportionate way.

Findings

Comments

9

Budgeting  for  the  revenue  stream arising from the collection of the 2019 tax liability will be a challenging task for Treasury, and the amounts involved are significant. This could potentially add  risk  to  the  management  of Government  expenditure  over  an extended period.

This factor will be given due consideration by the Income Forecasting Group and the Treasurer of the States.

10

Deferral by taxpayers of the 2019 tax liabilities  under  the  Regulations presents a risk to public revenue and potential for unfair application of the Regulations between taxpayers.

Revenue Jersey will continue to administer all laws  and  regulations  for  which  it  has responsibility  as  equitably  as  possible  and  in accordance  with  Revenue  Officers'  Oaths  of Office.  A  mixture  of  guidance;  training;  and routes of appeal against decisions will, as in other areas of tax-compliance work, help to ensure the correct application of tax law across the piece.

11

The focus group feedback highlighted that a number of taxpayers with a 2019 liability would like the opportunity to see the outstanding liability and manage the basic administration of their liability themselves,  ideally  through  a  digital platform.

The  scope  to  meet  the  wishes  of  taxpayers (including those expressed in the Focus Groups) will be examined in the next stage of this project.

12

It is likely that there will be a number of taxpayers  who  are  not  able  to confidently  engage  through  a  digital platform  and  will  require  additional assistance  to  manage  their  2019 liability.

As is usual, Revenue Jersey will make provision for those who cannot – or prefer not to – engage digitally.

13

Collection  by  the  Comptroller  of Revenue  of  the  2019  liability  from taxpayers in advance of new computer systems  being  developed  and implemented by Revenue Jersey needs to be carefully managed to ensure it is correctly assigned to the liability.

Existing  systems  are  correctly  allocating payments to the 2019 liability in the cases where taxpayers  have  asked  to  settle  the  liability immediately.

14

The current estimate of one additional member of staff by Revenue Jersey to

The estimate of costs contained in the Report with P.9/2021 is an early estimate and will be refined

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complete the administration may be inadequate. The Panel is concerned that the implementation of the Regulations will put additional pressure on the Revenue Jersey Team.

as the Business Case is further developed. The estimate of one staff year over, say, 20 years, is an average: more resources will be needed in the early years when payment plans are being set up.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

1

The Minister for Treasury and Resources must ensure that when an application is made in a case of hardship by a pensioner and it is identified that there are insufficient assets available from the estate to meet the 2019 liability, that financial projections will acknowledge the amount of the liability to be recovered and the amount which is irrecoverable.

MTR

Partly accepted

All taxpayers are expected to pay their tax  liabilities  either  during  their lifetimes or – if necessary - from their testamentary estates. If any taxpayer is effectively bankrupt in their lifetime or at  death,  existing  debt-management procedures  would  come  into  effect. Government  accounting  rules  for handling  write-  offs  are  well established.

N/A

31/3/2022

2

The Minister for Treasury and Resources must provide clarity in the Regulations for those taxpayers who elect to pay the 2019 liability by Regulation 3 but will retire during the term of the liability and do not hold a pension with sufficient value to cover the remaining liability, and determine

MTR

Partly accepted

This  will  be  addressed  in  guidance rather  than  Regulations  as  it  is expected  that,  over  17  years,  the

annual  payment  will  represent  less than one per cent of annual income.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

whether they can be considered as hardship cases and enable the remaining payment to be secured from the estate of those taxpayers.

3

The Comptroller for Revenue must apply powers considerately to self-employed taxpayers and clarify whether fluctuating rates of yearly payments aligned to income could be made by this category of taxpayer who elect to pay the 2019 liability by Regulations 3.

MTR

Accepte d

The  Comptroller  will  apply  all  the discretion  available  to  him  in  the revenue  laws  to  enable taxpayers to meet their commitments under those laws.

N/A

4

The Comptroller of Revenue must provide financial

projections which reflect payment holidays taken by taxpayers  in  the accounting  records  of the  2019 liability.

MTR

Accept ed in

principle

The  Comptroller  and  the  Treasurer will  seek to produce clear financial projections, taking all known factors into account, to inform the work of the Income Forecasting Group.

30/6/2025

5

The  Comptroller  for Revenue must ensure that  the  basis  of decision-making  on whether  or  not  to approve  a  second  or subsequent  payment holiday is a matter of public record.

MTR

Accepte d

As stated at the Public Hearing, the Comptroller will publish Guidance as part of the introduction of this scheme in 2022.

31/3/2022

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

6

The Comptroller for Revenue must

ensure that a form of reminder exists for taxpayers who have elected for deferred payment on a periodical basis, which will encourage taxpayers to review their financial position and ensure that they are building up funds to pay their 2019 liability when it

falls due.

MTR

Accepted

.

This will be built into standard operating procedures for this scheme.

31/3/2023

7

The States Assembly should agree the amendment to the Regulations lodged by the Panel which recognises payments already made on account of the 2019 liability to determine the amount due and payable under Regulation 7 (5) – payment by instalments of the liability previously deferred.

MTR

Accepted

The Minister believes this is the effect of existing law  and  practice  but is happy to accept  this recommendation for avoidance of doubt.

24/3/2021

8

The States Assembly should agree the amendment to the Regulations lodged by the Panel to provide for a review of the collection of the 2019 liabilities to be carried out after 10 years and a report be presented to the States Assembly. The review should

MTR

Accepte d

The Minister is content to accept this recommendation  and  will  make  a provision in the next Tax Amendment Law  she  lodges  to  ensure  that  the Regulations can be changed in future.

30/6/2031

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

determine whether further  amendments to the Regulations are necessary, particularly in connection with liabilities deferred beyond 2041.

9

The  Minister  for Treasury  and Resources should consider amending the Income Tax law to provide that in the event of divorce or dissolution of a civil partnership the Courts may rule on the 2019 tax liability of the couple rather than the Comptroller of Revenue.

MTR

Rejected

The Comptroller's ability to pursue a tax  liability  (current  year  or  prior year) against Spouse B is

limited and is set out in Article 42 of the Income Tax Law.

As  set  out  in  the  Report accompanying the primary statute (P. 118/2020),  the 2019 PYB

liability  rests  with  Spouse  A. Article 42 does

allow the Comptroller to intervene to determine  which  spouse  or  partner should  be  pursued  for  that  tax liability  where  a  separating  couple cannot  reach  agreement  between themselves  - so  that  he  can  pursue Spouse B for the proper share of a tax liability  or  debt.  This  is  based  on

analysis  of  tax  returns  which  do separately  identify  the  incomes  of Spouses A and B.

All  such  apportioned  tax assessments  are capable of review on request; and are also

appealable  to the Commissioners  of Appeal  for  taxes  and to  the  Royal Court.

In extremis, the Comptroller  – with the consent

of  all  parties  –  would  advise  a separating couple and their lawyers of his view of the correct apportionment of liabilities by reference to Article 42. In practice, this has seldom occurred and not as far he is aware during the tenure of the current Comptroller. The  general  concern  expressed  by CSSP is a consequence of the correct

N/A

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

but  archaic  operation  of  so-called "Married  Man's  Taxation"  which w i ll  b e  abo li s h ed  in  du e cours e  as  announced  by  the Minister on 8 March 2021.

Treasury  and  Revenue  Jersey  debt- management procedures are sensitive to  the stresses cause by divorce and separation,  but the law does require outstanding tax debts to be pursued in a fair and proportionate way.

If  necessary,  the  Comptroller  could provide  a statement  to  each  of  the spouses/partners  confirming  his determination  as  to  which  spouse  or partner  he  intends  to  pursue  (should there be evidence to underpin pursuing only one) so that when before  a court

the tax liability can be fairly taken into account in the round.

10

The Minister for Treasury and Resources must ensure that a formal system of reporting and review in relation to the 2019 tax liability and the collection of the revenue in a timely and efficient manner is established and adequately reflected in the Annual Report and Accounts.

MTR

Accepted

The  Minister  does  expect  formal reporting of the collection of the 2019 frozen PYB liability to be undertaken

–  to  inform  Treasury  income forecasting and the management of the Government's Covid-related debt.

31/12/2025

11

The Minister for Treasury and Resources must ensure that the proposals for administering collection of the 2019 liability includes the development of a digital facility for taxpayers to

MTR

Accepted

This is the Minister's clear intention as set  out  in  her   evidence  to  CSSP.

The  scope  to  meet customer needs identified by the Focus Groups will be

explored  in  the  next  phase  of  this project.

30/9/2024

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

manage  the administration themselves  which will include periodical notifications  of  the outstanding 2019 liability  to  taxpayers and  confirm  payments made  towards  a 2019 liability.  The digital facility should  be operational  from when  election  of  the 2019 liability is required.

12

The Comptroller of Revenue should establish and maintain internal controls and reporting mechanisms to ensure management and oversight of the 2019 liability and adequate resourcing to achieve delivery.

MTR

Accepted

Internal  controls  and  reporting mechanisms  will  encompass  the monitoring of collection of the 2019 PYB liability and the Comptroller will keep the Treasurer and the  Minister apprised  of  resourcing requirements.

30/6/2024

13

The  Minister  for Treasury  and Resources should reconsider the manpower and financial implications if these Regulations are adopted to ensure propriety and regularity responsibilities under the Public Finances (Jersey) Law 2019 have been fulfilled adequately.

MTR

Partly Accepted

The existing estimates are preliminary and  will be reviewed as the Business Case develops.

31/12/2022