Tax, debt and wage theft
Last week I went to a cocktail bar with young and interesting people (1). Had the best lime and soda of my life. #winningatlife. Apparently they serve other drinks too but decided to quit while I was ahead.
The young people were the workers that had been left out of pocket following Wagamama going into receivership. (2) With this as an example they, alongside Raise the Bar, are currently waging a campaign against wage theft in the hospitality industry.
I went along to their public meeting in case anyone needed a hand with their tax – because when payroll goes wrong – tax isn’t that far behind. The lime and soda was just a bonus.
Gave them a bit of a blurb about how the law allowed Inland Revenue to claim unpaid tax from employees in cases where it hadn’t been taken out of your pay in the first place. Proving that could be a bit difficult in cases where the records were cr@p – so it might be a case of talking to IR nicely and explaining the situation and going from there.
Now these wonderful young people were well ahead of me. August last year was when info stopped turning up on their myIR. And August last year was when they started talking to the department.
Experience was broadly positive. The deal seems to be IR will update your info if you can show your payslip and bank account as to what was deducted and the amount you actually received. For these workers PAYE seems to be (largely) fixed but not student loan deductions. So there might be some follow up secure mail messages for that.
Their personal KiwiSaver deductions are also ok but the employer contribution has vaporised.
Managers of the firm – also out of pocket not just the workers – talk of receiving lots of letters from IRD with lots of penalties on them. They forwarded them on and were told it was being fixed and/or a mistake.
So all of this went on from August last year until July this year when the firm went into receivership. 11 months of workers contacting IRD over their own personal tax and IRD sending letters with penalties to the company.
And I am like – Inland Revenue knew about this for 11 months? Is this what was supposed to happen?
So I went back to the paper Officials provided for the TWG in July 2018 – a month before things started going weird for the lovely young people.
It says that 85% of taxpayers file and pay on time. Now on one level that sounds good in a 98.5% of Māori children are not in care sort of way.
But taxpayer is an odd metric when talking about filing and paying. I am one taxpayer but last year I filed 12 GST returns, 1 IR 3 and 1 Donations tax credit form. Now they were all on time and fully paid – because old habits die hard – but I would have thought compliance should be measured on a returns basis rather than a taxpayer basis?
Oh and it is. Trawling through the Department’s 2018 annual return the notes at the end show that they are actually talking about returns not taxpayers (3).
And again 85% could be awesome or it could be so so depending on how PAYE earners are treated.
From the info below it looks like there were about 9 million returns filed in any one year. If 3.5 million PAYE people are excluded before the 85% is calculated – alg. But if they are included this means that the on time rate for everything else is more like 75% (4).
Still not bad.
But whether it is 15% or 25%; whether 9 million is actual or potentially filed; whether or not any of this is weighted for value of debt; the absolute numbers of not filing and paying on time are not small.
But back to the officials paper (5).
That paper sets out that Inland Revenue triages its debt non-compliance into three groups:
Disorganised This is where the taxpayer has the funds but has rubbish systems and their brain is full. Here reminders from IR tend to do the trick.
Can’t pay Business either temporarily or permanently failing and so doesn’t have the dosh to pay tax. Early conversations with the taxpayer about whether their business is viable are the thing here. (6) Financial penalties aren’t very useful as the taxpayer can’t pay the original debt.
Won’t pay Taxpayer has the funds but choses not to pay tax. Behaviours include not passing on ’employee’s PAYE deductions’. Here insolvency proceedings, taking security and criminal prosecution are the thing.
Ok so my new cool friends’ employer looks like a can’t pay with a soupçon of won’t pay. And maybe there was lots of lovely engagement and installment arrangements behind the scenes?
Regardless the compliance and admin costs of every worker having to prove every tax deduction for 11 months, the follow up conversations on student loans and the loss of employer KiwiSaver contributions – just maybe Inland Revenue could have moved a little faster?
If not for the ProdComm’s concern about the long tail of unproductive firms, other suppliers and these young people’s lives – then maybe for the Crown account? Because while IR – I am sure – will ultimately sort out the individuals tax; as these lovely young people pointed out last week:
Not passing on PAYE hurts everyone in New Zealand
The Tax Working Group recommended making directors who have an economic ownership in the company personally liable for arrears on GST and PAYE obligations where there has been deliberate or persistent non-compliance. (7) And most of this is about concentrating the mind of the actors concerned and shortening the pain for everyone rather than necessarily a bunch of corporate veil lifting.
Such a good idea – on so many levels.
And this might be what is included as compliance and enforcement issues in the Business possibles on the tax work programme?
And hope it is an issue in the Small Business Council’s report. As it all needs action stat.
(1) Consequently post written to the earworm of Don’t you want me. Gen Xers will understand. Millennials it was the OG Someone that I used to know.
(2) In recent news Wagamama UK have decided to give them an out of pocket settlement. Great news and a great relief to me as Wagamama is a regular for my UK family. I can continue to eat there with a clear conscience when I visit.
(3) Page 118
(4) Assuming 9 million returns, 85% is 7.65m returns. If we excluded 3.5m PAYE returns as being broadly right this gives 4.15 m returns on a base of (9m – 3.5m) 5.5 m. 4.15/5.5 is a 75% filed and paid on non- PAYE earners.
(5) Section 3
(6) Footnote 6 is worth a look. ‘Interventions could include writing off some or all of the tax debt’. That is definitely for another day.
(7) As long as there has been an appropriate warning system. Rec 64(a)