Unfair USC deduction or is it?

kevin101

Today my wife received money back from the Dept of Education which she has fought very hard for since 2006. This money was due to her as she was being paid a part time rate while working full time (for 4 years), therefore she should have been paid at the full time rate for a teacher. She also did not receive her annual incements for two years. So finally today she got money back which was long over due and alsoo she has gone up the two increments. All good so far. But on looking at her pay slip today she has paid almost €2,500 in universal social charges on the money she was owed from working at the part time rate from 2003 to 2006. My question is surely as the usc only came in recently then she should not be liable. Obviously this is a lot of money which we could well do with. She rang the tax office today and they said that as she got paid this year then she is liable. Its is not my wifes fault but more the Dept of Ed's fault. Has she any options here?. Thanks in advance.

barneystinson

AFAIK the current year deduction is correct under tax law, the rule is that income under schedule E (i.e. PAYE income) is taxable when payment is made, rather than when earned.

Otherwise, if your employer had cash flow difficulties and couldn't pay you for a month, you'd still owe the PAYE on the salary you'd earned but not received...

Whether or not your wife has recourse to seek further compensation from her employer as a result of the increased tax is a different matter...

Mr. Incognito

This comes up a lot.

Emoluments are assessable to income tax for the year to which they relate, not the year in which they are paid- McKeown V Patrick J Roe [1947] ITR Vol 2 page 68.

Payroll persons usually bang everything through a software programme- get in touch and try to get a refund- the USC should not have been applied.

namenotavailablE

Unfortunately for the OP, I don't think that's the case re the USC. See pgh 4.19 of the Revenue's FAQ document on the USC:

4.19 An employee is due to receive back pay in 2011. Even though the back pay relates to 2010 will the payment be subject to the Universal Social Charge?
Yes. Any payments made on or after 1 January 2011 but which relate to 2010 (or earlier years) will be subject to the Universal Social Charge. It depends on the date of the payment rather than on when the income was earned. For example, where an individual does overtime in December 2010 and receives the payment for this overtime in January 2011, this payment is subject to the Universal Social Charge.

kevin101

Thanks for the quick replies. It seems unfair but saying that she did get back a nice chunk of cash which will go a long way to clearing some debts. She has also gone up two pay scales which means she can retire two years earlier. So overall we cant really complain too much considering other people's situations. Thanks again.

Mr. Incognito

namenotavailabl wrote: »

Unfortunately for the OP, I don't think that's the case re the USC. See pgh 4.19 of the Revenue's FAQ document on the USC:

hmmm, I'd like to see the legislation that refers. Though Revenue may take this approach if it was challenged it would certainly be overturned in the courts imo.

nompere

Mr. Incognito wrote: »

hmmm, I'd like to see the legislation that refers. Though Revenue may take this approach if it was challenged it would certainly be overturned in the courts imo.

Your wish ...

I don't have online access to an updated Taxes Consolidation Act.

The twenty five pages of Finance Act 2011 devoted to Section 3 have the text of sections 531AL to 531AAD Taxes Consolidation Act 1997. This is the legislation dealing with USC.

Here are two quotations, from Ss 531AL and 531AN.

531AL.—In this Part—
‘aggregate income for the tax year’, in relation to an individual and a tax year, means the aggregate of the individual’s—
(a) relevant emoluments in the tax year, including relevant emoluments that are paid in whole or in part for a tax year other than the tax year during which the payment is made, and
(b) relevant income for the tax year;

531AN.—(1) For the tax year 2011 and for each subsequent tax year an individual shall be charged to universal social charge on his or her aggregate income for the tax year—

That's all depressingly clear , and the courts will struggle to find a way to overturn it. I do believe there is some ambiguity in relation to the Schedule E basis of assessment rules, but S.531AL (a) is very precise.

http://www.oireachtas.ie/documents/bills28/acts/2011/a611.pdf

namenotavailablE

I suspect that what Mr.Incognito is saying is that the issue for the courts is not so much to interpret the relevant section of the legislation - it's clear in its intent, as you note- but to determine whether the USC ought to be chargeable on income where such income was earned in a period prior to when the USC was introduced but paid on or after 1-Jan-2011.

It does seem open to challenge on the grounds of inconsistency with the principle established by the Roe case referred to above (whether such a challenge is either likely or could succeed is another matter...)

Mr. Incognito

nompere wrote: »

Your wish ...

I don't have online access to an updated Taxes Consolidation Act.

The twenty five pages of Finance Act 2011 devoted to Section 3 have the text of sections 531AL to 531AAD Taxes Consolidation Act 1997. This is the legislation dealing with USC.

Here are two quotations, from Ss 531AL and 531AN.

531AL.—In this Part—
‘aggregate income for the tax year’, in relation to an individual and a tax year, means the aggregate of the individual’s—
(a) relevant emoluments in the tax year, including relevant emoluments that are paid in whole or in part for a tax year other than the tax year during which the payment is made, and
(b) relevant income for the tax year;

531AN.—(1) For the tax year 2011 and for each subsequent tax year an individual shall be charged to universal social charge on his or her aggregate income for the tax year—

That's all depressingly clear , and the courts will struggle to find a way to overturn it. I do believe there is some ambiguity in relation to the Schedule E basis of assessment rules, but S.531AL (a) is very precise.

http://www.oireachtas.ie/documents/bills28/acts/2011/a611.pdf

Wow- Fascinating. Greedy greedy Biffo