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Tax payment dates change again Back  
The Minister for Finance has published a Statutory Instrument accelerating by eight days the due date for the payment of preliminary tax on account of corporation tax in November 2002 and in December 2002. Finance directors might be a bit puzzled as to why the Minister has chosen to accelerate the payment date by as little as eight days, and to do so for two specific months only.
The explanation appears to lie in the fact that the Minister is concerned with appearances and not realities. His action will not affect one way or the other the totality of government tax collections available for spending by the government. What they do affect is the statistics, which the Minister will be able to produce as to the tax revenues for 2002.
The government accounts are so unsophisticated that they would not be accepted by the Revenue Commissioners from a corner-shop. They are essentially cash accounts – a record of cash receipts and cash payments in a period, rather than the payments and receipts that relate to a period. You might expect that the government would recognise as the tax revenue of 2002, the tax receipts that relate to tax payments due in that year. In fact they don’t. The government accounts don’t take in ‘debtors’. Accordingly the tax take recorded in 2002 will include tax properly payable in 2001 and prior years but paid in 2002 and tax that relates to 2002, insofar as it is paid in 2002. But tax paid in the first week of 2003 that was due and payable in 2002 is not taken into the figures for 2002.
The Minister’s concern therefore is to ensure that as little money as possible relating to 2002 arrives in too late to be taken into account in the figures for 2002. Bringing forward the payment dates by eight days should have roughly the effect of bringing in what would normally be part of the tax receipts of January 2003.

Massaging the figures
In itself that would be no great matter. But of course the tax receipts for 2002 have already benefited from ‘late payments’ for 2001 received in the earlier part of 2002. By bringing forward the payment date at the end of 2002, the Minister is getting a double bonanza.
Of course this little piece of accounting trickery is difficult to repeat. In 2003 the Minister will find that his tax receipts are being recorded as being lower than they otherwise would be, if he had not succeeded in minimising the late payments for 2002. What will the solution be in the second half of 2003? Advance the payment dates by a few months perhaps?
The sad thing is that the illusion that tax receipts are greater in 2002 than they would have been but for this accounting manoeuvre will have an impact on the government’s spending plans. They will seem able to spend more. Demands for wage rises in the public sector will not have to face the same degree of reality as they would have but for this accounting manoeuvre.
Who is being fooled by this? If it is merely the European Central Bank and the European Commission, then good luck to the Minister. But let us hope that it is not the Minister (who as an accountant would know better) or his advisers.

The November payment
But you may say ‘Ah! But how do you explain the change to the payment date in November?’ The answer is, the Minister will deliver his budget statement on 4 December. The change in the November payment dates will bring forward to November cheques that might otherwise arrive overdue in December. The Minister will make his budget speech against the background of apparently improved tax receipts. The change of course produces no improvement in reality.
Normally it would hardly be worth the Minister’s while to bring forward a payment date for the month of November. Prior to the Finance Act 2002 only companies with 31 May 2002 year-ends were due to make payments of preliminary tax in November. There are relatively few such companies. However the Finance Act 2002 required companies not only to make a preliminary tax payment six months after the end of their accounting period but also to make a further payment one month prior to the end of their accounting period. Thus companies with a 31 December year end are, for the first time, facing the necessity to make their first preliminary tax payment in November 2002. It is that little bonanza that the Minister has targeted by bringing forward its due date.

Pay Collector General 18p.c. of X
Companies whose 2001 tax charge exceeded ?50,000 have been obliged to make a payment on account of their corporation tax for their 2002 accounting period of 18p.c. of their final liability for the period (rising to 36p.c. in 2003), and to make it one month before the end of the accounting period. They are therefore obliged to make this payment at a time when their profits for the period are not yet known. If their payment falls short of 18p.c. of their final corporation tax liability for that period, they are exposed to interest charges. What is 18p.c. of an unknown figure? That is the question the Minister has asked finance directors to ponder.
There are numerous reasons why it is almost impossible for a company to meet the legal obligation imposed on them by the Minister. At the time they come to make their tax payment they still have a month’s trading to go. At a time when they are making a calculation of the payment and planning for it in their cash-flow management, they will at best have ten months management accounts available.
Matters can be even more difficult if you are a financial trader whose accounts are prepared on a mark to market basis. If that financial trader actually knew what the market would be like in a month’s time they would have the potential to make so much profits that they would not have to worry about tax. On 30 August 2001, who could correctly have forecast the condition of the market on 30 September 2001?
Many companies have transactions in currencies other than their functional currency. In preparing their tax computation they must use the average exchange rate for the period. How do you know the average exchange rate one month before the end of the period?
It is not unknown for companies to go out of business, and sometimes they do so very suddenly. When a trade ceases, an accounting period also ceases. If you didn’t anticipate this approximately five weeks in advance, it is unlikely you will have met your obligation to make your first preliminary tax payment on time.
All of these are merely specific examples of a much more simple proposition. One month before the end of an accounting period the final tax liability for the period is unknown and unknowable by anybody but God. How then can a company pay the State 18p.c. of that figure?

Is it even legal?
It is a fundamental principle that the law may not compel a person to do that which is impossible. King Canute could not order the tides to cease to come in and no more can the Minister for Finance order companies to accurately forecast their tax liability before the end of an accounting period. The minimum implication of this is that an interest penalty for failing to meet a payment obligation which it was impossible to meet otherwise than by good luck, must be of the most dubious legality. Indeed, the legality of imposing the obligation to make that first payment in an amount which cannot be calculated must itself be in serious doubt.
Let us hope that when the Minister gets on his feet on budget day to bask in the glow of his newly massaged tax take figures, he will also announce that the basis for the first preliminary tax payment for all companies will be by reference to the prior year results if they so wish. That would correct the error.
But the Minister should go further. He should ask himself how it came to be that this error got onto the statute books in the first place. As previously highlighted in the KPMG Tax Monitor, this piece of legislation was scarcely commented on in the Finance Committee of D?il ?ireann when the Finance Bill was being debated.
If, instead of devoting a mere three days to the discussion of a technical and lengthy Bill, the Committee allowed itself a period of three weeks, perhaps we would avoid these errors. If the Committee went ever further, and devoted most of the extra time not to lengthy recitals of their own views on the Finance Act, but to hearing evidence from informed bodies such as the Institute of Taxation and the Institute of Chartered Accountants, it is even more likely that errors in tax legislation, which yield not an extra Euro to the State, would be avoided.
The usual excuse is that the Finance Act must be passed within four months of Budget day. In fact all that has to be passed by that date are the bits of the legislation previously enacted as Financial Resolutions. That generally is a tiny part of the overall Bill. It is a hollow excuse and it is time that it was dropped.

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