Are we there yet?
Not a question that anyone wants to hear bringing with it memories of long journeys on roads that twist and turn and with no real understanding of where we are, or maybe even where we are going.
It has now been six months since Inland Revenue proudly announced the successful completion of the last of a three phase journey to deliver the $1.7 billion START system – see
www.ird.govt.nz/media-releases/2021/inland-revenue-systems-re-open
There is no doubt that enhancements were made – the rapid deployment of the Covid19 support products being good examples. There is both good and bad in the new system.
However a significant negative is the deluge of correspondence direct to the taxpayer. This undermines the relationship between the taxpayer and the tax agent, and creates a huge amount of waste to the economy with taxpayers and tax agents having to spend too much time sorting out these unnecessary IRD initiated contacts direct to the taxpayer.
.
(Interesting to observe here that the media releases still showing on the IRD website call it multi-million dollar.) Is the real number too scary?
Payback to government for its investment was to come from an increased tax take and significant reductions in IRD staff numbers. Some pundits have suggested the latter was in fact a driver rather than just an outcome
The reduction in staff has no doubt had a flow-on impact on taxpayer beliefs regarding the likelihood of audit or debt activity in particular. More on that later.
The system is intended to allow greater use of technology through data gathering, automation and to remove routine, low value add tasks to simplify the tax system. All premised on the view that tax is simple for a significant number of taxpayers who should be able to determine their own tax position with a little help from IRD.
We agree that is correct for individual taxpayers whose income is all from salary and wages and NZ source interest and dividends, all correctly taxed at source.
Many many taxpayers fall outside of that box. Those taxpayers generally require Professional assistance, and their affairs simply can’t be automated. However IRD is forever pretending they can, often bypassing their agent or else bombarding them with automatically generated spam.
In our view there are too many IRD initiatives where the human intelligence element seems to have been missed or the system cannot be tailored appropriately for the targeted taxpayer.
And what did we get for that spend?
There is no doubt that enhancements were made – the rapid deployment of the Covid19 support products being good examples. There is both good and bad in the new system. On the good side, the new system now supports direct entry by taxpayers / tax agents in many areas, for example DWT or RWT returns, and a range of good reports.
However a significant negative is the deluge of correspondence direct to the taxpayer. This undermines the relationship between the taxpayer and the tax agent, and creates a huge amount of waste to the economy with taxpayers and tax agents having to spend too much time sorting out these unnecessary IRD initiated contacts direct to the taxpayer.
On a similar vein many tax agents are buried with electronic correspondence from the IRD. Many are of the type advising that a tax return is now due and must be filed in 10 months. This type of correspondence and alert is difficult to regard as useful. It is noise that blots out the signal. .
IRD keeps saying the role of tax agents is important but seems indifferent to the problems it creates for them.
It’s not clear at this time whether some of the annoying automated actions are the result of poor system design or through IRD staff not knowing how to drive the machine. Unfortunately, it seems that different parts of the system operate independently and can’t recognise the overall picture for that taxpayer.
Take for example a situation where an advisor works with a taxpayer to come forward with a voluntary disclosure (in itself a risky business). IRD know there is work being done on the account balances and payment is arranged. All good you’d think. The result is collection activity is triggered by the new balances and before the arranged payment is processed, even if it is coming from tax pooling which IRD has agreed to. Notices are generated threatening dire consequences for non-payment of the debt, and even deduction notices being sent to employer in some instances. We are told either the system can’t stop the notices or that it is too difficult to.
It cannot be a good look for the new system that we have to tell clients to expect all sorts of irrelevant correspondence from IRD while the issue is being dealt with. It’s bad enough that they get this stuff, it’s inexcusable, and highly damaging, when notices go to third parties.
It seems to us that IRD has become mesmerised by the volume of data their new toy can access and then pump out often clumsily worded standard letters which either aren’t accurate or are unnecessary. The one size fits all response to perceived issues isn’t working.
Current tax returns ‘due’
As a recent example agents will have been flooded with alerts for their clients advising that “your 31 March 2022 return is due”. This when IRD knows the clients are linked to an agent and therefore have an extension of time to file the return. The alert is therefore inaccurate – the return isn’t due – and unnecessary because agents already have their own processes in place to ensure they file the returns by due date.
The alert means the agent needs to spend unproductive time to go through their client list in case there is an alert for a genuine issue that does require attention. It is worse if the client logs onto their MyIR account and see the alert causing them to think the agent hasn’t done what they’re paid to do.
IRD is aware of the problem and, so far, haven’t come up with an answer that works in START. A possible solution considered was the ability to dismiss alerts in bulk which would mean any genuine alert would be missed. This is unacceptable as it would leave the agent exposed to the risk of claims from their clients. For whatever reason START cannot identify ‘client of agent income tax return due date is next year’ and not send the alert. Surely that isn’t the hardest thing to do.
Prescribed investor rates
Another example is the number of clients that are contacted about ‘incorrect’ PIR rates. Agents know their client’s circumstances and advise PIR rates accordingly. It shouldn’t be for IRD to determine it based on its incomplete information at the time.
Automated tax returns
the IRD system issues premature tax assessments and refunds before the agent or client has had a chance to determine external sources of income. If the taxpayer is associated with an agent IRD should ‘butt out’. The IRD acknowledges this issue in their updates to tax agents, but continues chooses to ignore the commissioners policy statement and communicate to the taxpayer, either through correspondence or through the MyIR medium.
Automatic tax refunds and transfers
Sometimes a taxpayer or agent may make a payment into the wrong tax type or period. The taxpayer or agent should be able to identify that and retroactively reallocate to the correct tax type or period. Instead the IRD computer prematurely issues a refund, or snaffles the credit and allocates to some other random tax type. No effort for IRD, but lots of effort for taxpayers.
Brightline letters
We are aware of numerous occasions where IRD has sent a letter to a taxpayer alleging that they have sold land within the two year, five year or ten year brightline period. In fact a bit of background research identifies that the land is still owned and a change in ownership was a minor subdivision or other event that does not trigger tax. No effort for IRD, but a huge imposition on the taxpayer.
IRD staffing
The above correspondence is generally associated with one of a small group of real people, but those people are blissfully unaware of the letters. Try writing to them and see if you get a response.
Automation allows the START system to send out large volumes of correspondence however there isn’t a matching level of skilled staff resourcing to follow up on the contact or to cope with responses in a timely fashion.
Unfortunately, anecdotal evidence suggest taxpayers are increasingly playing the odds and ignoring their tax obligations. It is becoming harder for agents to maintain credibility when they advise their clients that IRD enforcement action is a risk but then nothing actually happens at the IRD end.
In fairness the IRD support effort for the covid19 packages would have had an impact here but taxpayers might not be thinking about that when they have had multiple letters advising dire consequences for their unpaid tax but nothing else happens.
Conclusion
There have been improvements made with the introduction of START however the unrecognised complexity inherent in taxation and the inability to customise the system to address common scenarios mean we haven’t reached the end of the journey yet. For some issues we seem to be stuck on a roundabout and can’t find a way off.