“do we really believe the Commissioner isn’t doing this on purpose”
I am sure we are all pleased about the automation of many tax matters. A number of boring aspects of a tax agent’s job have disappeared. Many tasks of yesteryear added little value for clients.
However since the advent of IRD’s new $1.7 billion computer system “START”, IRD has been promulgating a myth that tax is automatic and that instead of engaging an agent or tax expert, taxpayers are better to deal directly with IRD.
Where income is all from paye or NZ interest and dividends, tax can be automated. Those taxpayers don’t have and don’t need a tax agent or other expert. However other taxpayers’ affairs are more complex and they do need expert assistance. Suggesting everything is automatic is disingenuous and naïve.
The new START system has led to a wave of IRD correspondence sent directly to the clients of tax agents. That correspondence frequently duplicates and often undermines the relationship between taxpayers and their elected representative, and all too often is factually wrong..
I have listed some recent examples at the end of this article.
The general theme is that:
- IRD seems to find any excuse to communicate directly to taxpayers,
- Some communications seem to have legitimate intent but IRD gets the detail wrong
- The outcome is that IRD is pretending that tax is automatic but doesn’t distinguish between taxpayers with complex affairs and those that are simple, and between those with and those without agents
Its time IRD started thinking about what messages they are trying to impart.
People with complex affairs who try to manage their own tax frequently stuff them up and fixing up errors is inevitably more difficult than getting them right in the first place.
I don’t think tax agents are going to run out of work, but IRD is making our jobs a lot harder than they need to be, and ironically making IRD’s job harder as well
I have raised these issues with the Commissioner and senior staff and even the Minister of Revenue, and sometimes IRD makes belated corrections. However it is like playing whack a mole- IRD keeps finding new ways to engage directly with clients of tax agents.
IRD continually asks for examples but when we provide them IRD claims they are only isolated examples.
IRD claims that there have been some teething problems with the START system but after 2 ½ years that excuse is wearing thin. After so many examples it is hard to conclude anything else but that IRD is doing this deliberately.
So I call on the Commissioner to make a public statement reinstating IRD’s respect for the relationship between the tax agent and their clients. Let that be a leadership principle that the IRD can be guided by.
I also call on the respective professional bodies representing tax agents (CAANZ, CPA and ATAINZ) to directly challenge IRD on their approach and until IRD can sort themselves out, to stop contacting our clients. If IRD can’t distinguish between those with and without agents then they need to stop their communications altogether.
Examples:
IRD issues automatic tax calculations and issues refunds based on source deduction income that fail to take into account other sources of income yet to be declared. IRD has the audacity to describe these calculations as being based on a submitted return.
IRD regularly writes to taxpayers and their investment providers and tells them they should select a lower withholding tax rate. This includes non resident taxpayers who are legally required to have tax deducted at 28%.
IRD writes to superannuitants and tells them that their national super is their main source of income and should have tax deducted at 17.5% rather than the 33% recommended by their tax advisor. IRD ignores the fact that many superannuitants also derive other significant income that is not taxed at source and we elect to have more tax deducted from national super to avoid having to go into the provisional tax regime.
From time to time IRD writes directly to taxpayers saying that their Accounting Information Method [AIM] is a “better” way of managing their provisional tax – read “better than using the uplift method or tax pooling recommended by their agent”. Among other things AIM requires financial statements every two months. So far less than 3000 taxpayers have taken up AIM. Tax agents are well aware of the regime and will recommend if appropriate. IRD is marketing to people for whom it won’t be appropriate. Ready fire aim IRD.
When a taxpayer engages a tax agent, IRD immediately notifies the taxpayer and encourages them to register for MyIR and manage their own tax obligations. After I lodged a formal complaint IRD has belatedly agreed to add the words ‘only if you don’t have an agent”. Such a letter will be self conflicting – you have a new agent, and if you don’t have an agent then manage your own obligations.
In July 2020 IRD issued 100,000 text messages that said “Hi, IRD here. We’re making tax automatic but we need your contact details. Update them in myIR and we’ll do the rest. Register now at IRD.govt.nz”
If a taxpayer checks MyIR they will see an orange exclamation mark next to any debt. Until recently IRD also said that the debt may be incurring penalties and interest. but only if it is overdue, or due next year or the year after. Ha ha.
In all of the above IRD has largely failed to distinguish between taxpayers who have not engaged an agent and those that have. IRD is disenfranchising the group that helps IRD the most.
After [decades] as a practitioner/tax agent ,I concur with your views 100% ;luckily in order to remain sane,I have an experienced understanding manager at IRd by my special request.
IRD in May 2020 seems to have established and prepared tax returns for some taxpayers so when filing a return, containing additional income information, it conflicts with the tax return already in their system for the taxpayer. Both returns remain unassessed, but there is no reporting that a duplicate return is on file.
The START system regular “makes up” dates for tax transfers between associated and non-associated taxpayers that are not in line with legislation causing the addition of interest and penalties which should not have been incurred, thus requiring the tax agents (or taxpayers) to then sort it out.
*I assume it’s the system making this up or else it’s plain negligence or incompetence by IRD staff.
Another consequence of AIM is how easy it is to fall out of safe harbour.
A taxpayer using the standard uplift owing say $2000 per installment pays one installment a day late now is out of safe harbour. Terminal tax say $36000 they are paying uomi on $30000.
Pre AIM one days uomi on $2000.
Thanks Jeff
The best summary I have seen yet. And yes this new IRD system has cost my firm tens of thousands of dollars in lost time that we feel a client should not have to pay for. You want to try and navigate MyIR. Its like a rabbit warren trying to find stuff in there. Trying to decipher Income Tax assessments in MyIR might need a Bachelor of IRD too.
I have had instances lately where the IRD have phoned me about clients with large amounts of tax owing – my position is I am not a debt collector so more than happy for them to manage that themselves. A call from the IRD has far more weight behind it than a call from me.
I did receive a general correspondence stating clients of mine were being looked into for claiming wage subsidy – it did not identify them – but was followed up with phone call.
I agree, the amount of time required to fix up clients accounts that have done their accounts themselves, could have been far reduced if they had sought out assistance at the start, and I think the IRD should be promoting this message instead – seek advice if you are undertaking business activities outside of PAYE & WHT.
100% agree. Your comments statements and facts are absolutely spot on and match our experience too.
My Associate commented that I could have just about written that for you, same tone and everything.
I am well known to my Agent Account Manager, here in [redacted], because we do push back, either when we have time or when I am frustrated enough.
We win about 1 in 30 challenges to IRD systemic interference or stupidity.
CAANZ were interested for a while but then volume became too much they now don’t do much if anything to assist (and to be fair I have stopped trying to involve them, too hard)
The amount of time wasted trying to get things sorted, fixed, improved, tidied up or whatever is just massive, the time wasted by clients and us sorting out IRD interference is also massive. (in a firm of 12, it would have to be close to an average of 20 hours per week being wasted due to IRD systems, interference and stuff ups).
The IRD boffins in Wellington (all under 35 I bet) like you say seem to think that the computer will make it easier and all taxpayers can be fitted into the same size round hole. I am staggered at how many times I find they have changed the rules to fit what the computer can do and often without consultation or effective communication. We find a problem so they change the rules to make the computer right ?
Personally I am heartened by learning that we are not alone with these numerous frustrations and not alone in pushing back.
I am hugely disappointed that the majority of professionals and tax agents just seem to roll over and take whatever the IRD concoct next,
I don’t think you can take up my latest matter but I share it for your information as another example of IRD stupidity. A manual return could have been filed and processed 3 months ago at 10% of the time and effort
Anyway in conclusion, I am happy to keep challenging and trying to get an improvement for all.
I spoke with my agent manager at my yearly review and explained to her the impact of these letters from a point of view of been the recipient.
Think it helped as her outlook at the end had changed
I explained that the communications are stressful and takes another 5-10 mins out of busy day to make sure that it is not an extra tax they owe and that I now advise my clients to put IRD communications in the rubbish and treat them as spam
Said that IRD could send them out after three days after due date and if my clients had forgotten to pay their tax could save penalties, that is if IRD have to send at all
As long as my name is not mentioned as I would not like for my agent manager to be harassed
I couldn’t agree with your email more!
I find the IRD’s behaviour just bizarre.
I recently had a client email me a copy of a message they had received directly from the IRD querying an amount of NZRWT claimed re Overseas managed funds. The client had know idea what they were asking and thought maybe I had done something wrong! Which I hadn’t.
I replied to the person who sent the query at the IRD with 2 points:
1. Asking why had he got in touch with the client directly when it was clear that I (as the clients agent) had completed and filed the return and
2. I explained how NZRWT works.
His response was ‘ Thank you for my reply and he had processed the return”….where is the Sorry from the IRD???
Good on you Jeff, I support you wholeheartedly. I don’t have any specific examples, but we are in a situation where we don’t know what the clients are getting from IRD, and then we double up, by checking the massive amount of correspondence and potentially sending on stuff to clients, that IRD may or may not have sent direct.
Here is a copy of some recent correspondence i initiated with the institute about the nonsense going on with IRD sending letters direct to our clients .
We actually had a small victory re this tax rate notification shambles , but IRD continue to surprise my clients with direct mail .
Thanks for this newsletter, very informative and reflects our experiences since Easter this year especially.
As compliance accountants we initially had the same experience with Xero telling the public that they can do without us but a0 it was us at the end of the year having to undo the rubbish Mrs Plumber had input and b0 it was us accountants that were actually selling their system not their marketing.
Best written article yet!!
Thank you for your comments – We completely agree with the sentiments being expressed.
A particular concern for us is automatic transfers being made from a tax type in credit to a tax type that is reflecting an outstanding balance. For the most part these transfers are made incorrectly and often at incorrect dates causing the unnecessary imposition of penalties and interest. In virtually all cases they take unnecessary time and cost to sort out.
Brilliant!!
I will work on this over the weekend as it is something I have been raising with the Department via my account manager since the GST conversion as this created the same challenges. I to remain of the view that it is a simple fix where taxpayers are linked to agents then the IRD flag the client file to only communicate with the agent and not directly for the reasons you have raised.
What is also surprising is the fact that the IRD can not even get to work with the banks so that they can get interest and dividend information and know how it is suppose to be apportioned between e.g. a husband and wife. If they can not get that automated correctly, how can they automate more complex issues.
I have also come across a couple of instances where IRD told clients…
You do not need a tax agent. Just sign up for Xero, it is all automated and you can file your returns yourself at the press of a button.
Even Xero has identified that the issues are to complex and does not enable clients to file AIM returns directly with IRD themselves using Xero. The IRD staff giving out this advise has never actually used Xero (and similar) software and actually processed or filed information with IRD using the software. They just go by their interpretations of hear-say.
Also IRD staff has not seen the mistakes client can make. At least tax agents also provide a service to IRD fixing p mistakes and keeping tax payers more honest than they might otherwise be.
Not sure why IRD think they are doing the NZ tax system any favours by suggesting not using tax agents. It is not like our fee gets deduced from the tax to pay.
Totally agree. About time the IRD took responsibility and held accountable for their actions – we keep our clients honest while they often seem to be wasting their resources.
My latest problem with IRD computer is automatic assessments.
Example 1. I have a client who was 2 months late doing his GST return. IRD did an assessment. When I tried to data enter the client’s correct assessment their computer took my figures and added it to their assessment (the assessment figure was included in the sales adjustment box). This grossly inflated the amount due and penalties had been calculated on the combined figures. I had to email them twice to get it corrected.
Example 2. Sometimes new clients have not done their accounts for several years. I did a 2018 tax return and tried to enter it. Again there was a 2018 default assessment that I could not over-ride with the correct one. In the end I had to email a copy of the IR3 and IR10. I have had a reply saying the return I sent in has been changed and the figure owing is different. I am in the process of resolving this problem.
100% agree.
So many examples of letters from IRD directly clients to reduce tax deducted at source where we have actively advised to pay top rate to reduce impact of terminal tax and/or provisional tax. So frustrating.
First System = Correspondence overload.
AIM is a compliance disaster waiting to happen. To be avoided at all times.
Between IRD and XERO the value of the services of accountants is being undermined. Will come at a huge non-compliance cost to NZ Tax system.
Biggest con – the need for PAYDAY FILING. Such a huge weekly burden on SME’s for no real tax collection benefit compared to monthly PAYE filing. Four chances per month for employers to get a $250 fine for not filing a return within 2 days (for a PAYE payment still due 20th of next month) !!!!
Hi Jeff
Some of my clients have registered for MYIR and then found themselves bombarded with messages which tell them they can file their returns now.
Some of these are elderly with Portfolio investments, Trusts or rentals. They have felt pressured and belittled at not being able to file these returns.
1. We have a Company where the client had no idea about shareholders salaries and no accounts done. They also had a rental and figures seemed to be plucked out of the air.
Allocating a salary against drawings was unknown to them and it took a long time to go back and have years of returns adjusted. Tax had been paid at 28% resulting in a large refund when sorted out.
2. Also a Partnership of 2 Trusts with a portfolio and a home. The client was claiming as expenses rates etc of the home for years and using the wrong method of reporting income as a Partnership for the portfolio.
This is hopefully being looked at my IRD now.
3. Last year an elderly lady filing returns for a Trust and herself and making a mess. We used to do it but she felt pressured to do it herself.
4. Clients interest etc not being split between taxpayers. Doing auto returns from Portfolios and not picking up fees is hugely disadvantaging the taxpayer
These errors take a lot of time to correct.
Just because IRD have the technology to contact clients seemingly endlessly does not mean they should use it.
Here’s another misleading article by IRD:
Fewer people to face end of year tax bills
https://media.ird.govt.nz/articles/fewer-people-to-face-end-of-year-tax-bills/
The Minister of Revenue concludes
“The auto-calc process applies to people whose income is only salary, wages, interest or dividends, not those who use the IR 3 tax return.”
That might be what the Commissioner tells you, but the fact is that IRD issues auto assessments irrespective of whether the taxpayer has an agent, and irrespective of whether they have $10 of other income or $1 million of other income. Idiotic
Thank you for a brilliant and spot on article.
Thanks Jeff – thank goodness. I have passed same concerns on to our regional IRD manager.
This contacting clients directly when we have been nominated/contracted to their agent to deal with their tax affairs is not appropriate and frequently causes clients stress, them and us headaches and clients extra cost when we have to needlessly correspond with IRD.
OMG Jeff – hit the nail on the head. I have cases where IRD have deleted transactions from one year (they were clearly provisional tax payments) and now they have reappeared in an earlier year – go figure but the full integrity of the system in now in question.
It also seems software providers are aware of IRD issues around dividend income reporting incorrectly and my account manager says prove it to me that the system is wrong – I just cant be bothered anymore.
We have no way of ensuring that we receive all copies of correspondence as we dont get notified that a client has correspondence. Im scared we will miss something major. Clients think they have engaged us so they dont log on as they have contracted us to deal with it all and we dont get the notifications. IRD dont know why nor do they care.
The list just goes on and on!