Penalties – clarifying the sanctions for non-compliance

Submissions

(32 – KPMG, 35 – PricewaterhouseCoopers, 68A – Corporate Taxpayers Group)

Clarification should be provided on what penalties, if any, should apply if the failure to transfer payroll donations to a relevant recipient is not deliberate. (KPMG)

The bill should clarify who bears the cost of errors and what penalties, if any, would be imposed if a false donation claim is filed. Any penalties and costs imposed on employers as a result of errors should be minimised. (PricewaterhouseCoopers)

If employers have taken reasonable care in determining the tax credit applies – for example, by checking that the relevant charity is listed with the Charities Commission, the tax credit should not be adjusted and no penalties or use-of-money interest should be payable. (Corporate Taxpayers Group)

Comment

Proposed section RD 2(1)(b) provides that the payroll donation tax credit provisions are part of the PAYE rules. Therefore, the normal penalty and use-of-money-interest charges that apply to the determination and payment of PAYE also apply to the payroll donation tax credit. It would be a question of fact and degree whether the current late payment penalties or any of the shortfall penalties would apply and application of penalties would be on a case-by-case basis.

The only additional penalty for payroll giving is contained in proposed section 141E (1)(c) of the Tax Administration Act 1994. This provides that employers are subject to a 150% penalty for evasion if the employer knowingly does not transfer the payroll donations to a relevant recipient within the three-month timeframe, or the donation is passed to an ineligible recipient. The penalty is imposed on the payroll donation tax credit that is extinguished, because the credit would represent the short-paid PAYE.

Officials agree that the interrelationship between the payroll-giving provisions, the PAYE rules and the penalty and use-of-money interest rules should be clarified. This clarification should be outlined in Inland Revenue’s publication, the Tax Information Bulletin.

Recommendation

That the submissions be noted. Further clarification on how the PAYE rules, the penalty and use-of-money interest rules and the specific tax evasion penalty for payroll giving should be provided in Inland Revenue’s Tax Information Bulletin.