This week Dominic Coyle answers queries on Income Tax, DIRT and Eircom rental.

Income tax

Is income earned in tax year 2003 taxable under 2003 income or the year in which it was received?

I started work at a financial institution on December 15th, 2003. I was told that I had started too late to be included in the payroll for December and that I would be paid my wages earned for December in the January payroll.

I assumed (as most people probably would) that this would still be deemed to be 2003 earnings and my payslip would reflect this. Instead, my employer paid the December 2003 wages and January 2004 wages together as January 2004 wages. I rang my payroll department and queried this but was told that they can't change it.

Added to this they will not provide me with a P60 for the 2003 tax year - something I thought they were legally bound to do. This basically means that I will be paying 42 per cent tax on this income (I would have been below the 42 per cent band without this and was on the 20 per cent band in 2003) which roughly works out to be 700. As you can imagine I am none to happy with the situation. What, if anything, can I do?

Mr D.H., email

The good news is you will get your money. The bad news is that it won't be for a while. Ernst & Young's Ms Aileen Downes explains that, as you are in the PAYE system, the tax is deducted on the basis of the date you are paid. However, ultimately you will be assessed for tax purposes on the basis of the period in which the earnings accrued.

In other words, your payroll department is right when it says it has no choice but to deduct your tax on the basis of the figure that you are paid in January - regardless of when it is earned. However, you will be able to get a refund from the Revenue of any money owed once it has a chance at the end of this year to assess what payments are in relation to which earnings - those in December 2003 and those in January 2004.

What you will need is a statement from your employer outlining the chain of events. It is not as unusual as you might think. The Revenue is, I am told, fairly used to dealing with situations like this, especially in relation to bonuses that might apply to one year but are paid in another. While your case is slightly different, the same rules apply.

So, the answer is the income is taxable in the year it is earned but the Revenue will take its money upfront and sort out any quirks later, at least for those working under the PAYE system.

DIRT dilemma

A relative of mine is aged 65. His gross income from pensions is just below the 31,000 pensioners' tax exemption limit. However, he has a lump sum he wishes to invest. If this is invested in a fixed-interest deposit account with DIRT deducted at source, would the interest accrued be added to his pension for the purpose of assessing if he has exceeded the 31,000 tax exemption limit.

If it does not, as he will then not be subject to income tax, can he reclaim the DIRT paid on the proposed investment.

D.M., Dublin

I can't imagine your relative will have a huge problem, but the fact is that any income they receive comes into the equation for income tax. It doesn't matter whether that income comes from his pension or from interest or other income.

Having said that, you point out that the gross pension will not bring your relative above the €31,000 exemption limit for a married couple aged 65 or older. The interest accrued would be added to the pension income for the purposes of assessing income tax but you must remember you are already paying DIRT on that.

DIRT is levied at 20 per cent and unless the lump sum is so large as to leave your relative without any worries about trivialities like income tax, the interest is unlikely to take them out of the 20 per cent band. After all, they could earn €37,000 above the exemption limit without moving into the higher rate band.

As it happens, assuming their pension is not bang on the exemption limit, your relative may be entitled to claim back at least some of the DIRT that will be paid on the interest.

Eircom rental

I have just received my phone bill from Eircom and it says that I now have to pay for phone rental. I am a pensioner and, until now, phone rental has been free.

I have heard nothing about this and have received no information until now from Eircom. I rang the Department of Social Affairs and was told that it was in the Budget. Do I have to pay this and, if so, what has happened my free phone rental?

Ms A.E., email

I suspect we shall be hearing a lot more about this as phone bills start dropping through people's letterboxes in the coming days. It is hardly helped by the fact that the issue is being cluttered up with terms that are unfamiliar to people.

Having said this, it is not trueS that this has received no publicity. My colleague Jamie Smyth wrote extensively about the row between Eircom, the Department and lobby groups representing elderly people in January.

The bad news from the point of view of yourself and 300,000 people who have, until now, enjoyed free phone line rental as pensioners is that the link between what Eircom calls its "social benefit scheme" and the allowance the Government pays Eircom on behalf of eligible pensioners has been broken.

The good news, if you can call it that, is that it could have been worse. Eircom initially wanted to raise its charge by €1.74 to €26.44 a month. Following discussions with the Department of Social and Family Affairs, it decided to limit the increase to 47 cents, bringing it to €25.17 a month or €50.34 in a two-month billing period before VAT.

The new regime kicked in on February 4th.

Eircom also removed the call credit, which amounted to €2.21 per two-month billing period.

So whose fault is it? Difficult to tell. What is certain is that it was not announced in Mr McCreevy's Budget, despite what the Department told you. Basically, when Eircom - which is, after all, a private company - announced its intention to raise prices, the Department found it had no room in its own Budget to meet the cost.

At a time, when there is increasing talk of the need to care for the more vulnerable in our society, the episode reflects poorly on both the telecoms company and the Government.

Once this link has been broken, the only certainty is that pensioners will continue to pay an ever-larger amount for their phone service, a cost some of them may not be able to afford.

All of this is of little use to you. You will have to pay the charge or risk losing your service ultimately.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.