Revenue, Techies & The Bart Simpson Paradox

January 31, 2013

Tech contractors are this week anxiously reviewing their contract and tax arrangements following last Friday’s news of a looming Revenue crackdown on the sector.

They and their advisors will be grappling with a range of complex issues, some of which contradict each other.

Revenue & Tech Contractors

An interesting contradiction lies at the heart of a major issue flagged by Revenue last week, as follows:

“For the moment, our concern is that in many cases too small a proportion of the gross contract payment is reported as liable to tax in the hands of the contractor. Into the future, this will continue to be the subject of frequent checking, and will be a factor in risk-based selection for audit.”

Essentially Revenue are stating here that, if your contracting business has significant overheads, they will suspect you of evading tax.

This seems to directly contradict Revenue’s own Code of Practice for Determining Employment or Self-Employment, which lists the various factors that indicate whether a worker is an employee or a contractor running their own business.

Among the criteria that suggest that they are self-employed, are that the worker:

  • “Provides the materials for the job.
  • Provides equipment and machinery necessary for the job, other than the small tools of the trade or equipment which in an overall context would not be an indicator of a person in business on their own account.
  • Has a fixed place of business where materials, equipment etc. can be stored.
  • Provides his or her own insurance cover e.g. public liability cover, etc.”

Now, if a contractor provides all these component functions in the course of their contract work, these will all cost money, ie overhead costs. These costs represent the difference between the contractor’s gross turnover and their net profits.

For a contractor who provides their own materials, equipment and insurance, and runs their own business premises, these overhead costs may be significant. Yet Revenue’s letter now tells contractors that if their companies have such large overheads,  they will be treated as suspected tax dodgers!

It looks like Revenue are presenting contractors with a classic Catch-22: Unless you incur overheads, you’re not a contractor at all. And if you incur overheads, you’re a suspected tax dodger.

As Bart Simpson once said:

Life is a paradox, You’re damned if ya’ do, and you’re damned if ya’ don’t.

bart-simpson-08


Do You Have a Capital Gains Tax Bill This Thursday?

January 29, 2013

Don’t forget, this Thursday, 31 January is the deadline for payment of Capital Gains Tax on disposals in December 2012.

For more, see my recent blog post: https://mcgibney.ie/2013/01/10/31-january-is-capital-gains-tax-payment-deadline/

31 January is Capital Gains Tax Deadline Day

I strongly recommend that you seek professional advice and assistance if you think that you may have a liability to Capital Gains Tax.


Contractor Companies Face Revenue Probe

January 25, 2013

Revenue are now reviewing the tax affairs of limited companies and directors who provide contracted services to a larger company or group.

They have this week written to the Irish Tax Institute, confirming that that their review has already commenced in the South West region (counties Cork, Limerick, Kerry and Clare) and is “likely” in due course to extend to other parts of the country.

Revenue

Revenue state that they have already found “a significant understatement of tax liability” in many cases, which they attribute to “deficiencies in accounting for input costs and expenses”.

They are now inviting contractors to make voluntary disclosures of their tax underpayments, including interest, and the following penalties as set out for “deliberate default” in the Code of Practice for Revenue Audit:

  • unprompted disclosure (i.e. where no audit or investigation notice has issued) –  penalty of 10% of the tax underpayment.
  • prompted disclosure (made after receipt of a audit notice) – 50% penalty;
  • failure to make a complete disclosure,  75% – 100% penalty.

In the coming weeks, contractors, and their tax advisors, will need to carefully review the implications of this news.

The Institute of Tax website includes a pdf copy of the Revenue letter while you can also find a full transcript here.


Revenue’s Letter on Contractor Companies -In Full

January 25, 2013

The following is a full transcript of Revenue’s letter to the Irish Tax Institute confirming that they are “reviewing the tax affairs of companies and their directors” in the South West Region.

The Irish Tax Institute have separately published a pdf copy of the letter here.

Revenue

“Mr Mark Barrett Chairperson
South West Representatives
Irish Tax Institute                                                     22 January 2013

Dear Mark

I am writing in response to queries from yourself and other tax practitioners about the current project in the South West Region concerning various contractors. I would be grateful if you would inform the relevant ITI members of the contents of this letter, which sets out our position as clearly as I can. If I have overlooked any issues, please let me know.

Revenue in the South West Region (Cork, Limerick, Kerry and Clare) are currently reviewing the tax affairs of companies and their directors, where the main source of income is a contract or contracts “for service” with a larger company or companies (directly or through intermediaries), the company in question does not appear to have a substantial business separate from these contracts, and in most cases the director(s) are the only employees of the company and pay tax through PAYE. To date, we have established that in many cases there are deficiencies in accounting for input costs and expenses, with the result that there has been a significant understatement of tax liability to the benefit of the director(s). As a result of these findings, this area will continue to be a significant focus of Regional inquiries through 2013, and it is likely that similar explorations will be initiated in other Regions.

Because of the nature of the underdeclaration, we take the view that the provisions of the Code of Practice for Revenue Audit require us to regard the underdeclaration as stemming from deliberate behaviour. This has the consequence that an unprompted disclosure (i.e. where no notice of audit or investigation has been received) attracts a penalty of 10%; a prompted disclosure made after receipt of a notice of audit is penalised at 50%; and failure to make a disclosure, or to make a complete disclosure, moves the penalty to between 75% and 100% of the tax underpayment. Of course, all underpayments also attract interest from the date of default.

A full disclosure, whether prompted or unprompted, avoids publication. If however the disclosure is incomplete, is not accompanied by full payment, or otherwise fails to meet the requirements described in the Code of Practice for Revenue Audit, then all benefits of disclosure are lost.

In order to facilitate and encourage disclosure, and to ensure a consistent approach to all cases, we have decided not to carry out in-depth checking of disclosures where the disclosure matches existing Revenue information and the general profile for the industry sector concerned. We have also decided that the penalty rates set out in the preceding paragraph will apply subject to exceptional circumstances. Where exceptional circumstances are claimed, a special case will need to be formally made to the Revenue caseworker, who will make a recommendation for decision at Assistant Secretary level.

The definition of “qualifying disclosure” is contained in Section 2.7 of the Code of Practice for Revenue Audit. Naturally, we will take a reasonable approach to the level of detail required, but all significant matters must be included, and payment or an acceptable proposal for payment is also required. If we accept a disclosure and the accompanying payment, we will also accept that the taxes and periods covered are those relevant, and will not look at earlier periods. If however, there are firm reasons to believe that the disclosure is significantly deficient, we retain the right to audit any and all relevant years and taxes.

In the normal course, where an audit is required, it will cover the four complete years preceding the date of issue of the notice of audit. Extension to other years will, as in all audits, depend on the circumstances of the case, but will be unusual. Likewise, there is a possibility of prosecution where audit shows a blatant breach of legal provisions but this will, we hope, be rare.

Changing taxpayer behaviour is a very important consideration in all compliance initiatives, and this is no exception. At the moment, we are not expressing an opinion on whether the arrangements we encounter are valid, that is, whether the company directors should more properly be regarded as direct employees of the entity awarding the contract. This question is being reviewed and may be adressed in the future. For the moment, our concern is that in many cases too small a proportion of the gross contract payment is reported as liable to tax in the hands of the contractor. Into the future, this will continue to be the subject of frequent checking, and will be a factor in risk-based selection for audit.

I hope the foregoing makes our position clear, and I look forward to the co-operation of your members in assuring correct and tax-compliant behaviour in this large and growing area.

Yours Sincerely

Anthony Buckley

Assistant Secretary South West Region”


Have you received your 2012 P60 yet?

January 25, 2013

If you are working in paid employment, you should, around now, be receiving your 2012 P60 Certificate.

Your P60 is a Certificate of your annual Pay, and PAYE Tax, PRSI & USC deductions, for the past calendar year.  Your employer is legally obliged to issue you with your 2012 P60 by 15 February next,  but you may well have already received it recently.

Form P60 Certificate Pay, Tax, PRSI, USC

Your P60 is a very important document and it is essential that you keep it in a safe place.

 You will need your P60:

  • if you are completing a tax return, or making a tax refund claim for 2012.  Revenue may sometimes also require you to forward your P60 to them in order to verify your tax return or claim.
  • if you are making an application for a mortgage or loan, to a bank, credit union or building society.
  • as proof of your income if you  are claiming certain benefits from the Dept of Social Protection.
  • for a variety of other State benefits, eg SUSI Third Level Grants.

In addition, I recommend that you retain all your old P60s indefinitely, in case you need them in the future to verify your PRSI contributions history. This can be especially important for eligibility for the Contributory Old Age Pension.

If you don’t receive your P60 by 15 February next, you should ask your employer to issue it to you, without further delay.  They can do so either via payroll software, or by using the Revenue approved-format P60 templates, which are online in both MS Word and Laser format (the latter presumably for use with laser printers).


Tonight’s Tax Return & Payment Deadlines

January 23, 2013

Don’t forget that midnight tonight (23 January) is the deadline for filing the following tax returns:

  • Employer PAYE/PRSI P30 monthly return for December 2012 & quarterly return for the period October – December 2012
  • VAT3 return for periods ending in December 2012
  • RCT December 2012 monthly return for December 2012 & quarterly return for the period October – December 2012.

You must file each return online using ROS, and each return must be accompanied by your corresponding tax payment.

Tax Deadlines

In addition, tonight is also the deadline for

  • payment of Preliminary Corporation Tax, if your 2012/13 company accounts year ends in February 2013; and
  • filing of your Corporation Tax Return and payment of any remaining tax owing, if your 2011/12 company accounts year ended in April 2012.

For a full list of all Revenue tax deadlines in 2013, see the Revenue Key Dates Calendar. Note the extended filing dates for returns filed electronically via ROS.


Taxman’s Big Brother Plan to Tackle Fuel Criminals

January 23, 2013

A tough Revenue crackdown on fuel smuggling and laundering is now underway. This month sees the introduction of a new fuel movements e-reporting system for all petrol, diesel and oil traders.

All fuel warehouse operators, distributors and forecourt retailers must now file online, a monthly Monthly Return of Oil Movements (ROM1) showing, for each fuel product type:

Taxman's Big Brother Plan to Tackle Fuel Smuggling

  • Opening fuel stock balance.
  • Closing fuel stock balance.
  • Date, quantity, invoice, supplier details for each fuel stock movement inwards.
  • Similar details  for each fuel stock movement outwards.
  • Aggregate details for forecourt fuel sales.
  • Aggregate details of sales to domestic customers and smaller commercial customers who receive less than 2,000 litres per month.

All Auto Fuel Trader’s Licence and Marked Fuel Trader’s Licence holders must now be registered on the ROS system and must use ROS to file their ROM1 returns.

The requirement for traders to report each individual movement of fuel is intended to make it much harder for illegal fuel smugglers and launderers to market their product through legitimate fuel retailers.

It will now be very easy for Revenue to match the dispatch of each fuel consignment from a wholesaler or warehouse to its receipt by forecourt retailers and end users. Tax officials will also be ready to pounce if and when they notice unrecorded fuel movements along the public roads and where unexplained gaps or anomalies within traders’ returns indicate a risk of illicit behaviour.

The ROM1 system represents the latest strand of Revenue’s Strategy for combating the illegal oils trade, and follows recent lobbying by legitimate petrol retailers for action to stamp it out.

I expect that it is also an indicator of Revenue’s likely strategy to combat tax evasion and other business criminality in the future.  With a vast, and ever-expanding, range of Big Brother-style technology at their disposal, it is now easier than ever before for Revenue to monitor and detect all illicit business activity – and it’s only a matter of time before the criminals and dodgers have nowhere left to hide.