The ongoing Revenue Contractors Project rumbles on with today’s publication of a Revenue letter to the Irish Tax Institute which seeks to clarify a number of queries surrounding contractors who operate as limited companies, and what expense deductions they can claim against taxable income.
The Irish Tax Institute previously asked Revenue for guidelines on how individual contractors should be treated:
- as genuine businesses, with full expense deduction entitlements; or
- as de-facto employees with much more limited expense deductions,
in view of Revenue’s previous guidance on this topic last November.
Revenue have now listed the following indicators in order to address this question:
- does the contractor company has an establishment (i.e. premises, employees, business) which will remain in place beyond the conclusion of an individual contract, ie if the current contract ceases, will the company retain a market to service?
- was the contract obtained via a service procurement process, or by recruitment of an individual with specified skills/characteristics?
- is the contract is defined by the completion of a project or task, or defined by period (including open-ended or renewable contracts).
In addition the arrangements behind every contract will determine Revenue’s position, including “working arrangements, reporting/supervision, length spent with one client, actual employment experience, and other arrangements”.
Based on the above, Revenue conclude that “a majority of professionals working in the Irish market are outside the scope” of the current restriction on expense deductions, “…because they are in business, offering a professional service on the open market.”
They go on to say that some professionals may have a combination of contracts, some of whom are open market business contracts, and others de-facto employments. They state that expenses connected with business contracts are allowable, but those relating to de-facto employments are not allowable.
The letter repeats Revenue’s contention that a company director or employee “without a fixed base” cannot claim an expense deduction for travelling to a job.
It also addresses the issue of “country money”, a concessional tax-free expenses arrangement for construction and electrical workers. It stresses that “country money” relates only to temporary assignments away from their employers’ base, and points out that Revenue are happy that contractor worker/directors are, in similar situations, eligible for the more generous civil-service expenses rates.
Today’s Revenue letter seeks to clarify much of the uncertainty surrounding their contractors project. However it is only partly successful in doing so.
It is welcome that they have now confirmed that “a majority of professionals working in the Irish market are outside the scope” of the project. However the position of those remaining within its scope remains as uncertain as ever.
In particular the fresh criteria have listed today remain quite vague and are capable of being interpreted in different ways.
For example the requirement that contractor company should have a premises, employees and/or business, that will remain after the current contract ends, is in many ways a statement of the obvious – that almost all limited companies that fulfill a contract to completion have the capability to win another contract – either with the same customer or with another.
The issue of how a contractor company has sourced their contracts – eg via a service procurement project or by recruitment of an individual- is rather nebulous.
It is often said that people don’t do business with companies, but they do business with the people behind those companies, be it the owner of the company or more commonly its frontline staff.
Where for example, an owner-operated contractor company wins a contract, it is almost always because of the personal credentials of the company promoter than because of the corporate image or record of the company itself.
The same uncertainly persists with Revenue’s differentiation between project- or task-centred contracts or period-based open-ended or renewable contracts.
The fact that a contract has a fixed duration often has limited or no relevance to the nature of the services provided. An ongoing contract can cover work on many different projects and tasks, or can refer solely to a single project or task.
In addition, long-term or ongoing project contracts will often specify a fixed duration so that the contractor and customer can jointly negotiate revised terms based on changing costs and specifications at various intervals.
This all means that the ongoing uncertainty regarding Revenue contractors project is set to continue for the foreseeable future – with more and more cases ultimately being decided at the Appeal Commissioners, or in the Courts.
If you have concerns about your own position, you should review the implications of the current Revenue contractors project with your accountant or tax advisor, and if necessary, seek independent professional advice, as soon as possible.
The Irish Tax Institute have published the Revenue letter in pdf format here. Otherwise you may access it on this blog, here.