Revenue Warn Builders: “We’re Back!”

August 31, 2015

The Revenue Commissioners have warned builders and tradesmen to be on their guard in relation to tax compliance, as the construction sector slowly recovers from its long recessionary slump.

The collapse of the building sector following the 2008/09 crash was a catastrophe, not only for those working in and earning a crust from construction, but also for Revenue, who had enjoyed booming tax receipts from the sector in the Celtic Tiger bubble years.

In its eBrief last week, the tax authority announced that it is beefing up its “compliance interventions” programme for the industry, in order to ensure that the State benefits fully from the recovery.

This centres mainly on the online Relevant Contracts Tax (eRCT) system, in addition to VAT and Employers’ PAYE/PRSI.

Revenue to Builders - We're Back!

Revenue have now flagged the following key issues:

  • Operation of the eRCT system, including full reporting of payments to sub-contractors, and notification of “Unknown” sub-contractors;
  • Reconciliations of Home Renovation Incentive (HRI) applications with VAT returns;
  • Cross-checking of eRCT, PAYE/PRSI and VAT returns with reported profit margins;
  • Reviews of VAT Reverse Charge and PAYE/PRSI procedures;
  • More attention on the vexed question of classifying employees vs. subcontractors; and
  • A fresh focus on the treatment of non-Irish resident principal contractors & sub-contractors.

Once underway, the Revenue  “compliance interventions” programme will entail more:

  • aspect queries – requests for documentation and other specific questions
  • profile interviews – interviews focusing on the key tax “compliance risk areas” identified by Revenue based on the taxpayer’s profile.
  • revenue audits – full examinations of tax returns and claims.
  • unannounced visits to construction sites.

Revenue are strongly encouraging builders and tradesmen to review their tax compliance, and regularise any shortcomings before they take action.

In many cases this will entail making an “unprompted voluntary disclosure” and settling tax, penalties and interest liabilities.

If you are going down this road, I strongly recommend that you first arm yourself with appropriate professional assistance and ensure that your proposal complies with the Revenue Audit Code of Practice.

Are Revenue Really Using PAYE Audits to Fish for Third-Party Data?

August 18, 2015

“Revenue are doing audits of PAYE taxpayers who got one-off single-house planning permission and demanding details of all payments to tradespeople.”

…according to Aidan Clifford in the Sunday Independent at the weekend.

I haven’t yet heard of this happening. If if it is, I’d be very, very alarmed.

Revenue Audit

The purpose of a Revenue Audit is to audit a tax return. It should never be merely a general trawl through a private individual’s personal expenditure.

And if Revenue are auditing PAYE taxpayer returns with the sole intention of fishing for information on non-business spending, there’s a good chance they’re violating both their own Code of Practice and their wider data protection obligations.

If you’ve a grievance over the conduct of a Revenue Audit, you can use their complaints procedure.

A Simple Solution to the Airport VAT Racket

August 13, 2015

Earlier this evening I was privileged to contribute to a discussion (50.35 minutes in) of the unfolding airport VAT controversy on Matt Cooper’s The Last Word radio programme on Today FM.

In response to my charge that airport retailers are unfairly pocketing a VAT advantage at the expense of their customers, the Dublin Airport Authority’s Paul O’Kane countered that the DAA are using this benefit to lower prices for everyone.

Paul’s claims incidentally give rise to further issues, which Aisling Donohoe raises in her excellent blog post, but I’d prefer here to concentrate on the key question of transparency for consumers – and what I see as the obvious solution to this mess.

A Simple Solution to Airport VAT racket

It is abundantly clear that airport retailers have sufficient point-of-sale system technology at their disposal to enable them to automatically allow the appropriate VAT exemption to non-EU customers, in the form of a reduction in their bill.

This would be a far more transparent and acceptable practice than effectively ripping off some customers and pledging to use the proceeds to benefit others.

During the discussion, Paul confirmed that the DAA already operate differential pricing for duty-free sales to EU & non-EU customers, so their point-of-sale systems are indeed equipped for this purpose.

Why not extend this functionality to VAT, and dispense altogether with the cloak and dagger approach?

At a stroke, this simple move would resolve this controversy, and kill the bad PR that continues to engulf the airport retailing sector.

And because everybody loves a bargain, I guarantee that will actually boost airport sales to non-EU travellers.

So everyone wins!

VAT at the Airport: The House Always Wins

August 12, 2015

I’ve often wondered, when making a small purchase at an airport, why the retailer wants to view and scan my boarding pass.

Such requests are often irritating, as when I travel with my family, my wife often carries all our boarding passes as far as the boarding gate.

Airport Retailers Win on VAT

On occasions, I’ve opted not to buy a book or magazine because I simply couldn’t be bothered going back to her to locate my boarding pass.

But, like everyone else, I’ve put it down as one of the multitude of pointless inconveniences that we all encounter when we travel by air.

But last weekend, it emerged that this practice is not pointless at all – but part of a lucrative VAT avoidance strategy by major UK retailers such as WHSmith, Boots and Dixons.

It enables them to take advantage on a little-known VAT exemption on goods sold “for export” outside the EU.

Today, the Dublin Airport Authority confessed that it operates a similar ploy to cut its own VAT bills.

But crucially, in common with the big UK airport retailers, it doesn’t pass those savings on to customers.

So we have a situation where an airport shopper pays €10 for an alarm clock, she automatically assumes that the price includes 23% VAT. If she is travelling within the EU, the store duly pays the €1.87 VAT element to Revenue, on her behalf

But if she is travelling elsewhere, to any non-EU destination, the shop conveniently gets to keep the VAT on her alarm clock.

Isn’t this a great system!  It is – but only for the retailer.

The lady with her new alarm clock is blissfully unaware that the she has overpaid for it by €1.87. We can safely assume that the retailer’s accountants aren’t as naive.

I’ve often remarked that VAT is the most complex, and the most evaded (and avoided) of all taxes – and in many cases its byzantine exemptions and loopholes are a lovely little earner for big retailers.

And its not only in airport shops that this is an issue.

Some years ago, a British economist drew attention to what he termed “the Mothercare subsidy” – the fact that VAT-exempt children’s clothing and similar items were no cheaper to consumers than other goods on which full-rate VAT was levied.

Over the years, this anomaly has lavishly boosted the fortunes of chains like Mothercare who sell a lot of baby wear – and charge remarkably high prices.

Over 30 years ago, an Irish government famously collapsed after it failed to impose a VAT charge on children’s shoes.

Yet today in Ireland, VAT-free kids’ shoes are every bit as expensive (or perhaps more so) as VAT-liable shoes for grown-ups.

This latest controversy is unlikely to ignite a much-needed root and branch reform of the VAT system.

But in the meantime, airport shoppers will be well advised to keep their boarding passes in their pockets, and produce them only when they’re happy that the retailer is passing on the full VAT saving to them.

A small victory, but hey, it’s your money. And you can be sure that they win the rest of the time.

Don’t Lose Sleep over AirBnB Tax Returns

August 11, 2015

Unfortunately, confusion and panic have greeted this morning’s news that the AirBnB have notified Revenue of income earned by their Irish hosts who welcome paying guests into their homes.

Don't lose sleep over airbnb tax returns

Thousands of Irish homeowners are now registered with AirBnB and many of these people will now worry at the prospect of receiving large tax bills.

However, the situation for most is not nearly as serious as media reports suggest.

Revenue’s guidelines on the subject (updated in a March 2015 eBrief) confirm that providing accommodation to occasional visitors does not qualify for tax exemption, but is subject to Income Tax (along with PRSI & USC) as a trade.

The flipside of this is that it is only the trading profit, and not the gross income received, which is taxable.

This means that an AirBnB host must only pay tax on the profit they earn, after deduction of all expenses.

Such expenses will include the direct costs of each booking, eg

  • AirBnB booking fee,
  • breakfast and other meals provided,
  • cleaning, etc

and also a percentage of the many indirect household costs which relate to the accommodation, including

  • insurance,
  • electricity & phone
  • repairs & maintenance
  • mortgage interest
  • wear & tear on household furniture & fittings.

The extent to which a householder can claim these latter costs depends on how much of each cost relates to business (eg AirBnB accommodation) as opposed to personal use.

For example, in a typical property where the accommodation business is incidental to its use as a family home, I’d expect that the appropriate % of such indirect costs that can be claimed would be very small.

Still, every little counts, and when you deduct all appropriate costs from your gross AirBnB income, you will probably find that the net taxable element is a fraction of the gross sum.

This net amount will be subject to income tax of 20% or 41% (40% in 2015), in addition to 4% PRSI and USC (generally up to 7%).

In addition, the other minor comfort is that we are talking here about current, as opposed to historic, income.

The information given by AirBnB to Revenue relates to the period from May to December 2014.

This income is taxable in 2014 and the deadline for filing 2014 Form 11 & Form 12 tax returns is not until 31 October next, or 12 November if filed on ROS.

This means that AirBnB hosts have plenty of time to regularise their tax situation ahead of the October/November deadlines. Obviously this should also include any such income received before May 2014.

This is a stark contrast to the catch-22 dilemma faced in the past by others with historic undeclared income, where interest and penalties often combined to generate huge liabilities.

My advice to AirBnB hosts? –

  • Firstly, don’t lose any sleep amid the current hysteria.
  • Secondly, get your affairs in order, with professional assistance if you need it, and make sure you file your 2014 (and any earlier) returns by the forthcoming deadline.

Dont Lose Sleep over AirBnB Tax Returns