Revenue Once Again Turn Screw on Contractors

April 7, 2014

The seemingly interminable Revenue Contractors Tax Project took another twist today with the issue of a fresh letter from Revenue South West Region to the Irish Tax Institute.

Revenue are now promising a speedy resolution to their audits of “some 550” contractor companies, whose tax position has not yet been resolved.  These form part of an ongoing project to claw back travel expenses and other tax deductions claimed by such companies.

The letter concedes that from Revenue’s viewpoint, “progress has been disappointing in the first Quarter of 2014” and complains of “widespread evidence of delay and reluctance to agree settlement”.

Revenue Contractors Tax Project

Presumably, this is a reference to the increasing numbers of contractors who are opting t0 formally challenge Revenue assessments with the Appeal Commissioners.

Revenue now state that:

  • Where taxpayers have made submissions that have not yet been processed by Revenue, responses will now “issue as a matter of urgency”.
  • Enquiries where “there is no evidence of significant liability” will be closed.
  • In cases where a liability has been determined, but no settlement has been made, the taxpayers concerned will be notified of Revenue’s intention to raise assessments within a further 10 days.
  • Where taxpayers have failed to reply to Revenue information requests, Revenue will raise assessments based on disallowing all expenses claimed.
  • Where taxpayers previously filed a “Notice of Intention” to make a disclosure, but haven’t subsequently done so, Revenue will withdraw the concessions “set out in (our) letter of January 2013 within 20 days.
  • Ongoing audits which started after 1 January 2014 will progress normally.
  • Taxpayers who cite inability to pay liabilities must first agree their liabilities before any discussion can take place on how they can pay the settlement amounts.

Ironically, today’s letter was unveiled only hours after the UK House of Lords slammed the ongoing campaign by Revenue’s counterparts in the UK, HMRC,  to disallow tax benefits accruing to “personal service companies” through the controversial IR35 legislation in that jurisdiction.

It’s worth noting that no equivalent legislation applies in Ireland and the entire Revenue campaign here has been based, not on the laws of the land, but on Revenue’s own interpretation of the law.

Based on the UK experience, there is no guarantee whatsoever that the Revenue stance will withstand a future challenge 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.


Revenue’s latest letter to Contractors – In Full

April 7, 2014

The following is a transcript of Revenue’s letter of 3 April to the Irish Tax Institute in relation to their ongoing Contractors Project, challenging travel expenses and other overhead cost  claims by owner-managed contractor companies.  The original is here. See also my commentary.

Revenue

 

 

“Office of the Revenue Commissioners

South West Region

Revenue House

Blackpool

Cork, Ireland

 

Cora O’Brien

Irish Taxation Institute

South Block

Longboat Quay

Grand Canal Harbour

Dublin 2

3 April 2014

 

Re: Revenue Contractors Project

Dear Cora

I wish to brief you on developments in the contractors project, which will be of interest to ITI members.

We have reviewed progress on the audits remaining open in Phase I of the project, which relate to some 550 cases. At the outset, it was our intention to progress cases quickly. In the event, there have been delays, largely arising from the focus on travel and subsistence expenses which became central to the project. Requests for clarification of the rules applying to such expenses delayed progress and resulted in the issue of Tax Briefings 3 and 4 of 2013 and in some correspondence and meetings. All general issues of clarification and interpretation were dealt with by the end of 2013, so there is no longer any justifiable reason for delay. Accordingly, it is now appropriate to move towards conclusion of this phase of the project.

It is our intention to conclude Phase I of the project by July 2014. Notwithstanding the extensive clarifications given by Revenue, progress has been disappointing in the first Quarter of 2014, and there is widespread evidence of delay and reluctance to agree settlement on the part of many taxpayers. The project team has therefore been asked to review all open cases, and to proceed as follows:-

  • Where there is material on hands awaiting a Revenue response, responses will issue as a matter of urgency.
  • Cases where there is no evidence of significant liability will be closed.
  • Cases that received an audit notice before 31 December 2013 —

o        where all material issues have been decided but without settlement will be notified of our intention to raise assessments within 10 working days of the issue of the notice in the absence of agreement;

o        where there has been no response to the initial request for information will be notified of intention to raise assessments based on disallowance of all expenses claimed;

o        where intention to make a disclosure was indicated but no qualifying disclosure has yet been made will be notified that the concessions set out in my letter of January 2013 will be withdrawn 20 working days from the issue of the notice, after which full Code of Practice terms will apply.

  • Cases that received an audit letter since 1 January 2014 will be progressed normally, within the terms of the project.

It appears that some taxpayers may be reluctant to agree a settlement due to fear of inability to pay the agreed liability. I would like to emphasise that no discussion on ability to pay can take place until the liability is settled. We remain open however to discussion of timing and methods of payment to ensure there is no undue hardship. In that regard, the Collector-General’s procedures for dealing with difficulty in payment will apply, including verification of inability to pay, and instalment arrangements in appropriate circumstances. Guidelines can be viewed at http://www.revenue.ie under the link “Tax Payment Difficulties”.

Each case will be considered separately. Taxpayers are of course entitled to adequate time in which to respond to Revenue queries, and the letters described above will issue only where the caseworker is satisfied that there is no good reason for the delay experienced. Every effort will be made to arrive at an agreed settlement, but it is unfortunately clear at this stage that there is widespread delay, and this cannot be tolerated indefinitely. Assessments will be raised where necessary, and interest and penalty will apply as appropriate.

Yours Sincerely

 

Anthony Buckley

Assistant Secretary”

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.

 


Contractor Appeals Hit Revenue Tax Project

January 20, 2014

The Sunday Business Post yesterday reported that the Revenue’s ongoing National Contractors Project has run into problems, as increasing numbers of contractors formally challenge Revenue assessments raised against them.

The Revenue investigation was launched last year in response to alleged tax evasion on the part of contractors and professionals working through their own companies in the technology, software and pharmaceutical industries. It started last January in the Munster region and was extended nationwide in Spring 2013.

Appeal Commissioners Revenue Contractors Tax Project

Revenue audits had revealed that some contractor companies were claiming excessive expenses against their tax bills, with claims for motor & travel and associated home office costs in the spotlight.

Revenue then “invited” contractors to make voluntary disclosures of their tax underpayments, including interest and penalties.  A significant number of contractors came forward to do so and it was once speculated that the entire project could yield up to €100m for Revenue.

However Business Editor Ian Kehoe has now revealed that a number of contractors have faced down Revenue, maintaining that their tax affairs and accounts deduction claims are fully in order.

In addition, Dun Laoghaire-based tax consultant Dermot Byrne recounted in yesterday’s paper the case of one contractor who demanded that Revenue raise a tax assessment, in order to enable him to formally challenge the assessment through the Appeal Commissioners, in line with the Revenue Code of Practice for Revenue Audit.  Revenue then backed down and dropped their case against the contractor and his company.

The lesson for contractors is clear: if you feel aggrieved with Revenue’s treatment of you and your business, you can challenge them at the Appeal Commissioners.

It goes without saying that Appeals are only advisable with the benefit of professional advice. Bear in mind the old saying “A man who is his own lawyer has a fool for a client“. But, if you don’t look after and protect your own interests, who will?

Ian Kehoe’s & Dermot Byrne’s articles yesterday can be accessed by purchasing a Sunday Business Post subscription, starting at €2.69 for a single edition.


Irish Tax Institute Query Home Office Tax Crackdown

August 16, 2013

The Irish Tax Institute have today published their formal response to the last month’s Revenue Tax Briefing which sought to restrict allowable travel expenses for contractors and small companies operating from home office environments.

In their Tax Briefing, Revenue effectively attacked the entitlement of company directors and employees to claim mileage and subsistence expenses in respect of travel to and from their home office – even if it is a company’s registered office or main place of business.

Revenue Attack Home Office Company ExpensesThe Irish Tax Institute (ITI) have responded by questioning the validity of this approach.

They point out the rather obvious reality that in the modern working environment, there are many cases in which a person’s home is their main place of work, and note that Government policy actively encourages home working and teleworking.

The ITI criticise the Revenue position as failing “to take account of genuine situations where an individual’s work operations are based at their home and the majority of their work takes place at home, rather than at any other premises.”

The Institute also point out the apparent contradictions between the new Revenue policy and a range of existing Revenue arrangements and concessions, including:

  • construction industry “country money”,
  • allowable subsistence for foreign travel and,
  • the Budget 2012 Special Assignee Relief Programme and Foreign Earnings Deduction schemes.
Clearly this debate is far from over.

For more, see The Irish Tax Institute statement , Revenue Tax Briefing No 03/13 & my recent Blog Post on this subject.


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