# small business and taxes



## jetts (21 Jun 2002)

My business partner and I run a small manufacturing business, ltd for about 2 of the last 4 years. At the moment we don't employ anyone.The business has been quite successful with the result that we are facing a corporation tax bill of about €6,000, a bit much for 2 carpenters.We only draw down an average salary but we contribute about €18,000 to a pension(combined).
Our accountant did not advise us adequately as how to avoid this tax bill, I did tell him months before the kind of figures we were doing.We really need advice about how to avoid this situation and with regard to tax and investing, have a plan to develop the business in the long term.

advice appreciated


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## Tommy (21 Jun 2002)

Hi jetts,

Obviously nobody likes paying taxes, but it is important to remember that taxes are a fact of life for small businesses  such as your own. While tax planning and (legal) tax avoidance measures are useful, in general terms, in minimising tax liabilities, it is pretty much impossible, in most situations, to (legally) prevent some sort of tax liability arising if a company or small business is making profits. 

It is also important to remember that, sometimes, in tax planning, "the cure may be worse than the disease". For example, a manufacturing business can decide to invest large sums in new machinery on a regular basis to generate capital allowances that are deductible against corporation tax. The company will definitely save tax (maybe in full) by doing so. However, this option may not be a good one for the company, as the costs of additional financing and writeoffs on existing machinery may heavily outweigh the tax saving.  

It is very difficult to comment on the specifics of your case except that to say that, (at the current corporation tax rate of only 12.5% of their profits) Irish small companies, in general terms, are not facing the crippling tax bills that their equivalents faced here a decade ago or that their counterparts in unincorporated businesses in Ireland are still dealing with.  

In that context, Corporation Tax bills of around €6k should only arise if the business has taxable profits (after all deductions, including directors' salaries, and capital allowances) of €48K. Normally if a small comany is making  profits of this order, paying a tax bill of €6k should not be a massive problem (cashflow permitting) for the company. Remember, if a self-employed individual earns such income on top of normal "take home" drawings from the business, they will be paying income tax of up to €20k on this income.

Finally, if you are not happy with the levels of service or quality of advice offered to you by your accountant, it is time for you to discuss your concerns with him/her or to shop around for another accountant to do this work for you. (For a start, you should ask yourself are your pension arrangements structured in a way to maximise tax relief). However, it is vital to remember that an accountant is not a magician and you cannot expect your tax bills to totally disappear, even if you are dealing with the best accountant in the world.

Tommy
www.mcgibney.com


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## tedd (21 Jun 2002)

A tax bill of €6k between two people sounds like something out of a fairy tale if you are a PAYE worker!


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## Tommy (21 Jun 2002)

Hi tedd,

There seems to be still some sort of myth out there that self-employed people and company directors pay less tax than PAYE workers. In fact, it's not the case, and you could more credibly argue the opposite, as PAYE people can claim the same tax bands and credits as the self-employed but the self-employed can't claim the PAYE allowance.

Some of the myth is based on statistics available from the annual Revenue Reports, which state that the average self-employed person pays €x,000 less in tax each year than the average PAYE earner. However, these statistics are badly distorted by the fact that most high-profitmaking self-employed people incorporate themselves as limited companies to avail of lower corporation tax rates. Their personal earnings then are categorised, in the statistics, into either (i) corporate earnings or (ii) directors salaries which are included in the PAYE-earners figures.

As incorporation is not really worth the hassle for self-employed taxpayers on modest earnings, its not really a surprise that the average per-capita tax take from the self-employed doesn't really increase much over time. The modestly-profitable self-employed taxpayers stay within that sector year-on-year, the booming ones end up joining the "PAYE sector".

Strange but true - Tony O'Reilly and Michael O'Leary are probably "hardpressed" PAYE taxpayers - wonder if SIPTU will let them join?? 

Tommy
www.mcgibney.com

ps In jetts' case, don't forget that (s)he and their partner will also be paying PAYE on their salaries from the company, in addition to their corporation tax bill on the remaining surplus.


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## tedd (24 Jun 2002)

Apologies for my previous comments which appear to have caused a great deal of offence.
tedd


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## Tommy (26 Jun 2002)

Hi tedd,

no need for you to apologise, at least from my point of view. You expressed a reasonable opinion and you are definitely correct to express it, even if I don't agree with it. 

best regards,

Tommy
www.mcgibney.com


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## tedd (26 Jun 2002)

Tommy,

Thanks for your kind remarks.

I also received an anonymous private message from an unregistered contributor who was offended. 

My comments were a bit tongue-in-cheek but I can see how it could be seen as offensive.

Regards
tedd

ps Contributors who want to use the private message facility to criticise contributions privately should really <!--EZCODE BOLD START-->* register*<!--EZCODE BOLD END--> as a user because as a general rule I think it's only fair to allow the right of reply (and unregistered users cannot receive private messages).


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## Observer (27 Jun 2002)

<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> 
There seems to be still some sort of myth out there that self-employed people and company directors pay less tax than PAYE workers. In fact, it's not the case, and you could more credibly argue the opposite, as PAYE people can claim the same tax bands and credits as the self-employed but the self-employed can't claim the PAYE allowance.
<hr></blockquote><!--EZCODE QUOTE END-->

Ah come on, Tommy, you just can't be serious!!!!! As a practising accountant you must KNOW this is not true.

I base my position on three main headings

1)  The self employed have <!--EZCODE ITALIC START-->_ legitimate_<!--EZCODE ITALIC END--> opportunities for tax avoidance

2)  The self employed have considerable scope to "bend" the rules around the edges.

3)  The self employed have the opportunity to engage in outright tax evasion.


In more detail...........

<!--EZCODE BOLD START-->* 1.  Legitimate tax avoidance.*<!--EZCODE BOLD END-->
The facility to shift income from one tax year to another hugely assists tax planning and tax avoidance.  This facility is not available to the PAYE taxpayer.  This can also help in other areas eg Social Welfare and Higher Education Grants.  I well remember going to college and getting no grant and paying full fees as our family income was over the threshold.  Meanwhile, the sons of particularly well off shopkeepers and big farmers not alone got their fees paid but qualified for grants as well!  How?  Simply by realising that the Higher Education means test was done for the first year in college only and the grants for future years were based on this alone.  Incur capital allowances, defer income, bring forward costs and, hey presto, income for the year of assessment disappears!  Result; sprog gets fees and grant paid for up to six years in college; possible benefit up to £30,000.  
The self employed benefit from being able to use the "wholly and exclusively" test for tax deductible expenses rather than the "wholly, exclusively and necessarily" test applied to the PAYE sector.  And, there is no doubt that the "necessarily" test is applied VERY strictly!  This concession alone I would willingly swop for the piddling little PAYE tax credit.  
And then there is the ability to employ family members and avail of their tax credits and bands.  The most glaring opportunity for this arises under the individualisation provisions, whereby a spouse who becomes am employee can avail of the  £28,000 lower tax band.  
Not to mention more favourable treatment when it comes to pension provision/ARF/PRSA.  Of course, mere PAYE taxpayers could hardly be expected to manage their own money in retirement! :mad 
And finally, ther are our ridiculous tax residency rules which have been relaxed (by McCreevy) to the extent that businessmen who run prominent <!--EZCODE ITALIC START-->_ Irish_<!--EZCODE ITALIC END--> companies and are prominent in Irish public life are legitimately(!) non tax resident here.  Payback time or what??

<!--EZCODE BOLD START-->* 2 "Bending the rules"*<!--EZCODE BOLD END-->

Clearly there is scope for turning legitimate tax avoidance into something more grey.  Almost every item in part 1 above can be bent at the edges in a manner that is almost impossible to detect.  How certain are we that all family members who are employed in the business actually put in the hours.  Who checks?  How robust are the checks?  Or is it all a matter of self assessment ie write your own tax bill.
Or what about the builder engaged to renovate a shop/office/farm building.  The invoice for 50k or 100k looks reasonable and will feature in the business accounts.............even though half the work was done on the taxpayers residence.  (Remember Lowry?)  And don't tell me it doesn't happen or the revenue will find out.
Or the business trip to wherever (to meet clients, attend a trade exhibition/conference) that's really a holiday!  And if the partner/children/mistress is an employee, they can come too.
Or the computers, laptops, printers that are purchased for the business but end up in regular family use.  Why stop there.  From stationary to TVs, videos, microwaves, the list of possible dual purpose items is endless.  Again, who checks, how robustly etc.
And what about the concept of "self-supply" whereby a shopkeeper supplies the family with groceries etc.  In the UK tax code an explicit provision is made for this, both in income tax and VAT.  Here, I presume tax advisors advise clients to fully declare such things.  Whoops, there goes a pig past my window.


<!--EZCODE BOLD START-->* 3.  Tax evasion*<!--EZCODE BOLD END-->
We know it was rampant in this country.  Even though we were told for years that there was no uncollected tax, that evasion was a "myth" (Useful word, that), we now know, thanks to successive enquiries, that tax evasion was rife, that it was facilitated by banks, solicitors, and, yes Tommy, by accountants and tax advisors too.  Furthermore it was known about and condoned (and even practised) by the highest in the land.
Of course, it still goes on.  From the ten or twenty note regularly taken from the till, to the jobs done for "cash" right up to sophisticated forging of documentation, tax evasion hasn't gone away you know.  Look at the list of tax evaders published last week.  The usual suspects are still at it.  Lots of publicans, shopkeepers, traders, builders, hauliers, farmers, landlords.  Funny enough, I didn't see many PAYE type occupations in the list.  No guards, teachers, labourers, clerks or secretaries.  Funny that.

Finally we have the evidence of revenue audits.  The AVERAGE revenue audit turns up between 5k and 10k unpaid taxes.  How much more must be out there?  Clearly, the ability of the revenue to police the blatant tax evasion is stretched to the limit.  The resources to police the "bending at the edges" type stuff in part 2 above must be minimal to non-existent.

Apologies for rant, but the blatant injustice of it all just gets me going.  And then the self-employed have to the cheek to claim that they are the hard done by ones!  

There's no justice in the world..............


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## Cathal (27 Jun 2002)

Observer,

Why are you not self-employed?

btw. Thanks for the 'tips' .


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## Selfemployed (27 Jun 2002)

I often wondered about the unequal treatment of PAYE earners and self-employed people regarding the PAYE allowance. I pay income tax by direct debit on the 9th of each month, for income I have not received yet and won't receive for the following 4 - 6 weeks (on average). How does the government justify this unequal treatment? Having read "Observers" reply, I wonder, are these the main reasons for not giving self-employed people the PAYE tax credit: "Legitimate tax avoidance", "Bending the rules" and "Tax evasion".  Does anyone see any other reasons?


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## Rufus (28 Jun 2002)

Hello Selfemployed

The same logic probably applies to paying 135% of your 2001 liability in preliminary tax in October 2002.


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## Observer (28 Jun 2002)

Cathal,

I can choose to be employed or self-employed as I see fit.  All I ask is that the decision should be based on no favourable tax treatment for either option.

In other words, if I choose to be self employed, it should be because of the ability to earn more, to be properly rewarded for my efforts, to be my own boss, to fulfil my ambitions or whatever.  It should <!--EZCODE BOLD START-->* not*<!--EZCODE BOLD END--> be on the basis that the taxman will treat me more favourably. 

Hardly unreasonable, I think.

Observer


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## Tommy (28 Jun 2002)

Hi Observer,

Ive no intention of rebutting your various points one by one except to say that your understanding of the Irish tax system seems to be rooted in the assumption that it has been stuck in a timewarp since around 1985. With respect, I can only remark that its a pity that you couldn't have informed yourself better before letting your "holier than thou" prejudices and ideology cloud your judgement. You seem to be blaming the self employed for all the ills of the world, even the fact that the Govt have (scandalously, IMHO) not extended ARF's to PAYE pension holders!

For example, and without even getting started, I'd really love to hear you explain exactly how the alleged "facility to shift income from one tax year to another" works in practice nowadays... 

Furthermore, it is a fact of life that <!--EZCODE BOLD START-->*   all*<!--EZCODE BOLD END--> classes of taxpayers can avail of legitimate tax avoidance opportunties (ever bought a S.23 property, subscribed to a pension or invested in BES?) and also that all classes of taxpayers (even people on PAYE) have been known to illegally evade tax.

You obviously don't know that the self-assessment system works on the basis that taxpayers' affairs are subject to forensic examination in Revenue Audits. Audit cases are selected (i) at random, (ii) from specific cases where unusual trends, anomalies or transactions are spotted and (iii) from certain industry sectors where previous instances of illegal evasion have been found. There are drastic penalties (correctly) levied on those who have flouted the system. 

This means that if a taxpayer is foolish enough to attempt, on any sort of meaningful scale, any or all of the scams you mention, they are quite likely to pay the penalty in the long run. If you've followed the various AAM discussions on tax-avoidance ideas in the past, you will have seen myself and other specialists in this area repeatedly outlining how the system is designed to thwart all such "creative" ideas such as misuse of individualisation bands, etc. If you don't believe this, why not take a peek through our archives, or better still contact the Revenue yourself, and they will be delighted to explain the system to you.

Tommy
www.mcgibney.com


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## Ansbacher (28 Jun 2002)

*Ansbacher day*

Observer thank you for your brilliant post. 

I'm looking forward to Tuesday, I don't expect to see too many paye workers listed. 

I am the paye working child from a business/farming family. I understand exactly where you are coming from. All the children got grants to go to University. i laughed when my parents whinged about the level of taxes they paid  it was small fry relative to the amount i paid as a paye worker. they have since retired. The accountant was given a bonus each year if he managed to find a tax loophole. the more loopholes he found the bigger the bonus. He always managed to find a loophole. My parents were happy to pay their taxes as long as they weren't paying too much.

yes, tommy your right, the tax audits will find out the non paying taxpayers - but Observer has correctly identified that you won't find the paye worker listed.

Roll on Tuesday.


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## rainyday (28 Jun 2002)

*Re: Self Employed*

Hi Tommy - I don't believe that there is an equitable tax situation between self-employed and PAYE. In particular, the practice of tradesmen working for home-owners doing the job 'for cash' is widespread. From my discussions with a number of individuals, they estimated that approx one-third of their gross income was in cash, and was therefore untaxed.

Regards - RainyDay


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## Liam D Ferguson (28 Jun 2002)

*Re: Self Employed*

Hi RainyDay, 

Remember that for every self-employed individual who accepts "cash" payments and thus evades tax, there are a far higher number of customers (both PAYE and self-employed) who agree to collude in this tax evasion.  If a customer agrees to pay cash in return for a lower price, effectively the tax evasion is being committed by both the service provider and the customer.  And unless we're talking about services targeting the self-employed, as PAYE employees outnumber self-employed in this country, I'm sure it's safe to assume that there are more PAYE customers than self-employed customers colluding with this type of tax evasion.


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## rainyday (28 Jun 2002)

*Re: Hypocracy*

I fully agree with you - And I'm amazed at the blank faces or looks of disbelief I get when I point this out to someone who tells me they just 'got a great deal for cash'.

BTW, my first introduction to 'deal for cash' was from a solicitor I engaged in a dispute about ten years ago. When I balked at his exorbitant fee, he told me he could cut the fee by about 40% 'for cash' - so it's not just the builders!


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## Observer (28 Jun 2002)

*Tax and the self-employed*

The honour of it all, moved to the great debates........!

Still, clearly some issues to be dealt with.

Tommy said:
<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> 
Hi Observer,

Ive no intention of rebutting your various points one by one except to say that your understanding of the Irish tax system seems to be rooted in the assumption that it has been stuck in a timewarp since around 1985. With respect, I can only remark that its a pity that you couldn't have informed yourself better before letting your "holier than thou" prejudices and ideology cloud your judgement. You seem to be blaming the self employed for all the ills of the world, even the fact that the Govt have (scandalously, IMHO) not extended ARF's to PAYE pension holders!
<hr></blockquote><!--EZCODE QUOTE END-->

Tommy,

I'm not holier than thou.  Believe me, I am happy to sin when I get the chance.  However, as I PAYE taxpayer, I DON'T GET THE CHANCE TO SIN!!  My tax is deducted before I see it and the revenue knows every penny I earn.

I most certainly do not <!--EZCODE ITALIC START-->_ blame_<!--EZCODE ITALIC END--> the self employed.  I blame the government for allowing a tax regime to exist whereby the self-employed fare far better than PAYE folk.  I particularly blame McCreevy for hte most blatant examples of this.  (Residency, ARFs, individualisation)  I think he has a particularly pro-self employed approach.

On a close reading of your post, I think we actually agree on quite a few things, namely:
- circa 1985 tax evasion was rife and mainly practised by the self employed (Ansbacher for the big guys, bogus offshore accounts for the middle classes) (BTW I was paying 65% tax and more in PRSI in the mid eighties on an income of about £14k while all this was going on - I was also repaying a student loan - so no apologies for feeling strongly about this - I was robbed by the self employed tax evaders)

- the situation has changed somewhat with the introduction of self assessment and revenue audits

- I also agree and acknowledge that your advice to would be evaders here on AAM has been of the highest propriety and, indeed, somewhat on the conservative side, I would say, in terms of what will pass revenue muster.

I do not accept that tax evasion and particularly "bending the rules" is now a thing of the past.  The audits tell the tale.  In 2001, 16,403 audits were carried out yielding €354.49 million.  That's an average of <!--EZCODE ITALIC START-->_ over 20k of evaded tax per audit_<!--EZCODE ITALIC END-->  And a princely total of 4 jail sentences were handed down for the THEFT of this huge sum!  This is not stringent, it is a welcome attempt to tackle the problem, but its only a start.
Of the audit cases, a grand total of 740 were random audits!  Its a joke!  The average self-employed who doesnt "come to notice" faces a minute chance of being audited.  I make that a 1 in 300 chance (based on just over 200,000 self-employed?)

To make any realistic impression at least ten times this level of random audits is necessary.  It should be a requirement for all financial institutions to obtain an RSI number for each accountholder and forward the details to the revenue.  Revenue should in turn have free access to all financial details.  Provision of RSI numbers should be mandatory for purchases of property or cars and all businesses should be required to issue receipts with RSI number for each transaction.  Drastic, yes.  Necessary, just look at the evidence from audits, ansbacher, bogus non-resident a/cs, clerical medical etc)
And most importantly, does it work elsewhere.   YES, look at the US for a revenue service with real teeth, Sweden, for disclosure of banking details.


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## darag (28 Jun 2002)

*Re: Ansbacher day*

Observer I think you've an outdated view of the
self assessment tax system.  Up to five or ten
years ago the abuses you list were possibly
widespread.  This is certainly not the case
currently.  I am a sole trader/self assessed.
The tax man is very strict about what can be
claimed as a business expense - I don't even get
travel because most of my work is with one
particular company.  My expenses last year (and
yes I do use that computer for work purposes)
came to less than 6% of my revenue - I pay full
whack income tax on the balance including PRSI
and without the PAYE allowance. 

If you still feel aggrieved, I'd point out that
there are plenty of ways to commit fraud besides 
abusing the tax system:  dodgy insurance claims,
stealing from social welfare, abusing sick pay,
etc.  If you feel the PAYE system isn't offering 
you enough opportunities, then try some of the
other areas.


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## Tommy (28 Jun 2002)

*Re: Hypocracy*

Hi Rainyday

We've talked before about the black economy and unfortunately, from anecdotal evidence alone, it never seems to go away. Obviously, both product/service providers and their customers are complicit in these scams, as Liam pointed out.

However, I do think it is grossly unfair to the large majority of honest and compliant self-employed taxpayers to allege (as Observer did) that they are all cowboys, or indeed to assume that every self-employed person is somehow paying less than their fair share relative to employees, company directors and others in the PAYE sector.

Tommy


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## Selfemployed (28 Jun 2002)

*PAYE tax credit*

Can I conclude from the recent contributions that the PAYE allowance was justified 15 or 20 years ago, but it should be scrapped today, because there is no *reasonable* justification (bending the rules etc. not beeing considered) for it – or there should be an equivalent PBYE (Pay Before You Earn) tax credit for the self-employed who pays by standing order?


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## Middenface McNulty (29 Jun 2002)

*PAYE tax evaders*

3. Tax Evasion

Observer,

What about the guards who work as bouncers?
The teachers who do grinds?
The labourers who accept cash ?
Clerks who do Clerking ( off the record, of course ) 
Secretaries who type etc?

What audit system exists for these paye categories ?

Do we all turn a blind eye?


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## Observer (29 Jun 2002)

*PAYE tax evaders*

Fair point, but it hardly elevates them to Ansbacher status!  Or even bogus non-resident status.  I'm all for compliance across the board, but I can't see the most stringent audit of the categories you mention produce an average figure of over 20k in evaded taxes.  Can you?

Actually, if you think about it, the real beneficiary in the case of the "bouncing guard" is the employer who gets away with paying far less than market forces would dictate if the payment went through the books.  Not to mention employers PRSI.


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## Tommy (1 Jul 2002)

*Re: PAYE tax evaders*

<!--EZCODE BOLD START-->*   Fair point, but it hardly elevates them to Ansbacher status!*<!--EZCODE BOLD END-->

Correct, Observer, but didn't you make a good effort earlier at somehow trying to tar all sorts of tax dodger smears on the small business self-employed sector? So now it's apparently OK, from your viewpoint, for PAYE people to be evading tax, once they're not in the Ansbacher league?

Is it not a cop-out to plead that the "real beneficiary" (as you term it) of the "bouncing guard" syndrome is the employer? After all, both employer and employee are dodging tax (under various categories) on the part-time employment, and if the employee is in receipt of untaxed income from whatever source, they have a legal obligation to include same on their annual tax return and pay whatever balance of tax is outstanding thereon. If they don't, they are evading tax and they are breaking the law every bit as much as their crooked employer.

On another point, you made some earlier suggestions regarding mandatory RSI-numbers for large purchases. Believe it or not, the Revenue introduced strict rules for the reporting of all such business-to-business transactions (under what was called "monthly control statements") about 10 years ago and they had to withdraw them about 6 months to a year later. 

The reasons... 
(1) businesses found that the extra bureaucracy was costing them a fortune, and many companies had to recruit new office staff to do the huge volumes of work involved, thus drastically driving up admin costs 
(2) the vast volumes of information generated were useless from the Revenue's viewpoint. In the initial cases where they undertook inspections and audits of the Monthly Control Statements, the Revenue found themselves literally submerged by the masses of information presented to them, all of which were duplications of the figures in the company books and records. 

The biggest irony of all was that the unnecessary bureaucracy was all concentrated on legitimate transactions by compliant taxpayers and the whole exercise was only distracting the Revenue's gaze from the black economy, which they were in the process of dealing with at the time. (Believe me, the black economy in Ireland was much more prevalent in 1992 than in 2002). They would have needed the bureaucracy of Soviet Russia to go through them all. 

Unless we go down the road of a police state, that particular idea won't be implemented again.

Tommy
www.mcgibney.com


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## Get Real (1 Jul 2002)

*Tax Evasion*

Hi All,

I don't disagree that the black economy was bigger ten years ago. However, Observer's basic point is accurate and remains valid. Compared to the PAYE sector, the self-employed (either directly or via companies) have the ability to take extensive liberties with tax evasion, do take them, and are unlikely to be caught.

I work as an IT consultant and supply my services to approx 10 sole traders/family companies - modest sized operations, with turnovers ranging from €500k to €3m p.a. As part of my work I advise on various accounting systems, and therefore have access to, but no vested interest in, what goes on in their accounts.

Amongst the items I have seen put through the business' books are:
* Holidays, including spouses and family members;
* Golf club memberships;
* Cable TV bills;
* Cleaning of private houses;
* Building work on private houses;
* A myriad of smaller items (dry cleaning etc) usually funded from petty cash.

One genius even funded an SSIA from a company account. In fairness, he may have corrected this - I know his accountant advised him to.

Just to be clear: I know that this is dishonest, I know that not all sole traders (I am one myself, after all) take such liberties. However, it is a consistent picture from a sample of individuals who in my judgement are collectively neither more nor less honest than the average. Observer is correct - <!--EZCODE BOLD START-->* our tax system does allow the self-employed sector to engage in large-scale tax evasion, if they wish to do so, with little prospect of being caught.*<!--EZCODE BOLD END-->


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## Tommy (1 Jul 2002)

*Re: Tax Evasion*

Hang on a minute, there is nothing illegal or unethical about a company director paying personal bills from a company account (assuming that the amounts involved are not sufficiently large to breach company law provisions), provided that all these items are fully accounted for as personal drawings when the end-of-year accounts are prepared.

Part of the work of an accountant (and to an even greater extent, of the auditor, if an audit is done at year-end) is to  identify all such items appearing in the company books, and to ensure that they are treated correctly, and re-posted as appropriate. From the viewpoint of the practising accountant, this exercise is an integral part of every audit and the vast majority of accounts preparation assignments. 

Furthermore, in the event of a Revenue inspection or audit (which most business face under either VAT, PAYE/PRSI, or Income/Corporation Tax on average every 5 years or so), this area is usually given close scrutiny by Revenue personnel. Admittedly, it is quite common for Revenue to discover problems in this area, which generally lead to additional tax liabilities. However, it would be incorrect to assume that all cases of personal expenditure items remain uncorrected by the time final accounts and tax returns are prepared.

In your own case, unless you also have access to your customers' final accounts and the details of personal addbacks on their tax returns, I would suggest that you are most probably making an unwarranted judgement on your customers' taxation affairs. I certainly hope, for your own sake, that you have not been foolish enough to make any such allegations within earshot of your customers or colleagues.

Tommy
www.mcgibney.com


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## Get Real Twice (1 Jul 2002)

*Tax Evasion*

Is it just me or does anyone else find Tommy very quick to jump to personal judgements about other contributors who disagree with him.

<!--EZCODE BOLD START-->* Of course*<!--EZCODE BOLD END-->I haven't <!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> been foolish enough to make any such allegations within earshot of your customers or colleagues.<hr></blockquote><!--EZCODE QUOTE END--> Apart from anything else, it's none of my business. It is however germane to this discussion, and I have no problem rehearsing it anonymously (both me and my customers) here.

Why Get Real Twice? <!--EZCODE BOLD START-->* Of course*<!--EZCODE BOLD END-->the amounts in question are not treated as drawings. If they were, I wouldn't have commented on them. You're right, maybe my clients will eventually be caught out by Revenue audits, though none have been so far, and I've worked with some for a lot longer than five years. And while we're on that point, isn't your admission that
<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> it is quite common for Revenue to discover problems in this area, which generally lead to additional tax liabilities<hr></blockquote><!--EZCODE QUOTE END--> effectively confirmation that Observer's original point is indeed correct?


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## Observer (1 Jul 2002)

*Tax Evasion and the self-employed*

Tommy, fair dues to you, you're really trying hard on this one!  Am I now to believe that it makes good sense for a company director to run a myriad of personal bills, some big, some small, through the company accounts.  THEN, keep meticulous records to make sure they are indeed treated separately AND finally, pay an auditor and/or accountant to verify that this is indeed the case.  Whoops, there go those pigs past the window again!!  Wouldn't it be simpler and cheaper just to keep separate accounts for business and personal expenditure???  Unless there was a strong reason for keeping them aggregated!!  (Remember Ray Burke and his "seamless" public/private personas)

Sorry, Tommy, I just don't buy it.

Just to clarify my position Tommy also said:
<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> 
So now it's apparently OK, from your viewpoint, for PAYE people to be evading tax, once they're not in the Ansbacher league?
<hr></blockquote><!--EZCODE QUOTE END-->
Now I don't mind being attacked for what i did say.  Bit I think its a bit unreasonable to be attacked for stuff I didn't say at all. 
For the record I am opposed to ALL tax evasion.  Big and small.  To point out that a certain category is small compared to another is NOT the same as condoning it, OK?  Merely point out that there are degrees of evasion, thats all.

WRT the black economy, Tommy said:
<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> Is it not a cop-out to plead that the "real beneficiary" (as you term it) of the "bouncing guard" syndrome is the employer? After all, both employer and employee are dodging tax (under various categories) on the part-time employment, and if the employee is in receipt of untaxed income from whatever source, they have a legal obligation to include same on their annual tax return and pay whatever balance of tax is outstanding thereon. If they don't, they are evading tax and they are breaking the law every bit as much as their crooked employer.
<hr></blockquote><!--EZCODE QUOTE END-->
I agree, of course they are breaking the law and should be followed up.  However, it is interesting to examine the construction industry, possibly the greatest abuser of the notionally "sub-contracting" employee.  It is the workers in the industry and their unions who have been leading the fight to have the industry regularised.  In fact two workers were imprisoned for their part in this struggle. (technically for refusing to comply with a court order not to picket) Strange how its easier to see the inside of a jail for trying to pay taxes/PRSI than for trying to evade them, eh?

<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> 
On another point, you made some earlier suggestions regarding mandatory RSI-numbers for large purchases. Believe it or not, the Revenue introduced strict rules for the reporting of all such business-to-business transactions (under what was called "monthly control statements&quot  about 10 years ago and they had to withdraw them about 6 months to a year later. 
<hr></blockquote><!--EZCODE QUOTE END-->
Fair point, but what I had in mind was large person to person or person to business transactions, such as property purchase, car purchase etc.  Would it really add that much bureaucracy to have RSI numbers of property owners listed in the Land Registry.  As for bank accounts, to open one now, you gotta supply a raft of details including photo ID, proof af address, employment details etc for anti-money laundering purposes.  Why not just add a requirement for RSI number as well.  
Furthermore the beauty of a receipt with RSI number system is not that all monthly returns can be audited  but that selective random spot checks can be made easily and cheaply.

Finally,
<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> 
Admittedly, it is quite common for Revenue to discover problems in this area, which generally lead to additional tax liabilities. 
<hr></blockquote><!--EZCODE QUOTE END-->
Now, if <!--EZCODE ITALIC START-->_ I_<!--EZCODE ITALIC END--> had said that...........!  Sounds like an admission of hands in the honeypot to me.  

And an audit every five years on average......with only 16000 odd audits per years......hmmmmm?  

Random, comprehensive, lifestyle audits with adequate investigative resources and penalties that bite.......the only way to go, in my opinion.


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## Tommy (2 Jul 2002)

*Re: Tax Evasion and the self-employed*

<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr>    Am I now to believe that it makes good sense for a company director to run a myriad of personal bills, some big, some small, through the company accounts. THEN, keep meticulous records to make sure they are indeed treated separately AND finally, pay an auditor and/or accountant to verify that this is indeed the case. Whoops, there go those pigs past the window again!! Wouldn't it be simpler and cheaper just to keep separate accounts for business and personal expenditure??? Unless there was a strong reason for keeping them aggregated!! (Remember Ray Burke and his "seamless" public/private personas)

Sorry, Tommy, I just don't buy it.<hr></blockquote><!--EZCODE QUOTE END-->

Observer, I didn't say that this was <!--EZCODE BOLD START-->*     good *<!--EZCODE BOLD END--> practice. I said that is <!--EZCODE BOLD START-->*    common*<!--EZCODE BOLD END--> practice and a problem that auditors and accountants regularly come across in the course of their work. 

Given my position, it's important that I make this clear, and I would ask you to please withdraw any implication that my posting was somehow supportive of tax evasion by means of such practices. 

It is simply wrong for you to extrapolate that all such cases of poor accounting on the part of business operators are in themselves indicators of tax fraud. (I'm sure the standards of bookkeeping that you use to maintain your own personal financial records is impeccable...)

Of course, some people get caught by the Revenue with their hands in the honeypot, as you term it, but isn't that proof that the system is working.

To finally conclude on this topic, I am frankly tired of trying to reason with you, on the basis of common sense and my own observations and experience from working at various levels in accountancy since the late-'80s, when all you seem to respond with are sweeping, unfounded and frankly offensive rants about all the flaws that you see in the tax system but that (according to you) the govt, the revenue and everyone else are too stupid or lazy to do anything about. Of course it is telling that you are doing so from a position of total anonymity, so in that scenario it is easy to throw stones at everyone else without having to be accountable for what you say. 

Why don't you contact the Revenue HQ at 01 6475000 to let them know your concerns? I'm sure that they will be very receptive to your comments and perhaps you might learn a little from them as to how the system actually works. That might clear up some of your misconceptions (for a start, RSI numbers are <!--EZCODE BOLD START-->*  already*<!--EZCODE BOLD END--> required by the Revenue, for Stamp Duty purposes, when the legalities of any property transaction are being executed).

Tommy
www.mcgibney.com


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## Dearg Doom (11 Jul 2002)

*Tax Efficiencies for the self-employed*

I just caught up with this thread and have a question for Tommy if he hasn't cleared off completely - if being self employed isn't advantageous from a tax point of view, surely it should be? Should the government be encouraging enterprise instead of having us all take the PAYE route? Are you saying that there is absolutely no tax advantage to becoming self employed (e.g. pension payments, etc.)? Do we as a society have no reward for entrepreneurs?

[For clarification I'm PAYE and I believed until I read this thread (and still do to some extent) that self employment was (rightfully so) more tax efficient.]

DD.


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## rainyday (11 Jul 2002)

*Re: Tax Efficiencies for the self-employed*

Hi Dearg Doom - Just my tuppence worth - The reward for the self-employed is the money they make from their business, not any tax break they may or may not get!

If risk is to be rewarded through the tax system, then surely those who operate in risky industries (like the tech industry in the current environment) should pay less tax. Or those who those who move up to senior management roles which are always 'politically' risky (and first to get chopped when times get tough) should pay less tax.

Also, I don't think it's really accurate to think of the many sole traders as entrepreneurs. There is nothing particularly entrepreneurial about a painter or a plumber or an accountant in sole practice.


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## Marion (11 Jul 2002)

<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> There is nothing particularly entrepreneurial about a painter or a plumber or an accountant in sole practice.<hr></blockquote><!--EZCODE QUOTE END-->

I absolutely disagree. An entrepreneur is defined as anybody who takes the initiative and risks of setting up a business or enterprise.

Marion :hat


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## Tommy (11 Jul 2002)

To reply to Dearg Doom, yes there are some tax advantages to being self-employed. However there are also some severe tax disadvantages, not least the obligation to pay preliminary tax on one's earnings in advance of a major element of those earnings being (1) earned and (2) collected. (These problems are particularly acute for seasonal businesses and businesses with typically long debtor collection periods). 

I don't accept the argument that the self-employed should , as of right, have cast-iron entitlement to preferential treatment in the tax code (even though any sort of arrangement of that nature would suit me perfectly). However, it is important that self-employed taxpayers are treated fairly and equitably under the tax system and not penalised (as they are in certain respects at the moment) on the basis of some vague and unspecific suspicion that they are ripping off the system. 

On the other hand, Rainyday, I'm afraid you are gravely mistaken if you think there is nothing particularly entrepreneurial about setting oneself up in a trade or professional practice. If you've ever had to plough your own savings or personal borrowings into a business or if you've ever had to worry about where to find the cash to pay next Friday's bills or loan repayments, then, in my book at least, you're an entrepreneur, regardless of the industry in which you operate.

Tommy


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## Liam D Ferguson (11 Jul 2002)

*Battle Hymn of the Self Employed*

I have to throw my cent worth into the pot to disagree with RainyDay.  A self-employed painter, plumber etc., may be doing work which has been done the same way for years, but apart from the worries Tommy mentioned above, s/he also has to step outside of their professional abilities and take on other skills to develop their business, particularly marketing, in order to ensure that they have a steady stream of customers to maintain their income.  

By marketing, I don't just mean the obvious advertising etc., which may not be relevant to a tradesperson, but marketing themselves by simply offering a good service in an efficient and pleasant manner so that existing customers will recommend them to others.  A PAYE tradesperson doesn't have to worry about such skills.


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## CM (11 Jul 2002)

*Battle Hymn of the Self Employed*

<!--EZCODE BOLD START-->* Also, I don't think it's really accurate to think of the many sole traders as entrepreneurs.*<!--EZCODE BOLD END-->

Maybe Rainyday meant that this might not be considered entrepenurial because, in many cases, no new jobs are created? On the other hand in many cases I presume it could be argued that new jobs <!--EZCODE ITALIC START-->_ are_<!--EZCODE ITALIC END--> created, both directly and indirectly (via services used)?

<!--EZCODE BOLD START-->* but marketing themselves by simply offering a good service in an efficient and pleasant manner so that existing customers will recommend them to others. A PAYE tradesperson doesn't have to worry about such skills.*<!--EZCODE BOLD END-->

Yeah - us PAYE workers don't need to be arsed about how we do our job! >:


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## Dearg Doom (11 Jul 2002)

*Re: Battle Hymn of the Self Employed*

>There is nothing particularly entrepreneurial...

I disagree with this too. There is a signicant element of risk in opting out of any salaried employment to create work for yourself (and perhaps others). Perhaps no new jobs are created in some instances, but an indigenous business is, which IMO is a good thing. I also believe that this should be encouraged by society, be it via tax breaks or any other means.

> A PAYE tradesperson doesn't have to worry about such skills. 

I don't agree with this either.

DD.


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## Liam D Ferguson (11 Jul 2002)

*Re: Battle Hymn of the Self Employed*

I'm not saying that PAYE employees <!--EZCODE ITALIC START-->_ don't_<!--EZCODE ITALIC END--> take pride in their jobs, and carry them out to the best of their abilities, but they don't <!--EZCODE ITALIC START-->_ have to_<!--EZCODE ITALIC END-->.  Unless their remuneration is in some way linked to the performance of the company, a PAYE employee can do their job well or badly without having to care much for the implications.  They'll still get their pay-packet, unless they do it so badly as to incur disciplinary actions. 

This wasn't intended in any way to infer than self-employed people by definition work better than PAYE, merely that there is, in many cases, more direct responsibility on a self-employed person to maintain a high standard of work.


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## rainyday (12 Jul 2002)

*Re: Battle Hymn of the Self Employed*

Obviously, I touched a nerve here. Just to clarify (rightly or wrongly), my image of an entrepeneur is someone who creates a new business that gives employment to others.  I understand that the sole trader self-employed person faces certain challenges and risks that don't exist in the PAYE sector.

However, I think Liam has gone too far in the opposite direction. I don't know any PAYE employee who doesn't have to worry about how he's doing his job in today's environment. It's true to say that there is probably not a direct relationship between his performance and his next pay-packet. But you can be damn sure that if he's not doing a decent job, he won't have that same pay-packet in 12 months or 24 months time. He'll either be fired/replaced/pushed out/made redundant, or if his management is too lazy/dumn to notice his poor performance, the company just won't exist in the long term. The days of the 'job for life' are long gone, I'm afraid. This certainly applies in MOST of private industry, apart from maybe a few sheltered sectors.


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## Marion (12 Jul 2002)

*Re: Battle Hymn of the Self Employed*

<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> This wasn't intended in any way to infer than self-employed people by definition work better than PAYE, merely that there is, in many cases, more direct responsibility on a self-employed person to maintain a high standard of work.<hr></blockquote><!--EZCODE QUOTE END-->


Yes, and in general, the income reward will be high. This is the obvious risk/reward trade off. The primary motivator for the entrepreneur is <!--EZCODE BOLD START-->*  profit. *<!--EZCODE BOLD END--> I'm sure nobody decides to be self-employed because of the tax advantages per se.

It has been established in this topic that there are tax advantages to being self-employed, and it has been established that entrepreneurship should be encouraged because it is anticipated that it will foster a culture of enterprise, which should ultimately lead to job creation.

I agree that there should be tax advantages to encourage new business start-ups, but I wonder whether sole traders should continue to derive tax benefits forever and ever amen regardless of whether or not they create jobs? Should there be an income limit beyond which tax breaks would not apply unless jobs were created?

Marion :hat


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## Liam D Ferguson (12 Jul 2002)

*Re: Battle Hymn of the Self Employed*

<!--EZCODE BOLD START-->* "This certainly applies in MOST of private industry, apart from maybe a few sheltered sectors."*<!--EZCODE BOLD END-->

I don't know RainyDay - surely you (like me) frequently come across the man/woman behind the counter at the supermarket / post office / coffee shop / burger bar etc., who's far too busy discussing the weekend to even look at you while accepting your business, much less say "Thank You" ?


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## XXXAnother PersonXXX (28 Feb 2003)

*Sick of people bashing Self-employed*

I'm pretty sick of people having a go at self-employed and company directors. 

It's open to everyone. If you resent company directors & self-employed so much, why not try it yourself? (speaking generally)

 - I work just about every waking hour. 
 - If I take a day off I don't get paid.
 - If I'm sick - well that's tough. I still have to work.
 - I don't know from one week to the next whether or not I will have any income.
 - Have to learn to be a Sales Person and accountancy (to some degree), as well as my 'normal' work.
 - Ensure that some bastard isn't going to rip you off, take you to court or not pay you.
 - oh, and I don't get any tax breaks! - I pay full whack corporation tax, income tax, PRSI, accountancy fees and other ad-hoc business expenses. No company benefits for me!

I don't mind this. I'd rather do all that than work for someone else. It really gets on my nerves when some (probably civil-servant or something) thinks that it's all rosey being self-employed or a company director.

I don't even get that much money for my troubles either...


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