# Government planning PAYE crackdown on contract workers



## invest-or

Anyone got more details / links on this possible development?



> Government planning PAYE crackdown on contract workers
> 
> Thousands of contract employees will be brought into the PAYE net for the first time as the government moves to close a loophole in the tax system.
> 
> The move is designed to ensure that contractors who are de facto employees cannot avoid PAYE by being paid through limited companies they establish. The changes will also apply to certain professionals, such as doctors and pharmacists, who carry out locum work but avoid PAYE due to their status as short-term contractors.
> 
> More at [broken link removed]


----------



## podowd

There doesn't seem to be any publicly available information at the moment other than the article in the business post. 

The most likely scenario would be for Revenue to follow the lead of the UK Revenue and model any changes on the IR35 & MSC legislation that currently exists for contractors in the UK. If that is the case it wouldn't mean an end to contracting as we know it but would mean an increase in the level of compliance. 

If the UK model is applied in Ireland contractors who are PAYE employees of umbrella companies or personal limited companies should have nothing to be concerned about - in the UK the majority of contractors affected were those using managed service companies, i.e. contractors who were joining umbrella/managed companies as director/shareholders. In the eyes of HMRC these structures were seen as a deliberate attempt to avoid tax/ni and the use of them was banned with the introduction of the MSC (Managed Service Company) legislation. 

Any new legislation will put pressure on agencies/recruiters to ensure their contractors are compliant, in the UK they introduced transfer-of-debt legislation which can make an agency liable for the unpaid taxes of a contractor if non-compliant limited company structures were used. As a result of this most UK agencies will not issue/sign off on contracts until they are satisfied with the compliance of the individual and the limited company. 

It's worth noting that the article says that contractors use limited companies to avoid PAYE but in most cases that is not true - contractors using umbrella companies are usually PAYE employees of the umbrella company, and most contractors using their own personal limited company would also be paying tax on PAYE basis, albeit as employees of their own company. It also implies that contractors are drawing dividends instead of salary to save tax but that is not the case either, it is true in the UK but in Ireland the same rate of tax applies to dividends and salary. 

We'll wait and see what news the Finance Bill 2010 brings!

Regards

podowd
http://www.prima.ie


----------



## Sconhome

Would seem to be very similar to the crackdown in the construction sector many years ago when the C2 and RCT system was introduced.

Many 'subcontractors' were in fact considered employees of the main contractor and by avoiding the whole employment issue, PAYE and PRSI was not being paid on behalf of those who should really have been in the employ of the main contractor rather than self-employed.

If you are contracted to a company providing a service on a long term continuous basis, regardless of the financial benefits to the contractor, you should probably be considered an employee and thus gain holiday benefit etc and have PRSI paid on your behalf.

I would think it is this PRSI loop that they are trying to stop and also to intercept the 'taxfree' payments to the contractors when, unless C2 certified, 35% would be deducted and held by Revenue pending a repayment.


----------



## DB74

I doubt it's the PRSI loop they are trying to close as it would arguably cost the State more money if the "contractors" were treated as employees in terms of the increased benefits of Class A over Class S.


----------



## MidlandsBase

Hi,
Would all income from a contract then be liable for PAYE. At the moment I have a business loan which I need to service for two years. Would the UK model, if Revenue adapted that, allow me to pay PAYE on the income - Business Loans? Or would I have to service those business loans after I have paid tax/prsi?


----------



## podowd

MidlandsBase said:


> Hi,
> Would all income from a contract then be liable for PAYE. At the moment I have a business loan which I need to service for two years. Would the UK model, if Revenue adapted that, allow me to pay PAYE on the income - Business Loans? Or would I have to service those business loans after I have paid tax/prsi?


 
Hi

Only the interest element of a business loan is an allowable deduction, this would be the case at the moment, even before any changes are introduced. Are you a sole trader or ltd company? If you are a sole trader, and the new rules require you to be a PAYE worker, you would have to service the loan from after-tax income and there would be no tax relief, not even on the interest. If you have a ltd company the interest on a business loan would be an allowable deduction from company profits but the capital repayment would not. 

It's difficult to you give you a clear answer without further details, feel free to email/pm me if you want further clarification. 

Regards

podowd
http://www.prima.ie


----------



## sfag

The legistlation in the UK was brought in to close two significant loop holes:

1. Paying all your wages in one month therefore hitting a national insurance limit for that month limiting the amount you pay. 
2. Taking a tiny wage and the rest in in dividends was another way of avoiding national insurance.

National Insurance in the UK used to be about 12% therefore it meant it was a significant saving. If dividends were not considered regular income then maybe they did not breach the tax thresholds as well?

Anyway these breaks never applied to Irish Contractors so there is no loop hole to close in that respect. 

UK contractors are still able to deduce their tax bill be legit expenses so a copy of UK legistaltion to here wouldn't change things here as non legit expenses are obviously not allowed as is.  

Unlikley that companies here will get hit with employees taxes as compnaies will always need a flexible workforce for short time hire any impeachment upon that is a further cost on employment. They would just hire foriegn consultancy firms instead. The more to India is bad enough - why add more incentive?. 

Ironic that the government is considering this now as contractors were the first to get laid off when the recession begun. Many dont have jobs.

If the legistlation is too onerous it will encourage people to contract out of their own country leaving Irish contract Jobs attractive for Foreign personal but not Irish workers.


----------



## invest-or

> *PAYE claw back on doctors’ locum work*
> 
> The Revenue Commissioners are seeking to force doctors who carried out locum work to pay PAYE taxes for the past four years.
> 
> The tax authority has written to GPs across the country, stating that locum doctors must now be treated as employees for tax purposes. Traditionally, locums have been regarded as self-employed and have not been obliged to pay PAYE.
> 
> The Revenue has told GPs that it intends to claw back PAYE for the past four years.
> 
> more at [broken link removed]



I don't like the way they are talking about clawing back PAYE for 4 years in the past!

Wonder will they do this to contract workers?

How much (very roughly) EXTRA tax would this be for, say, a sole trader contractor, given that he/she has already paid all income tax & levies due as a sole trader?


----------



## DB74

Employers PRSI is 8.5% or 10.75% anyway


----------



## PeterSellers

I don't see what they need to crack down on. There is already a Corporation Tax surcharge (15%) in place for contractor companies retaining profit. Unless they mean auditing this more closely. 

Forcing contractors to become employees will loose the renvene money as the salary will be at least 30% less (if the contractor is not let go altogether and becomes unemployed).


----------



## invest-or

> *Revenue Commissioners to get extra powers in new Finance Bill*
> 
> ...
> 
> New rules designed to bring contract workers in the PAYE net will also be outlined.
> 
> ...
> 
> More at [broken link removed]


----------



## Scouser

Are these the new powers they are talking about? What exactly does this mean - from the finance bill.


> *SECTION 7 - TAX TREATMENT OF COMPANY DIRECTORS*​
> *Section 997A of the Taxes Consolidation Act, 1997 to be amended to confine the amount of the credit*
> *available to any individuals to a maximum of the actual amount of tax deducted from that individual.*​


----------



## invest-or

More media coverage:



> *Tax squeeze on high-paid TV stars*
> 
> Top media stars as well as building subcontractors are among those set to face paying more tax under new examinations of their status by the Revenue Commissioners, the Sunday Independent has learned.
> 
> Revenue is now examining the tax status of many of those involved in "outsourcing" to see whether they should or should not be classified as employees.
> 
> http://www.independent.ie/national-news/tax-squeeze-on-highpaid-tv-stars-2052069.html


----------



## EOC74

None of it makes any sense unless theyre talking about introducing IR35. Either way, theres nothing in the finance bill about it that I can find anyway. If they want you to pay PRSI, surely then you can claim dole etc for periods of unemployment? It will cause a lot of contractors to leave the country. Hardly a good thing as they tend to do the most work. I cant understand what the report is about. Aparently IR35 in the UK has been a complete flop.


----------



## invest-or

Have there been any developments on this in the last year? I haven't seen anything in the media.

Going by http://www.deloitte.ie/tc/ a self-employed worker on, say, 80k, pays MORE tax than a PAYE worker on 80k, so how could revenue apply any extra tax/penalties if they found you working as a self-employed contractor, but not meeting the criteria?

Or would the employer take a hit, because they are avoiding employers PRSI?


----------



## mandelbrot

invest-or said:


> Have there been any developments on this in the last year? I haven't seen anything in the media.
> 
> Going by http://www.deloitte.ie/tc/ a self-employed worker on, say, 80k, pays MORE tax than a PAYE worker on 80k, so how could revenue apply any extra tax/penalties if they found you working as a self-employed contractor, but not meeting the criteria?
> 
> Or would the employer take a hit, because they are avoiding employers PRSI?


 
You can't do a straight comparison though, as contractors will always have a certain amount of expenses, legitimate or otherwise, that will act to reduce their taxable income. So what you would find is the PAYE employee with taxable salary of 80k would probably be paying tax (somehow or other) on 60k - 70k if they were a contractor... hence the loss to the exchequer.


----------



## z107

> You can't do a straight comparison though, as contractors will always have a certain amount of expenses, legitimate _*or otherwise*_, that will act to reduce their taxable income.


What do you mean by this?

The implication is that that somehow self employed are better off than regular employees, when in fact the opposite is the case.
Either the expense is legitimate, and will withstand an audit, or it is not. This holds for both employees and self employed.

It is unfortunate that the Irish Revenue has such a nasty attitude towards self-employed.


----------



## T McGibney

mandelbrot said:


> So what you would find is the PAYE employee with taxable salary of 80k would probably be paying tax (somehow or other) on 60k - 70k if they were a contractor... hence the loss to the exchequer.


It's important to note in this regard that:

- contractors forego the PAYE credit so much of the supposed 'tax loss to the exchequer' is illusory.

- traders are taxed on income, not turnover. Revenue don't seem to understand that a contractor with 70k turnover and 15k overheads is only as well off in gross terms as their counterpart who earns 55k income from employment. In terms of after-tax income the contractor will actually be a good bit worse off.

- contractors' deduction entitlements under the Irish income tax code are hardly generous, a lot less  lucrative for example than the tax-free expense allowances enjoyed by civil servants and other employees, so the conspiracy theory that hordes of employees are trying to pretend to be contractors is largely unfounded.

- if a contractor is incurring significant overheads associated with their trade, this by Revenue's own standards would indicate that they are in business of their own account.


----------



## mandelbrot

umop3p!sdn said:


> What do you mean by this?
> 
> The implication is that that somehow self employed are better off than regular employees, when in fact the opposite is the case.
> Either the expense is legitimate, and will withstand an audit, or it is not. This holds for both employees and self employed.



What I mean, is that I have had years of experience first hand experience of preparing the accounts and tax returns of people working as contractors in a variety of fields (primarily engineers), and seeing the kinds of things that, almost without exception, they want to have claimed as deductions. And when you would explain this simply won't fly, you get the kind of reaction you get from young teenagers "but everyone else gets to do it, why can't I!?" And then when they play their trump card, whereby they'll go move accountant to someone who'll keep their tax bill lower, you discover how malleable your employer's professional ethics are... 

[EDIT]: The classic example of what I'm talking about with "expenses, legitimate or otherwise" is the example of someone who decides that their place of business is their home office, in some cases quite rightly, but in others not so. All motor & travel from there to places where they do on-site work, is deducted as business travel expenses. Depending on where they live and where they are contracting, this can be a substantial amount. If their next door neighbour got a PAYE job in the same place, the cost of getting to/from there everyday would be paid out of their after-tax income.

So Upsidedown, I'm expressing an opinion formed over time, which I feel is valid based on my experience in the area, if that's OK with you.

I could turn what you've said on its head (upsidedown, so to speak ) and say that you are implying that self employed are worse off than regular employees, when in fact the opposite is the case.
Or we could be sensible and say that depending on the circumstances, either can be the case. In many instances contractors are paid a premium in excess of what an employee would be paid, which more than covers the loss of entitlements, and in other instances they aren't, and get screwed by the company contracting their services.



umop3p!sdn said:


> It is unfortunate that the Irish Revenue has such a nasty attitude towards self-employed.


What do you mean by this?


----------



## mandelbrot

There are two separate issues being discussed here really - the first is  the extent to which employees may be incorrectly classified as  contractors, and the second is the extent to which contractors take the  proverbial when filing their tax returns. From first hand experience and  anecdotally, they are both fairly extensive and serious issues.


T McGibney said:


> It's important to note in this regard that:
> 
> - contractors forego the PAYE credit so much of the supposed 'tax loss to the exchequer' is illusory.


 True enough, but in my experience this inequality creates an immediate incentive to fudge the expenses to rebalance things in the mind of a lot of people...



T McGibney said:


> - traders are taxed on income, not turnover. Revenue don't seem to understand that a contractor with 70k turnover and 15k overheads is only as well off in gross terms as their counterpart who earns 55k income from employment.


 I think only a fairly ignorant person, Revenue official or otherwise, could fail to distinguish between turnover and profit... ! 


T McGibney said:


> In terms of after-tax income the contractor will actually be a good bit worse off.


  I presume you're referring to a case where a contractor's net/taxable profit is the same as an employee's. But again, it varies from case to case, contractors are often in a position to negotiate a much better hourly rate than employees. Or not, in others.



T McGibney said:


> - contractors' deduction entitlements under the Irish income tax code are hardly generous, a lot less  lucrative for example than the tax-free expense allowances enjoyed by civil servants and other employees, so the conspiracy theory that hordes of employees are trying to pretend to be contractors is largely unfounded.


As for contractors deductions, I don't know many employees who claim a portion of home L&H, phone, broadband... 
And I don't think it's necessarily the case that there's a conspiracy theory that people are pretending to be contractors. It's more likely that, for whatever reason, the proportion of people being being "employed" as contractors, or through umbrella companies rather than being directly employed under employment contracts, has increased in recent years, and is therefore an area that requires scrutiny. As much to ensure employers fulfil their statutory obligations for PRSI etc... as anything else.



T McGibney said:


> - if a contractor is incurring significant overheads associated with their trade, this by Revenue's own standards would indicate that they are in business of their own account.


Absolutely, but again, that is contingent on the overheads claimed being legitimate. My earlier post refers my own experience in that regard.


----------



## invest-or

mandelbrot said:


> You can't do a straight comparison though, as contractors will always have a certain amount of expenses, legitimate or otherwise, that will act to reduce their taxable income. So what you would find is the PAYE employee with taxable salary of 80k would probably be paying tax (somehow or other) on 60k - 70k if they were a contractor... hence the loss to the exchequer.



In my case I have little to no expenses, so am paying a HIGHER effective tax rate as self-employed than as an employee (and on a larger income to boot!). 

So what "punishment" can I (and all the IT contractors like me who have little or no expenses) expect from Revenue if I am audited and they say I should be an employee and taxed as same?

Or are they willing to turn a blind eye to it, if no tax revenue is being lost (on my side that is, though it may be being lost on the employer's side)

Has any such contractor reading this been actually been audited? What happened?


----------



## T McGibney

mandelbrot said:


> What I mean, is that I have had years of  experience first hand experience of preparing the accounts and tax  returns of people working as contractors in a variety of fields  (primarily engineers), and seeing the kinds of things that, almost  without exception, they want to have claimed as deductions. And when you  would explain this simply won't fly, you get the kind of reaction you  get from young teenagers "but everyone else gets to do it, why can't  I!?" And then when they play their trump card, whereby they'll go move  accountant to someone who'll keep their tax bill lower, you discover how  malleable your employer's professional ethics are...


I'd love to hear where you used to work  - sounds like a nightmare job to be honest. I've over 20 years experience myself and while I've met a few cowboys in my time, I have to say that my experience of working with contractors has been generally the polar opposite of the picture you portray.



mandelbrot said:


> seeing the kinds of things that, almost without exception, they want to have claimed as deductions. And when you would explain this simply won't fly, you get the kind of reaction you get from young teenagers "but everyone else gets to do it, why can't I!?" And then when they play their trump card, whereby they'll go move accountant to someone who'll keep their tax bill lower, you discover how malleable your employer's professional ethics are...



The whole essence of being a professional is the ability to form an independent opinion on a matter and stick by it. If the professional's own ethical compass is not sufficiently robust to withstand challenge from clients who wish to pull a fast one, I would suggest that they should take a long hard look at themselves.

I find that if I explain the pros and cons of expense deductions with clients that they generally take a sensible approach to it.

Even a child will know that overclaims carry a substantial risk of an ultimate tax arrears, interest and penalty settlement. I don't think I have ever lost a decent client by pointing out this simple truth. 

I have never heard much anecdotal evidence either of clients moving from one accountant to another until they are told what they want to hear.  

If a client is cheeky enough to threaten the accountant with loss of business if they don't agree to a tax or accounting scam, the accountant has only one option - show the client the door.


----------



## T McGibney

mandelbrot said:


> There are two separate issues being discussed here really - the first is  the extent to which employees may be incorrectly classified as  contractors, and the second is the extent to which contractors take the  proverbial when filing their tax returns. From first hand experience and  anecdotally, they are both fairly extensive and serious issues.



But they are separate issues, and yet you are conflating them and by implication, accusing all contractors with significant overheads of tax evasion.

I am not aware of any major scale tax evasion problem amongst contractors manifesting itself in the quarterly lists of tax defaulters, although perhaps you can correct me on this if I'm wrong.



mandelbrot said:


> True enough, but in my experience this inequality creates an immediate  incentive to fudge the expenses to rebalance things in the mind of a lot  of people....



Whose fault is that? And is this 'incentive' real or a figment of your imagination? Just because my neighbour is richer than me doesn't mean that I have an 'incentive' to rob him.



mandelbrot said:


> I think only a fairly ignorant person, Revenue official or otherwise,  could fail to distinguish between turnover and profit... !



But you said here that the exchequer is losing out because contractors have overheads, both (in your own words) 'legitimate or  otherwise'


mandelbrot said:


> You can't do a straight comparison though, as  contractors will always have a certain amount of expenses, legitimate or  otherwise, that will act to reduce their taxable income. So what you  would find is the PAYE employee with taxable salary of 80k would  probably be paying tax (somehow or other) on 60k - 70k if they were a  contractor... hence the loss to the exchequer.



If you're saying here that the exchequer is losing out because of contractors' overheads, you are implicitly implying that they should be taxed on their turnover.



mandelbrot said:


> As for contractors deductions, I don't know many employees who claim a portion of home L&H, phone, broadband...


and I know many contractors who don't claim home office expenses either - including some who are using their home as their registered office and business base. My advice to clients, and to AAM posters, is that such claims usually aren't worth the hassle, even if genuine, as they merely raise the hackles of Revenue inspectors and lead to conflict in the course of audits. And in overall terms, the tax saved is usually rather small anyway.



mandelbrot said:


> It's more likely  that, for whatever reason, the proportion of people being being  "employed" as contractors, or through umbrella companies rather than  being directly employed under employment contracts, has increased in  recent years, and is therefore an area that requires scrutiny. As much  to ensure employers fulfil their statutory obligations for PRSI etc...  as anything else.


Has it not occurred to you that this is an international economic phenomenon and its incidence in Ireland is related to our status as a small open economy highly dependent on multinational manufacturing? If you don't believe me, read _The Elephant and the Flea _by Charles Handy or any similar book. In my opinion, the Revenue obsession with this area is merely a symptom of their general prejudice towards business people and entrepreneurs.


----------



## mandelbrot

invest-or said:


> In my case I have little to no expenses, so am paying a HIGHER effective tax rate as self-employed than as an employee (and on a larger income to boot!).
> 
> So what "punishment" can I (and all the IT contractors like me who have little or no expenses) expect from Revenue if I am audited and they say I should be an employee and taxed as same?
> 
> Or are they willing to turn a blind eye to it, if no tax revenue is being lost (on my side that is, though it may be being lost on the employer's side)
> 
> Has any such contractor reading this been actually been audited? What happened?


 
In such a case the tax problem isn't really the contractor's, since as you say they'll already have paid more tax than they would have as a PAYE employee (i.e. "no loss to Revenue").

It's more likely Revenue would look for the appropriate amount of A class PRSI from the employer, and tell them to operate PAYE on the employment going forward.

(And what would most likely happen is that the employer then makes the employee go through an agency / umbrella company structure, in order to avoid having to register an employment. So the employee would end up bearing the cost of the A class PRSI themselves in future.)


----------



## mandelbrot

T McGibney said:


> But they are separate issues, and yet you are conflating them and by implication, accusing all contractors with significant overheads of tax evasion.


 Well, I've drawn attention in my previous post to the fact that they're separate issues! And as we both know, the reality is that a contractor without overheads is in fact most likely not a contractor. So if I've given the impression that I don't think contractors can / should have legitimate expenses then that's my bad, but my (biased) reading of my earlier posts doesn't suggest that to me.



T McGibney said:


> I am not aware of any major scale tax evasion problem amongst contractors manifesting itself in the quarterly lists of tax defaulters, although perhaps you can correct me on this if I'm wrong.


 Well I'm sure I don't know much more than you in that regard, but I'd imagine most settlements in those kinds of cases would be below publication thresholds. As for how many such instances there are / have been, who knows. As I keep saying I am only going on my own experience of trying to keep small sole traders on the straight and narrow.



T McGibney said:


> Whose fault is that? And is this 'incentive' real or a figment of your imagination? Just because my neighbour is richer than me doesn't mean that I have an 'incentive' to rob him.


 Well, based on the number of threads here and elsewhere about the inequity of the tax credit treatment of self-employment, I think it's fair to say there's an incentive; by which I mean a factor that has potential to influence a person's behaviour. Some people act on incentives, more don't. As for whose fault is it - the State I suppose?!



T McGibney said:


> But you said here that the exchequer is losing out because contractors have overheads, both (in your own words) 'legitimate or otherwise'


 just to be clear, I'm not saying the exchequer is losing out because contractors have overheads. I'm saying the state loses out if / when genuine contractors overstate their overheads.

And I'm saying the exchequer loses out when _de facto_ employments are not registered as such and PAYE and PRSI operated. The PAYE credit at its peak was worth 1,830; employer's PRSI at that time was 10.75% (ignoring the difference between S class and A class for the employee).

So a spurious contracting arrangement, where by definition there won't be many, if any, legitimate overheads in what is in fact an employment, was causing a loss to the Exchequer (in the short-term at least), if the pay was greater than €17k. And it's important to note that the beneficiary most likely isn't the employee, but the employer. I feel like I'm getting slammed here for being anti-contractor, when that's absolutely not the case!



T McGibney said:


> If you're saying here that the exchequer is losing out because of contractors' overheads, you are implicitly implying that they should be taxed on their turnover.


I'm not saying (or implying) that - as per my previous point I'm referring to cases where overheads are overstated.



T McGibney said:


> and I know many contractors who don't claim home office expenses either - including some who are using their home as their registered office and business base. My advice to clients, and to AAM posters, is that such claims usually aren't worth the hassle, even if genuine, as they merely raise the hackles of Revenue inspectors and lead to conflict in the course of audits. And in overall terms, the tax saved is usually rather small anyway.


 I suppose that's a judgement call; if it's clear cut, it's clear cut, but if it's not then it's the job of an auditor (Revenue or statutory) to ask the question.



T McGibney said:


> Has it not occurred to you that this is an international economic phenomenon and its incidence in Ireland is related to our status as a small open economy highly dependent on multinational manufacturing? If you don't believe me, read _The Elephant and the Flea _by Charles Handy or any similar book. In my opinion, the Revenue obsession with this area is merely a symptom of their general prejudice towards business people and entrepreneurs.


 That looks like an interesting read, thanks  And of course it's occurred to me - I'm well aware of it, I have family and friends who were / are contractors.

There is a reality however that organisations are baulking at the costs and responsibilities associated with employing a workforce, rather than contracting their labour. And in many cases, arrangements are to the detriment of the worker, as I outlined in my reply to Invest-or above. There are wider issues than just the tax aspects, when arrangements are operating to circumvent the legislation in place to protect workers, and often the worker may not know what exactly they're walking into... http://www.boards.ie/vbulletin/showthread.php?t=2056474902

What is this prejudice, as you perceive it? Surely Revenue's function is to collect taxes efficiently and fairly. Entrepreneurs and business people generate a substantial amount of business taxes, as well as being responsible for a substantial proportion of fiduciary taxes, and therefore must get an appropriate amount of Revenue's attention in compliance programmes. If you think Revenue's focus on them is disproportionate, what is your alernative proposal, where should they be focusing (or is everyone fully compliant and it's all a waste of time! )? REAP being extended to PAYE taxpayers, and the thousands of assurance checks etc... PAYE taxpayers relief claims, hardly suggests Revenue are of a one track mind?


----------



## T McGibney

mandelbrot said:


> There is a reality however that organisations are baulking at the costs  and responsibilities associated with employing a workforce, rather than  contracting their labour. And in many cases, arrangements are to the  detriment of the worker, as I outlined in my reply to Invest-or above.  There are wider issues than just the tax aspects, when arrangements are  operating to circumvent the legislation in place to protect workers, and  often the worker may not know what exactly they're walking into... http://www.boards.ie/vbulletin/showthread.php?t=2056474902



This is an ideological argument, one which by the way is well refuted by Charles Handy (hardly someone who could be described as an extreme right-winger) in the book I cited. It is also a painfully clear example of the anti-business prejudice of Revenue, which I mentioned earlier.

I would put it to you that it is Revenue's business to administer and control the tax system. It is not Revenue's business to enforce a particular ideology onto a set of circumstances.



mandelbrot said:


> Entrepreneurs and business people generate a  substantial amount of business taxes, as well as being responsible for a  substantial proportion of fiduciary taxes, and therefore must get an  appropriate amount of Revenue's attention in compliance programmes. If  you think Revenue's focus on them is disproportionate, what is your  alernative proposal, where should they be focusing (or is everyone fully  compliant and it's all a waste of time! )?  REAP being extended to PAYE taxpayers, and the thousands of assurance  checks etc... PAYE taxpayers relief claims, hardly suggests Revenue are  of a one track mind?


I never mentioned any element of disproportionality in relation to Revenue Audits and sole traders. 

I stand by my accusation that Revenue appear to be obsessed with the 'employee v self-employed' question ever since they infamously lost the [broken link removed] in 2008, that basically cut to shreds their previous stance on the subject. 

And I would contend that their apparent obsession with this subject is diverting attention away from the real evasion in the country, particularly in the 'private jobs' area of the construction industry, which is exempt from the RCT system.


----------



## mandelbrot

T McGibney said:


> This is an ideological argument, one which by the way is well refuted by Charles Handy (hardly someone who could be described as an extreme right-winger) in the book I cited. It is also a painfully clear example of the anti-business prejudice of Revenue, which I mentioned earlier.
> 
> I would put it to you that it is Revenue's business to administer and control the tax system. It is not Revenue's business to enforce a particular ideology onto a set of circumstances.


 I would have thought what I said was was factual rather than ideological, and since I haven't read Handy and I'm not sure what you mean I can't rebut it any further. But if Revenue are anti-business, what are they "pro" in your opinion?



T McGibney said:


> I never mentioned any element of disproportionality in relation to Revenue Audits and sole traders.
> 
> I stand by my accusation that Revenue appear to be obsessed with the 'employee v self-employed' question ever since they infamously lost the [broken link removed] in 2008, that basically cut to shreds their previous stance on the subject.
> 
> And I would contend that their apparent obsession with this subject is diverting attention away from the real evasion in the country, particularly in the 'private jobs' area of the construction industry, which is exempt from the RCT system.



Well that's your opinion, and of course you're entitled to it, but I think we'll have to agree to disagree on this one. 

As for the Barry Case, it wasn't a tax case, so it's not exactly fair to say that Revenue lost it, and in fact it's interesting that PAYE & PRSI was operated on the employments in question, so it's not a case that would have given rise to an action involving Revenue.

My understanding of the ruling is that it found the Employment Appeals Tribunal had erred in law by attempting to apply a fundamental test in determining the employment status, rather than considering all of the applicable factors. I don't know what Revenue's previous position was, but the current guidance recognises the various factors that apply in determining employment status http://www.revenue.ie/en/tax/rct/determining-the-correct-employment-status-of-a-worker.html.

I believe Revenue are no more or less obsessed with this issue than any other substantial grey areas, and it is that, as the last sentence of the article you linked above states: _"At this stage, as common law is unable to provide a satisfactory definition of what constitutes a contract of service, now may be the opportune time to consider a legislative approach."_


----------



## T McGibney

mandelbrot said:


> it is that, as the last sentence of the article you linked above states: _"At this stage, as common law is unable to provide a satisfactory definition of what constitutes a contract of service, now may be the opportune time to consider a legislative approach."_



My understanding as to why this hasn't been done is that the legal advice available to the government (presumably from the Attorney General's office) is said to have cautioned them that any attempt to define in legislation what is meant by a 'contract of service' in the terms previously set out by Revenue would be likely to fail if challenged in the Courts, and that the Courts would be likely to impose a more liberal definition of 'contract of service' which would suit contractors and businesses but utterly undermine Revenue's existing stance.

I have no specific legal expertise to vouch whether or why this would be the case but I have heard some very eminent experts in the field say this and I would tend to trust these people's opinions in general. 

Perhaps this explains why there has been no legislation?


----------



## mandelbrot

T McGibney said:


> My understanding as to why this hasn't been done is that the legal advice available to the government (presumably from the Attorney General's office) is said to have cautioned them that any attempt to define in legislation what is meant by a 'contract of service' in *the terms previously set out by Revenue* would be likely to fail if challenged in the Courts, and that the Courts would be likely to impose a more liberal definition of 'contract of service' which would suit contractors and businesses but utterly undermine Revenue's existing stance.
> 
> I have no specific legal expertise to vouch whether or why this would be the case but I have heard some very eminent experts in the field say this and I would tend to trust these people's opinions in general.
> 
> Perhaps this explains why there has been no legislation?



Yes, even a reading of that article gives one an idea of the difficulty of trying to legislate the area. But in relation to the emboldened part above,_ "The Code of Practice was prepared by the ESG in 2001. The ESG consisted  of representatives from the Irish Congress of Trade Unions, the Irish  Business and Employers Confederation, the Revenue Commissioners and  several other Governmental Departments. The remit of the ESG was to seek  a uniform definition of “employee” based on clear criteria, which would  determine the employment status of an individual."_ You can't really blame Revenue for their stance, it's not like they went on a solo run.


----------



## T McGibney

mandelbrot said:


> Yes, even a reading of that article gives one an idea of the difficulty of trying to legislate the area. But in relation to the emboldened part above,_ "The Code of Practice was prepared by the ESG in 2001. The ESG consisted  of representatives from the Irish Congress of Trade Unions, the Irish  Business and Employers Confederation, the Revenue Commissioners and  several other Governmental Departments. The remit of the ESG was to seek  a uniform definition of “employee” based on clear criteria, which would  determine the employment status of an individual."_ You can't really blame Revenue for their stance, it's not like they went on a solo run.



They would have been better off, in my opinion, going on a solo run than involving ICTU, (who have a vested interest in ensuring that contractors are kept out of unionised workplaces and whose constituent unions have mounted campaigns and strikes to that end) and their discredited 'social partnership' cronies in a process that suited the participants to the detriment of those excluded from it.

The fact that they were unable to convince the government (who were in their pocket in several other respects) to implement their recommendations as legislation would suggest that the exercise was largely futile.


----------



## mandelbrot

T McGibney said:


> They would have been better off, in my opinion, going on a solo run than involving ICTU, (who have a vested interest in ensuring that contractors are kept out of unionised workplaces and whose constituent unions have mounted campaigns and strikes to that end) and their discredited 'social partnership' cronies in a process that suited the participants to the detriment of those excluded from it.
> 
> The fact that they were unable to convince the government (who were in their pocket in several other respects) to implement their recommendations as legislation would suggest that the exercise was largely futile.



From your posts on this topic I can't get any sense of what you actually think should happen?! You've given out about Revenue's obsession, and ICTU and the social partners' cronyism. But the fact remains that the existing tax code distinguishes fundamentally between employees, and self employed people.

You seem unhappy at the attempts made by the establishment at trying to codify this distinction, but for the life of me I can't understand what / how you would do if you were holding the reins?

Would you go to self assessment for all, and do away with the PAYE system altogether? If not, then there has to be some way of distinguishing an employment from self-employment, so if they're obsessed with it (and I don't think they are, I'd call it a healthy concern), it's with good reason.


----------



## T McGibney

Revenue's current position on all of this is confusing and at times inconsistent. For example they state, on foot of the ESG guidelines, that the various tests listed are to be considered in each separate case having regard for the circumstances of that case yet on the other hand they tell entire occupational groups such as locum opticians and pharmacists that they are to be regarded as employees in relation to all locum work regardless of circumstances.

What would I like? Well, firstly I would prefer a more pragmatic and logical approach from Revenue and an end to the above inconsistency. I would also like to see them having the gumption to seek  definitive clarification of the question in the courts, even if this means that they mightn't get the result they would like.

 I think it's important that businesses can make contracting and sub-contracting decisions within a clear and consistent framework without the uncertainty that has arisen in recent years.


----------



## Gekko

The biggest loss to the Exchequer in such scenarios is where there's effectively a fake retirement where the individual involved draws down a tax free lump sum, sets up a company and carries on working for his employer on a contract basis.  Not as big a deal since the €200,000 limit came in but an issue nonetheless.


----------



## qosimo

I think the biggest loss to the exchequer is from contractors hired by foreign recruitment agencies paying no tax at all in ireland even though they are living working here. These same contractors also choose not to pay tax in there home country...


----------



## z107

I think the biggest loss to the exchequer are banks.


----------



## mandelbrot

umop3p!sdn said:


> What do you mean by this?
> 
> The implication is that that somehow self employed are better off than regular employees, when in fact the opposite is the case.
> Either the expense is legitimate, and will withstand an audit, or it is not. This holds for both employees and self employed.
> 
> *It is unfortunate that the Irish Revenue has such a nasty attitude towards self-employed*.





mandelbrot said:


> What I mean, is that I have had years of  experience first hand experience of preparing the accounts and tax  returns of people working as contractors in a variety of fields  (primarily engineers), and seeing the kinds of things that, almost  without exception, they want to have claimed as deductions. And when you  would explain this simply won't fly, you get the kind of reaction you  get from young teenagers "but everyone else gets to do it, why can't  I!?" And then when they play their trump card, whereby they'll go move  accountant to someone who'll keep their tax bill lower, you discover how  malleable your employer's professional ethics are...
> 
> [EDIT]: The classic example of what I'm talking about with "expenses,  legitimate or otherwise" is the example of someone who decides that  their place of business is their home office, in some cases quite  rightly, but in others not so. All motor & travel from there to  places where they do on-site work, is deducted as business travel  expenses. Depending on where they live and where they are contracting,  this can be a substantial amount. If their next door neighbour got a  PAYE job in the same place, the cost of getting to/from there everyday  would be paid out of their after-tax income.
> 
> So Upsidedown, I'm expressing an opinion formed over time, which I feel  is valid based on my experience in the area, if that's OK with you.
> 
> I could turn what you've said on its head (upsidedown, so to speak ) and say that you are implying that self employed are worse off than regular employees, when in fact the opposite is the case.
> Or we could be sensible and say that depending on the circumstances,  either can be the case. In many instances contractors are paid a premium  in excess of what an employee would be paid, which more than covers the  loss of entitlements, and in other instances they aren't, and get  screwed by the company contracting their services.
> 
> 
> umop3p!sdn said:
> 
> 
> 
> *It is unfortunate that the Irish Revenue has such a nasty attitude towards self-employed.*
> 
> 
> 
> 
> *What do you mean by this?*
Click to expand...




umop3p!sdn said:


> I think the biggest loss to the exchequer are banks.



Well considering this thread has been about potential loss of revenue to the exchequer, I think you've gone a bit off topic there with that last statement, but maybe you'd like to follow on from your earlier statement? (Unless that leads off topic as well!)


----------



## z107

mandelbrot said:


> Well considering this thread has been about potential loss of revenue to the exchequer, I think you've gone a bit off topic there with that last statement, but maybe you'd like to follow on from your earlier statement? (Unless that leads off topic as well!)



I believe my previous post was quite clear, and on topic:


> It is unfortunate that the Irish Revenue has such a nasty attitude towards self-employed.



Revenue work on the assumption of guilty until proven innocent when dealing with self-employed. Even though self-employed contribute such a large amount to the exchequer, in my opinion they are at best treated with contempt, and more typically treated as criminals.

To answer your question, no I would not like to be drawn into this pointless discussion with you. Any discussion regarding the Revenue is bound to be negative and destructive. In a more positive light, I have work to do.


----------



## mandelbrot

umop3p!sdn said:


> Revenue work on the assumption of guilty until proven innocent when dealing with self-employed.


 Generalise much?! Who exactly is "Revenue"? Have you personally experienced this assumption in your own dealings with Revenue? You appear to be stating it as fact - so what is this assertion based on? Revenue's published Customer Charter suggests quite the opposite:
http://www.revenue.ie/en/about/custservice/customer-charter.html
*Presumption of Honesty*

  You can expect:


 to be treated as honest in your dealings with Revenue unless there            is clear reason to believe otherwise and subject to Revenue's responsibility            for ensuring compliance with tax and customs law.
 We expect you:


to deal in an honest way with Revenue by returning the tax and duty            which you are due to pay and seeking only those entitlements and credits            to which you are due.
 


umop3p!sdn said:


> Even though self-employed contribute such a large amount to the  exchequer, in my opinion they are at best treated with contempt, and  more typically treated as criminals.


 Again, this time an opinion, and in my opinion a ludicrous one. If a member of the public, self employed or otherwise, was treated in the manner you suggest, there are channels for making complaints http://www.revenue.ie/en/about/custservice/how-complain-revenue.html


----------



## M K Brazil

Very interesting debate and I can't help but add my two cents.

First of all - back to the original point - there is a difference between allowable deductions for sole-traders and self-employed because of 'wholly and exclusively' versus the 'wholly, exclusively and necessarily' test.

Secondly - I think the Revenue's stance re. Locum Doctors tells us a lot about the Revenue's attitude to this debate and I'd very much be in the T. McGibney camp here.

Thirdly, I don't think we should under-play the Employers PRSI aspect.


----------



## mandelbrot

M K Brazil said:


> First of all - back to the original point - there is a difference between allowable deductions for sole-traders and self-employed because of 'wholly and exclusively' versus the 'wholly, exclusively and necessarily' test.


 
A very good point of course!



M K Brazil said:


> Secondly - I think the Revenue's stance re. Locum Doctors tells us a lot about the Revenue's attitude to this debate and I'd very much be in the T. McGibney camp here.



(Yay, I thought we'd debated to a standstill!)

I would have to say it seems to me that Revenue's attitude is one of trying to manage a messy situation in an efficient way - it seems perfectly pragmatic and logical to me. Tommy's last post mentioned a need for consistency, and I'd suggest that they are generalising to try to do just that. 

To me, what Revenue appear to be saying, "Here is our default position, based on how locum arrangements operate generally - if, given the specific circumstances of your particular locum arrangement, you believe a different treatment is appropriate, then we'll have a look at the various tests." The alternative would be that you'd have half the inspectors in the  country tied up applying the courts' tests to every contracting  arrangement, indefinitely!

And, as for Tommy's suggestion that Revenue need to go before the courts to get the matter clarified further, no doubt this will ultimately be the way forward, given the difficulty of legislating in the area. But it takes two to tango in that regard - such a case could only come about by way of an appeal against a "contract of/for" decision by Revenue. For all we know there may be a case or cases under appeal already and heading that way, that will stop our bickering..!


----------



## werner

Just noticed these interesting posts...

I am curious!

Has anyone had experience of losing a contract becuase Revenue decided that the "self employed" status of a contractor was wrong and that they were to be treated as an "employee" and as a result of Revenue's action their contract was ceased and that they have lost their income and are now being paid unemployment assistance?


----------



## mandelbrot

That sequence of events is unlikely to happen. The service contract that exists would still be valid, regardless of how Revenue decide it is to be treated for tax purposes.

In the event that Revenue determine it is an employment rather than self employment, I'd imagine what would normally happen is that the two parties to the contract agree a new one that gets around the Revenue issue, or agree on an employment contract for the employer to take the contractor on as an employee.


----------



## T McGibney

mandelbrot said:


> That sequence of events is unlikely to happen. The service contract that exists would still be valid, regardless of how Revenue decide it is to be treated for tax purposes.
> 
> In the event that Revenue determine it is an employment rather than self employment, I'd imagine what would normally happen is that the two parties to the contract agree a new one that gets around the Revenue issue, or agree on an employment contract for the employer to take the contractor on as an employee.



A tad optimistic, I think. The company might instead determine that its either too risky or expensive to employ someone to carry out a specified task or role, so they would  just terminate the contract and either outsource the task to another business or delegate the task to a member of in-house staff.  I know of some businesses that have got rid of contracted bookkeepers and outsourced their payroll and internal accounts function to accounting firms, for this precise reason.


----------



## mandelbrot

T McGibney said:


> A tad optimistic, I think. The company might instead determine that its either too risky or expensive to employ someone to carry out a specified task or role, so they would just terminate the contract and either outsource the task to another business or delegate the task to a member of in-house staff. I know of some businesses that have got rid of contracted bookkeepers and outsourced their payroll and internal accounts function to accounting firms, for this precise reason.


 
Fair point


----------



## werner

T McGibney said:


> A tad optimistic, I think. The company might instead determine that its either too risky or expensive to employ someone to carry out a specified task or role, so they would just terminate the contract and either outsource the task to another business or delegate the task to a member of in-house staff. I know of some businesses that have got rid of contracted bookkeepers and outsourced their payroll and internal accounts function to accounting firms, for this precise reason.


 
Thank you for the reply, I have heard of something quite similar and I wondered was it "hearsay" or was Revenue really in the business of decreasing employment (or self employment) resulting in putting people on social welfare payments whilst cutting its own tax base. After recent Revenue debacles nothing would surprise me!


----------



## mandelbrot

werner said:


> Thank you for the reply, I have heard of something quite similar and I wondered was it "hearsay" or was Revenue really in the business of decreasing employment (or self employment) resulting in putting people on social welfare payments whilst cutting its own tax base. After recent Revenue debacles nothing would surprise me!


 
How do you figure that is the case?

The choice in the scenario is the employer's - they choose whether to hire, contract, or outsource. Revenue are merely applying / enforcing the law as it pertains.

Even in the case where as Tommy suggests, the decision to outsource is made, as long as it isn't outsourced abroad then someone somewhere will still have to do the work and be paid for it, so I don't think it necessarily follows that unemployment increases. It _may,_ but it doesn't necessarily. And if it does, you can't blame Revenue as the agent of the State, it's an issue for the politicians / legislature.


----------



## invest-or

Tweet from Frank Fitzgibbon (‏@FrankSunTimes)

_SunTimesBiz: @Niall_Brady reveals Revenue to blitz engineers and IT consultants who claim self-employed status but work for a single client_
https://twitter.com/FrankSunTimes/status/295292853771436032

Anyone got a scan of the article?

According to http://www.askaboutmoney.com/showthread.php?t=41282 Revenue were also supposed to be planning such a crackdown in 2006, so I'm not sure how much one should be worried about this?


----------



## Brendan Burgess

bump for admin purposes


----------

