Default Revenue crackdown on contractors' expenses - what should a contractor do now
The most common expenses contractors over claim are mileage claims, subsistence (meals and the like), use of home as office (over claim of utility bills) and foreign travel (personal travel treated as business trips). Home as office expenses should be charged pro rata to the amount of space being used to run the business (typically less than 10% of the area of the house). Excessive claims of 50% or 75% of the house costs have been made. Revenue will examine excessive claims for reasonableness.
Contractors operating through a company and claiming mileage or subsistence expenses, claim on the basis of standard civil service rates allowed by Revenue and published on their website without the need to keep actual receipts. What they do have to keep is a diary of the clients visited and journeys.
In the case of excessive claims, Revenue will examine the contractor’s diary record to see if the claims can be matched to actual client meetings.
Don’t forget that there is a tax disadvantage to being self-employed, either through a sole trade or your own company. You lose the PAYE credit, currently €1,650. Based on the standard tax rate of 20%, this equates to €8,250 of expenses you would need to claim to make it up. So from the Revenue’s perspective there is a reasonable buffer built in to handicap those who look to go self-employed and over claim expenses.
Tom Bluett, Chartered Accountant.