T McGibney
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My own blog http://mcgibney.ie/ has a full transcript of the Revenue letter and a link to the original document on the Irish Tax Institute website.
Key Post Revenue crackdown on contractors' expenses - what should a contractor do now?
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mandelbrot
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I suppose how much one should be worried depends on what kind of setup one has, and the level of dubious or challengeable expenses / tax free payments one has drawn.
So this "crackdown" seems not to be with being a contractor rather than an employee (even though working for a single client in a single location - which I do), but rather with such contractors underpaying their tax (which I don't do, as far as I'm aware)?
mandelbrot
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Ok well first thing they'll probably say to you is, since you work for 1 client in 1 location, that is your normal place of work. Have you claimed motor/ travel expenses for travelling between home (or your company's office) and that site?
Depending on how far they live from the place of work, some people claim very substantial tax free travel / mileage, which no other employee is entitled to.
Some people throw all kinds of personal expenses in as company expenses, when the reality is that many contractors have very few overheads, they're employees in all but name.
Brendan Burgess
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Hi folks
This is going to be a source of great concern for contractors, so I have separated the practical posts from the Letting off Steam posts.
What should a contractor do now? Anyone fancy writing a Key Post?
What were you entitled to claim?
If you claimed anything for which you were not entitled?
Correct it going forward.
Review your accounts and tax submissions
Make a voluntary disclosure and face the 10% penalty
If you don't make a disclosure and you are audited...
But isn't this only happening in the South West of the country?
Talk to an accountant
But research the issue yourself first. If your own accounant has advised you badly in the past, you may need to get a second opinion on the topic.
This is going to be a source of great concern for contractors, so I have separated the practical posts from the Letting off Steam posts.
What should a contractor do now? Anyone fancy writing a Key Post?
What were you entitled to claim?
If you claimed anything for which you were not entitled?
Correct it going forward.
Review your accounts and tax submissions
Make a voluntary disclosure and face the 10% penalty
If you don't make a disclosure and you are audited...
But isn't this only happening in the South West of the country?
Talk to an accountant
But research the issue yourself first. If your own accounant has advised you badly in the past, you may need to get a second opinion on the topic.
Are people not missing something here. If someone is deemed an employee, it is the paying company that is in firing line here with Revenue. A paying company must satisfy themselves that the individual is a contractor, otherwise they are oblidged to operate Payroll taxes. Personally, I'm delighted to see Revenue finally investigate these dubious setups. Genuine contractors have nothing to fear here.
In addition, as an employee, they will now be able to claim a PAYE credit and schedule E expenses.
In addition, as an employee, they will now be able to claim a PAYE credit and schedule E expenses.
T McGibney
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The Revenue letter doesn't address that particular issue, merely a suspicion that some contractors are claiming inflated or inappropriate expenses.
Brendan Burgess
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Folks
This is a practical thread.
This thread is about one thing and one thing only - i.e. where contractors are being investigated for claiming approrpriate expenses.
I have removed all other posts. Feel free to make them in a separate thread, but please don't take this any further off track.
Brendan
This is a practical thread.
This thread is about one thing and one thing only - i.e. where contractors are being investigated for claiming approrpriate expenses.
I have removed all other posts. Feel free to make them in a separate thread, but please don't take this any further off track.
Brendan
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.
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.
mandelbrot
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It probably wouldn't be feasible for all IT contractors to be audited, unless they are finding issues in almost every case.
They select cases for audit based on risk, as identified by their risk evaluation model (REAP). They will be targeting specific issues in contractors' returns, like for example cases where the motor & travel expenses per the accounts/CT1 exceed a certain % of the turnover, or where the total other expenses excluding director's salary exceed a certain % of turnover.
The bottom line is that anyone in the industry is well warned that they need to make sure everything is in order, and if they or their accountant have been chancing their arm it might be best to make an unprompted disclosure, rather than stick their head in the sand...
There is a tentative attempt to setup a representative body for Independent Contractors. Do a search for Independent Professional Contractors of Ireland on facebook or email ipci.ireland@gmail.com to express an interest in becoming involved.
Caveat - I'm not personally involved and know nothing of the background to this organisation so it could all come to nought. However, I did register interest, emailed the address and got the following response
"[FONT="]The purpose of the organisation will be to represent our interests, pool money to hire professional tax consultants / barristers to take test cases to the ombudsman / appeals commissioner / district court. Will keep you posted on updates."
If the issues highlighted in this and other related threads affect you I would encourage you to at least register interest in this representative body to see what comes of it.
[/FONT]
Caveat - I'm not personally involved and know nothing of the background to this organisation so it could all come to nought. However, I did register interest, emailed the address and got the following response
"[FONT="]The purpose of the organisation will be to represent our interests, pool money to hire professional tax consultants / barristers to take test cases to the ombudsman / appeals commissioner / district court. Will keep you posted on updates."
If the issues highlighted in this and other related threads affect you I would encourage you to at least register interest in this representative body to see what comes of it.
[/FONT]
mandelbrot
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While it's no bad idea for people to have representation to avoid having their rights infringed if Revenue are being excessively heavy handed, the fact remains that there are some people who tore the arse out of their expenses etc., whether off their own bat or as a result of poor professional advice about what would be allowable.
These guys would be much better off seeing the writing on the wall and rectifying things with minimal penalty, rather than try to argue black is white and end up possibly paying 75% - 100%.
What would be considered high? I legitimately claimed about 5 - 6% of turnover, is that high?
mandelbrot
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I doubt you'll find anyone who can tell you that for certain - they presumably have a figure in mind as a rule of thumb for picking cases. It might vary from district to district.
It could be a more sophisticated rule of thumb; they might say compare the turnover, the net profit in the company and the director/owner's P60, and if the difference (being the total of all other expenses) is above a certain % then it appears risky.
How would the revenue 'prove' that a contractor was working soley from a clients site most of the time? The fact that contractors could use un-vouched receipts will make it difficult for revenue i think.
My case is this:
My case is this:
- Contractor for 8 years working for large compnay
- Based mostly at home (normal place of business)
- claimed mileage if i had to visit client site (once / week at most)
- Sometime required to spend longer periods of time at client site, didnt claim any mileage from home to site in these instances.
mandelbrot
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From SP-IT/2/07:
"The office holder’s or employee’s home would not be regarded as the normal place of work unless there is an objective requirement that the duties of the office or employment must be performed at home. In particular, it is not sufficient for an office holder or employee merely to carry out, or opt to carry out, some of the duties of the office or employment at home for home to be considered the normal place of work."
This is Revenue's interpretation of the legislation, and is of course open to challenge (although it may already have been well tested, I'm not sure off the top of my head).
TBH I don't see any issues in your case.
Does this mean all your invoices are to the one company? If so, I think you have huge problems as Revenue will deem you as an employee.
Pretty much, i didnt have a choice in the matter and dont understand how it will cause me problems, surely the problems will be with the company that hired me? I invoiced a 3rd party who then invoiced the company for all contractors.
mandelbrot
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Presumably Xabi is trading through his own Ltd Co., as mileage wouldn't apply to a sole trader in any case.