Key Post Revenue crackdown on contractors' expenses - what should a contractor do now?

Scouser

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Yes, trading through a Ltd Co. Aparantly at the moment they arent looking at the arrangements between the contractor and hiring company, so wont express an opinion as to whether the director should be an employee or not. Just looking expenses, which i believe im within the rules with.
 

tbuckley

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One-off comment from Revenue

Individual problems obviously can't be dealt with in a forum like this, but there seems to be some confusion about what is going on, that I might be able to help with. The use of contractors is large and growing, and contractors are either self-employed or employees of intermediate companies. Legitimate expenses can of course be claimed against the contract income, but we found in audit that there was some serious abuse (not just of travel expenses). We are not taking any stance on the use of contracts at this time, but we must ensure that expenses claimed are legitimate. We understand that this can be a confusing area, so contractors who self-review and approach us suffer a small penalty - 10%. On the other hand there are a relatively small number whose abuse of the system is serious and systematic, and who do not make a disclosure. For obvious reasons, the penalty on those will be more severe. We are also prepared to be sympathetic in arriving at arrangements to pay any amounts due. Best advice is to get a good accountant to review your tax returns. For most, there won't be a serious issue.
 

Brendan Burgess

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Folks as the original letter to the Institute of Taxation which sparked this off was from Anthony Buckley of the Revenue Commissioners, we can take this as the definitive view of the Revenue.
 

Bled White

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Looks like they've turned their sights on Dublin. I got a letter demanding the last 3 years Motor, Travel and Subsistence and all back up documentation, Profit & Loss Accounts for last 3 years, Wages reconciliation for the last 3 years, VAT for 2013 and sales/purchases for 2013. Alternately the offer to make a 'qualifying disclosure' is made to allow a mere 10% penalty.
 

Brendan Burgess

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The following information was given in a Dail answer to Michael McGrath
Since July 2013, a total of 385 audits have closed with additional tax due in 299 cases while a further 49 have agreed to settlements. A total of €9.3m in interest tax and penalties has been collected.
368 companies remain under audit.
€30k per case is pretty good going.

One guy held his AGM on the Algarve and charged expenses for it.

"In many instances contractors will have acted on professional advice and the people who provided that advice had serious questions to answer," Deputy McGrath said.


"In light of these startling figures any self employed contractor providing services through a company under contract to a third party client would be well advised to have their tax situation independently checked to ensure they are not building up a massive bill of underpaid tax," he advised.
 

mandelbrot

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Looks like they've turned their sights on Dublin. I got a letter demanding the last 3 years Motor, Travel and Subsistence and all back up documentation, Profit & Loss Accounts for last 3 years, Wages reconciliation for the last 3 years, VAT for 2013 and sales/purchases for 2013. Alternately the offer to make a 'qualifying disclosure' is made to allow a mere 10% penalty.
If you need to make a disclosure, then that opportunity should be taken before you receive an audit letter. A lot of the 385 people referred to in Brendan's post above probably wish they had availed of that opportunity.
 

nai

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I do - and have also seen much worse in terms of travel expenses etc.
 

Bronte

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So Revenue are correct in going after these people who are misclaiming their expenses? Particularly as it pertains to travel expenses.

What happens if they decide the self employed person is an employee, does the paying company than have to put him on the books and back pay PRSI etc
 

Brendan Burgess

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Do you really believe such stories, Brendan? I don't.
Hi Tommy

Absolutely, I believe it.

I think if someone suggested this on askaboutmoney, or if one of your clients proposed doing it, they would get short shrift.

But people come up with all sorts of mad schemes to reduce their tax.

I would say that small , audit exempt companies, try loads of such things, but probably not many are that extreme.

Brendan
 

T McGibney

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What makes me suspicious is the manner in which Revenue have used this same lurid "example" in successive press releases.
 

mandelbrot

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So Revenue are correct in going after these people who are misclaiming their expenses? Particularly as it pertains to travel expenses.

What happens if they decide the self employed person is an employee, does the paying company than have to put him on the books and back pay PRSI etc
Hi Bronte,

The cases in question are audits of Ltd Companies set up by a contractor, effectively a one-man band, rather than audits of self-employed individuals. So Bronte Ltd as opposed to Bronte.

Bronte Ltd contracts with the "employer" (Multinational PLC) to provide the services of Bronte.

Revenue aren't (yet at least) trying to look-through Bronte Ltd to impose an employment relationship between the PLC and Bronte performing the work. The employment relationship exists between the Bronte Ltd, and Bronte.

The thrust of the project has been to identify cases where Bronte Ltd is invoicing a customer, and only paying a relatively small salary to Bronte, but also paying out substantial amounts in tax-free expenses to this employee, in some cases the expenses exceeding or being a multiple of the salary.

So Bronte might go from being a PAYE employee of the multinational, earning €65k, to being an employee of Bronte Ltd, which invoices €80k p.a. to the same company to provide Bronte's services. Bronte is paid a salary of €33k, maximising her standard rate tax band, and also pays Bronte Junior, a teenage child, 9k p.a. for miscellaneous office type work. Then Bronte receives €30k in travel and subsistence payments from Bronte Ltd, tax-free, for travelling between the company base (at home) and the client's premises.

Bronte is delighted, because she is now netting way more take home pay.

The final customer is delighted, because they have gone from having an employee costing them €65k + 10.75% employers' PRSI + 8%-10% annual leave + various employers' obligations (redundancy entitlements etc...), to having a more flexible arrangement with a lower overall cost to them.

The exchequer, via Revenue, is sad, because it is losing substantial revenues from the arrangement - if there is legitimate avoidance involved they might decide to address it via legislation, but if the loss is via evasion in the form of non-allowable tax-free payments, that's a different matter. Hence the Revenue focus on the area, and the results would appear to indicate a good deal of the latter was/is present.
 

yop

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390
Its hard to gauge if a lad is within the rules or not, I'm a sole trader for 4 years now with 90% of the time having 1 client. Generally I would travel to the company site on 2 to 3 occassions per week and then work from home from my own office.
I claim 10% of the electricity per month and my broadband and mobile. I have also claimed only IT related items, laptop, mouse, keyboard, monitor and printer and online courses that I do.
I like Xavi also have my contract with a 3rd party within the multinational, I bill these each month and they pay me, though I do all the work for the multinational.
On each visit to the site I claim civil service rates for mileage and subsistence all of this given the nod by my accountant.
I have to say I am worried that I might not be legit, I feel that I do everything by the book but wonder now if Revenue will see it different.
My roundtrip for this last 2 years contract is 190km per day that I go there.
For the previous 2 years it was 340km roundtrip.
 

mandelbrot

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2,330
Its hard to gauge if a lad is within the rules or not, I'm a sole trader for 4 years now with 90% of the time having 1 client. Generally I would travel to the company site on 2 to 3 occassions per week and then work from home from my own office.
I claim 10% of the electricity per month and my broadband and mobile. I have also claimed only IT related items, laptop, mouse, keyboard, monitor and printer and online courses that I do.
I like Xavi also have my contract with a 3rd party within the multinational, I bill these each month and they pay me, though I do all the work for the multinational.
On each visit to the site I claim civil service rates for mileage and subsistence all of this given the nod by my accountant.
I have to say I am worried that I might not be legit, I feel that I do everything by the book but wonder now if Revenue will see it different.
My roundtrip for this last 2 years contract is 190km per day that I go there.
For the previous 2 years it was 340km roundtrip.
Sole traders can't claim civil service mileage rates though; are you certain you're a sole trader?

Edited to add:
I have to say it baffles me that there are professional accountants who tell clients to "claim" mileage allowances. If they know that a sole trader can't pay themselves a salary, how do they square the circle of claiming an allowance from themself... baffles me.

OP I can see from your other thread that you are in fact a sole trader. You need to get the issue of your expenses looked at, and by the sounds of it by a different accountant.
 

T McGibney

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Edited to add:
I have to say it baffles me that there are professional accountants who tell clients to "claim" mileage allowances. If they know that a sole trader can't pay themselves a salary, how do they square the circle of claiming an allowance from themself... baffles me.

From what I've seen and heard of since the Revenue Contractors Project started 17-odd months ago, a lot of the more basic mistakes made by contractors have been on foot of what I'd call "pub advice".
 

Bronte

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The final customer is delighted, because they have gone from having an employee costing them

to having a more flexible arrangement with a lower overall cost to them.

The exchequer, via Revenue, is sad, because it is losing substantial revenues from the arrangement -

if there is legitimate avoidance involved .
Didn't see your response before now, but it never ceased to amaze me how in my husband's large multi national company workers went from being employees to self employed/ltd/whatever, doing exactly the same job and reporting to the same people. Must be going on over 20 years at this stage.

But then those multi n's are the untouchables.
 

yop

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390
Thanks for that, only spoke to him last Monday and he said that he spoke to Revenue when I started up and the subsistence wasn't an issue... its depressing to think I will get penalized for incorrect advice.
 
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