Revenue cracking down on expenses claimed by contractors - the philosophical issues

T McGibney

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mandelbrot

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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?
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.
 

Time

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The funny thing is it is often the "employer" who insists on such an arrangement.
 

Setanta12

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Rather interestingly a lot of jobs advertised by Fas on their website detail that, irregardless of the actual position and the terms-and-conditions on offer , that the person hired is responsible for their own taxes.

I emailed Fas one evening from boredom to tell them about this. Eventually got a reply, thanking me for my mail but they were just going to continue anyway.
 

WizardDr

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Is this not a simple case of Revenue allowing practices to carry on for years;
Then take out the bazooka 'the lookback' where you sit on your hands (I would have used another term but for sensitivities of the moderators who) and ignore the issue for years. Then you threaten them - knowing full well that when you start investigating that lo and behold they are breaching various parts of the tax code and then there can be a big investigation and the Revenue get medi paudits etc.

Its a regular feature now of what the Revenue do,

I thing they reccently 'spotted' transfer pricing abuse after falling over documents a mile high from the UK and other jurisdictiosn and rushed out their practice note.

Marvellous stuff.
 

mandelbrot

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Is this not a simple case of Revenue allowing practices to carry on for years;
Then take out the bazooka 'the lookback' where you sit on your hands (I would have used another term but for sensitivities of the moderators who) and ignore the issue for years. Then you threaten them - knowing full well that when you start investigating that lo and behold they are breaching various parts of the tax code and then there can be a big investigation and the Revenue get medi paudits etc.

Its a regular feature now of what the Revenue do,

I thing they reccently 'spotted' transfer pricing abuse after falling over documents a mile high from the UK and other jurisdictiosn and rushed out their practice note.

Marvellous stuff.
(Here we go again... my first ding dong of 2013...!)

Ah would ya ever change the record Wizard! :p

So Revenue have decided that they are going to closely examine a particular area where perhaps they believe the leakage of tax has reached an unacceptable level - contractors have become mcuh more common in the last 10 years as employers try to get around their obligations and move people off the books. Sometimes things reach a tipping point.

The use of things from poor accounting to downright aggressive tax planning in the area has increased in the period as well. I'd suggest that through the normal audit programme, individuals in Revenue started feeding back upwards the information that these types of cases were yielding additional tax more frequently and perhaps in greater quantities than other traders - this is a process that can take time to sink in in an organisation as large as Revenue, particularly since only a small percentage of taxpayers are audited in any given year, and we are talking about a relatively small subset of the total. Sample size and confidence intervals etc... you'd hardly deem it wise they leap before they look, given the scarcity of resources?

It's not that there's been some kind of sudden seismic shift in Revenue's application of the Taxes Acts - the sequence of events seems fairly logical to me to be honest. They dipped their toe in the water in the south west region to satisfy themselves that there do appear to be issues in this area, and now they're making it clear that they're focusing on this area. Anyone who hasn't already been audited now has the chance to get their house in order if necessary, with the minimum level of penalties if they make a voluntary disclosure.

I do think that the "deliberate behaviour" is a little bit heavy-handed, but that is the stick to accompany the carrot of telling people they're looking at the area closely - it's 10% if you come forward, and goes up steeply if they have to come looking for people.

(Will we continue the argument on thread, or by PM where we can curse at each other...? ;) )
 

invest-or

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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.
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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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)?
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.

As for your question about the nature of the crackdown, I wouldn't be surprised if we end up with our own equivalent of the UK's IR35 here.
 

T McGibney

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I'd suggest that through the normal audit programme, individuals in Revenue started feeding back upwards the information that these types of cases were yielding additional tax more frequently and perhaps in greater quantities than other traders - this is a process that can take time to sink in in an organisation as large as Revenue, particularly since only a small percentage of taxpayers are audited in any given year, and we are talking about a relatively small subset of the total. Sample size and confidence intervals etc... you'd hardly deem it wise they leap before they look, given the scarcity of resources?
Oddly enough, my experience of IT Contractor audits over the years has been that they are normally (1) very straightforward, ie limited volumes of transactions, generally a single bank account, etc; and (2) generally, clean, ie little or no additional tax liability arising. Perhaps there are fresh trends out there in certain areas out there that indicate the opposite? Revenue South-West seem to think so anyway.

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)?
Exactly.

As for your question about the nature of the crackdown, I wouldn't be surprised if we end up with our own equivalent of the UK's IR35 here.
Given the mayhem that IR35 has caused HMRC in the UK (a country with much weaker anti-tax avoidance laws than we have in Ireland), I'd be amazed if Revenue here fall into the same trap.
 

T McGibney

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contractors have become much more common in the last 10 years as employers try to get around their obligations and move people off the books. Sometimes things reach a tipping point.
Sorry, this sort of perjorative sanctimony drives people (like me) round the bend. The whole trend away from the monolithic employer/ 'job for life' culture towards a more unsettled, entrepreneurial culture is happening globally and is not merely a case of individual employers trying to scam their workers or the system.

If Revenue force Irish business and industry to operate within an internationally outdated straitjacket that all human resource deployment must be via permanent, pensionable employment, with all the inflexibilities that this entails, our economy will suffer dreadfully in the medium to long term.
 

Bateman

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Based on what's in Tommy's blog, Revenue's issue seems to be with ropey expense claims rather than "employee vs self employed", the Denny case, etc?
 

mandelbrot

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Sorry, this sort of perjorative sanctimony drives people (like me) round the bend. The whole trend away from the monolithic employer/ 'job for life' culture towards a more unsettled, entrepreneurial culture is happening globally and is not merely a case of individual employers trying to scam their workers or the system.

If Revenue force Irish business and industry to operate within an internationally outdated straitjacket that all human resource deployment must be via permanent, pensionable employment, with all the inflexibilities that this entails, our economy will suffer dreadfully in the medium to long term.
That's not an issue for Revenue though surely it's one of Govt policy. I'm no socialist, and I never meant that the employers are trying to scam anyone, they're managing the flexibility and cost of their workforce.

The reality is that at the moment our legislation is what it is. Jimmy employed in a job, earning a salary and paying PAYE on it may find that Johnny next door who is contracted into the same job is being paid a daily rate in excess of Jimmy's, to compensate for the lack of employment rights/holidays etc., but Johnny (through good, or bad, tax planning) ends up paying much less tax and has a far higher take home pay. It is hard to square that circle.
 

T McGibney

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That's not an issue for Revenue though surely it's one of Govt policy. I'm no socialist, and I never meant that the employers are trying to scam anyone, they're managing the flexibility and cost of their workforce.

The reality is that at the moment our legislation is what it is. Jimmy employed in a job, earning a salary and paying PAYE on it may find that Johnny next door who is contracted into the same job is being paid a daily rate in excess of Jimmy's, to compensate for the lack of employment rights/holidays etc., but Johnny (through good, or bad, tax planning) ends up paying much less tax and has a far higher take home pay. It is hard to square that circle.
But the recession has already squared the circle, with a vengeance.

Johnny has no offer of work for the entire month of January. He sits at home watching daytime TV, and can't even claim the dole, while Jimmy's permanent job means that he happily goes to work every day and collects his pay cheque at the end of the month.

Even when he goes back to work in February or March or whenever the company wants him, Johnny wishes that his "higher take home pay" was something more than a myth.

Meanwhile Jimmy, who has been off sick for a few weeks, and has saved a few bob in commuting costs (while still getting paid), plans his summer holidays...
 

mandelbrot

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But the recession has already squared the circle, with a vengeance.

Johnny has no offer of work for the entire month of January. He sits at home watching daytime TV, and can't even claim the dole, while Jimmy's permanent job means that he happily goes to work every day and collects his pay cheque at the end of the month.

Even when he goes back to work in February or March or whenever the company wants him, Johnny wishes that his "higher take home pay" was something more than a myth.

Meanwhile Jimmy, who has been off sick for a few weeks, and has saved a few bob in commuting costs (while still getting paid), plans his summer holidays...
Yes so Johnny takes higher risk for higher reward, but my point is that the higher reward shouldn't include artificially reduced tax liability.

In a boom everybody wants to be Johnny and in a bust everybody would be happy to be Jimmy, that's the way of the world.
 

T McGibney

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Obviously nobody condones tax evasion.

That said, in an international economy where massive companies like Tommy Hilfilger employ no manufacturing staff whatsover and subcontract every role, our own Revenue Commissioners, and our Government, need both to be crystal clear that they have no ideological prejudice towards the principle of subcontracting.

The evidence to date in both respects sadly suggests the opposite, and our economy will be at a serious competitive disadvantage for as long as this prejudice persists.
 

T McGibney

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TMcGibney has suggested that his experience in audits of these cases has been relatively trouble free - you might say it's because of Revenue "ignoring" a problem, but I'd say it's because of either: no problems with expenses etc. existing, or a poorly trained auditor not being able to understand them.
I dont think I have ever seen a Revenue Auditor "ignoring" a tax liability issue. Training is not an issue either, as in my experience Audit Inspectors are acutely aware of all relevant issues. That's why, when someone gets an audit notification, they know it's serious business.
 

mandelbrot

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Obviously nobody condones tax evasion.

That said, in an international economy where massive companies like Tommy Hilfilger employ no manufacturing staff whatsover and subcontract every role, our own Revenue Commissioners, and our Government, need both to be crystal clear that they have no ideological prejudice towards the principle of subcontracting.

The evidence to date in both respects sadly suggests the opposite, and our economy will be at a serious competitive disadvantage for as long as this prejudice persists.
Out of curiosity where does this happen?
 

mandelbrot

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I dont think I have ever seen a Revenue Auditor "ignoring" a tax liability issue. Training is not an issue either, as in my experience Audit Inspectors are acutely aware of all relevant issues. That's why, when someone gets an audit notification, they know it's serious business.
Thanks for confirming the point I was trying to make re ignoring issues.

They are well trained, but with the best will in the world some people are better than others. Poorly trained was me being diplomatic!
 

T McGibney

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Out of curiosity where does this happen?
One example would be the manner in which the entire employment v self-employment issue has been pursued in recent years, particularly since the Barry Case, and the manner in which medical, pharmacy and dental practices have been scared away from hiring genuinely independent contractor locums.

Meanwhile consumers wonder why the cost of these services is higher here than across the border, and other sectors, including internationally traded sectors, wonder if they will be next to be targeted.
 

mandelbrot

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One example would be the manner in which the entire employment v self-employment issue has been pursued in recent years, particularly since the Barry Case, and the manner in which medical, pharmacy and dental practices have been scared away from hiring genuinely independent contractor locums.

Meanwhile consumers wonder why the cost of these services is higher here than across the border, and other sectors, including internationally traded sectors, wonder if they will be next to be targeted.
Oh sorry, I meant where is this subcontracted manufacturing happening!

Those are good points though - ones that need to be considered beyond Revenue. The reality with the locums was there was a lot of outright evasion, I know of instances of people flying into the country to do some work and fly out again. Very hard to tackle unless you implement deduction at source.
 
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