Contractor Companies Face Revenue Probe

bittihuduga

to contractors -
http://mcgibney.ie/2013/01/25/contractor-companies-face-revenue-probe/

i have heard revenue has sent out letters to ltd company owners in cork, limerick, kerry, clare.

bittihuduga

details of the letter sent out
http://mcgibney.ie/2013/01/25/revenues-letter-on-contractor-companies-in-full/

srsly78

The letter just says business as usual. Every year they make some kind of announcement about contractors being under investigation.

The one thing contractors are worried about is being classed as regular employees, and the letter says they are not investigating this at the moment:
"At the moment, we are not expressing an opinion on whether the arrangements we encounter are valid, that is, whether the company directors should more properly be regarded as direct employees of the entity awarding the contract. This question is being reviewed and may be adressed in the future"

barneystinson

srsly78 wrote: »

The letter just says business as usual. Every year they make some kind of announcement about contractors being under investigation.

The one thing contractors are worried about is being classed as regular employees, and the letter says they are not investigating this at the moment:
"At the moment, we are not expressing an opinion on whether the arrangements we encounter are valid, that is, whether the company directors should more properly be regarded as direct employees of the entity awarding the contract. This question is being reviewed and may be adressed in the future"

What it means is that if there are contractors (or their accountants) who know they've chanced their arm and overdone the ould expense claims, then they are now on notice that they can deal with it now and get a light penalty, or wait it out and face stiffer penalties.

The whole issue of "normal place of work" and claiming of mileage, travel & subsistence from a home to the normal workplace at the client's premises will be a big issue in plenty of cases... Some people are probably going to find out that their accountant, who they thought was a genius "saving" them all this tax, was actually making a big mess for their client.

Business as usual for other contractors, who haven't been tearing the arse out of it.

xabi

barneystinson wrote: »

What it means is that if there are contractors (or their accountants) who know they've chanced their arm and overdone the ould expense claims, then they are now on notice that they can deal with it now and get a light penalty, or wait it out and face stiffer penalties.

The whole issue of "normal place of work" and claiming of mileage, travel & subsistence from a home to the normal workplace at the client's premises will be a big issue in plenty of cases... Some people are probably going to find out that their accountant, who they thought was a genius "saving" them all this tax, was actually making a big mess for their client.

Business as usual for other contractors, who haven't been tearing the arse out of it.

What exactly is 'tearing the arse out of it' though? My legitimate expenses are about 6 - 8 % of turnover, is that high?

srsly78

Mine were about 30% for 2011 and 2012, totally legit tho (lots of business trips to London). That will get me audited for sure tho.

xabi

srsly78 wrote: »

Mine were about 30% for 2011 and 2012, totally legit tho (lots of business trips to London). That will get me audited for sure tho.

Did you get reimbursed by the company you work for or did you have to take the hit yourself?

srsly78

Reimbursed myself naturally. e190 per overnight in London for a short business trip. Got plane tickets as evidence etc.

AndrewR

Update from Noone Casey on the Revenue Audits:
http://www.noonecasey.ie/noone-casey-news/revenue-commissioners-review-of-contractors-rolling-out-nationally-with-immediate-effect.html
I was advised by my accountant that while an audit could arise the greater risk is that Revenue may look to reclassify contractors from limited-company (travel & subsistence expenses allowable) to PAYE (travel & subsistence expenses not allowable). He said that a number of other occupations had been targeted by Revenue in the recent past.

smeharg

AndrewR wrote: »

Update from Noone Casey on the Revenue Audits:
http://www.noonecasey.ie/noone-casey-news/revenue-commissioners-review-of-contractors-rolling-out-nationally-with-immediate-effect.html
I was advised by my accountant that while an audit could arise the greater risk is that Revenue may look to reclassify contractors from limited-company (travel & subsistence expenses allowable) to PAYE (travel & subsistence expenses not allowable). He said that a number of other occupations had been targeted by Revenue in the recent past.

I don't think so.

The other occupations that have been targeted are those that are not permitted (by law) to operate as limited companies (such as dentists).

If there's no legal impediment to a contractor operating through a limited company, then I can't see this being an issue. Of course, that doesn't mean that Revenue wouldn't try.

It's not that travel and subsistence expenses are/are not allowable. It's a matter of the normal place of work. In either case travel between home and then normal place of work is not allowable.

AndrewR

Thanks for the reply - dentists was the other occupation mentioned.
It may be a matter of interpretation but I came away from the meeting with the impression that I would be unable to operate any form of a limited company with any long term client (14 months with current client with 10 to go on the current contract) if Revenue decided that I have a de-facto PAYE relationship with the client. I also discussed company termination options with the accountant which strengthened my belief.

srsly78

There are guys that have been working for the same customer as a contractor for 5+ years, this is the kind of disguised employment that they have cracked down on in the past.

The law is a bit crazy here, if they deemed you a normal employee than this would also mean the entitlement to redundancy pay after 2 years etc.

smeharg

srsly78 wrote: »

There are guys that have been working for the same customer as a contractor for 5+ years, this is the kind of disguised employment that they have cracked down on in the past.

I'm not aware of this being a problem when it's a limited a company. It certainly can be if it's a sole-trader.

If the contract is with a limited company Revenue would need to prove that:
1. The contract is not actually with the company, but the individual; and
2. The relationship is contract of services not a contract for services

srsly78

The rules for this are very vague, but working for a single "customer" for 5 years is clearly taking the piss.

It is not as simple as you make out. People have in the past been done for this (and thus incurred huge backdated taxes) - these people would have satisfied your 2 conditions above.

smeharg

srsly78 wrote: »

The rules for this are very vague, but working for a single "customer" for 5 years is clearly taking the piss.

It is not as simple as you make out. People have in the past been done for this (and thus incurred huge backdated taxes) - these people would have satisfied your 2 conditions above.

With all due respect your understanding of the area seems quite limited.

The question of whether or not an employer/employee relationship exists hinges on whether or not the contract is one for services or of services. There is nothing simple about it and I didn't suggest there was.

If those people had of satisfied those conditions then they wouldn't have been "done".

The problems (to date) have arisen where the relationship is between an "employer" (for want of a better term), and an individual.

I am not aware of any problems where the relationship is between an "employer" and a limited company except, as is referred to above, in cases where there is a legal impediment to operating through a limited company (as is the case with dentists). Clearly if that is the case Revenue can successfully argue that the contract between the "employer" and the company is null and void. It would then follow that the relationship is between the "employer" and the individual. Revenue would then need to prove that it is of the nature of employer/employee.

That is not to say that Revenue may yet seek to challenge "employer"/limited company contractor scenarios in the future.

srsly78

They have challenged peoples arrangements in the past, and they will do it in the future. Having a limited company and certain word in your contract is not a 100% bulletproof defence against this.

Very similar stuff has been going on in the UK for a while now (IR35), as usual we are lagging behind them by a few years.

smeharg

srsly78 wrote: »

They have challenged peoples arrangements in the past, and they will do it in the future. Having a limited company and certain word in your contract is not a 100% bulletproof defence against this.

Very similar stuff has been going on in the UK for a while now (IR35), as usual we are lagging behind them by a few years.

Having a limited company DOES make a difference. How a contract is worded does not, being VAT registered does not, doing your own tax returns does not - it's the facts that detemine the status. Whether the contract is between the individual or the limited company will be a question of fact.

IR 35 is completely different. That is a piece of legislation specifically aimed at looking through the corporate structure and setting it aside in certain circumstances. There is no equivalent Irish legislation. It is these kind of powers that you are suggesting Revenue has.

The situation is different in the UK as a shareholder can take dividends, taxed at 10%, and have no further tax liability. Provided of course they comply with the IR35 provisions. The problems they are having is that IR35 is too complicated.

srsly78

I know all this, what I am saying is that the Irish Revenue are trying to emulate what the Brits do (which is an epic failure). The British taxman has wasted millions (a lot more than what they gained) on legal fees chasing contractors in court.

Shane732

Ok there seems to be a lot of opinions in this thread.

I understand that the Revenue Commissioners began actively looking at contracting in the South West region. As far as I'm aware the probe, for want of a better word, was primarily in connection with IT companies. In January 2013 the Revenue Commissioners issued a letter to the ITI stating that, in their opinion, there had been a leakage of tax (i.e. over-claiming expenses etc...) in a number of the case they had reviewed and the Revenue were currently reviewing the legitimacy of the concept of contracting companies.

The main issue is about expenses. Theoretically a limited company's place of establishment could be an individual's own home. If the individual is "employed" by this company and is working on the site of a large multinational is he/she entitled to mileage from his home (the limited company's place of establishment) to the location of the multinational? How does this compare to a individual who is employed directly by the multinational?

The other issue is employers PRSI.

My advice to anyone out there would be not to think you're safe just because you have a contracting company as opposed to a sole trade.

smeharg

It's hardly opinion.

From the letter to ITI from Revenue:

At the moment, we are not expressing an opinion on whether the arrangements we encounter are valid, that is, whether the company directors should more properly be regarded as direct employees of the entity awarding the contract. This question is being reviewed and may be adressed in the future

As I said:

smeharg wrote: »

...
That is not to say that Revenue may yet seek to challenge "employer"/limited company contractor scenarios in the future.

srsly78 seems to think this has happened in the past and is happening now.

There are potentially more issues than ER PRSI and excess expenses, such as holiday entitlements, social welfare eligiblitly, redundancy rights etc etc.

It's the "employer" company that has to worry about that. The subcontractor needn't worry if its taxes are paid and expenses are legitimate.

Shane732

smeharg wrote: »

It's hardly opinion.

From the letter to ITI from Revenue:




As I said:



srsly78 seems to think this has happened in the past and is happening now.

There are potentially more issues than ER PRSI and excess expenses, such as holiday entitlements, social welfare eligiblitly, redundancy rights etc etc.

It's the "employer" company that has to worry about that. The subcontractor needn't worry if its taxes are paid and expenses are legitimate.

Why do you say that?

smeharg

It's the employer that must regularise the situation.

Of course that's purely from a tax perspective. The contactor could find themselves out of a job, but if they were found to be an employee then could they claim all the benefits attached to that? One for another day, I think.

Shane732

smeharg wrote: »

It's the employer that must regularise the situation.

Of course that's purely from a tax perspective. The contactor could find themselves out of a job, but if they were found to be an employee then could they claim all the benefits attached to that? One for another day, I think.

Ha, but the contractor is the employer....?

smeharg

Shane732 wrote: »

Ha, but the contractor is the employer....?

Not if Revenue set aside/look through the limited company.

Dellfly

Hi

Has anyone here been audited if so could the give us their experiences?
Did the Revenue accept any of their travelling expenses for example 1K, 2K 10K more less.
Or was it a percentage of turnover?

Dell

barneystinson

Dellfly wrote: »

Hi

Has anyone here been audited if so could the give us their experiences?
Did the Revenue accept any of their travelling expenses for example 1K, 2K 10K more less.
Or was it a percentage of turnover?

Dell

Every case is different, and turnover will be irrelevant.

What will matter is where the normal place of work was, how much allowable business travel there was from that place to other places of work, how it was recorded, logged etc.

So one contractor with a turnover of 60k may have had 12k of allowable travel expenses, and another contractor with 120k turnover may have his 10k of travel disallowed in its entirety...

Shane732

smeharg wrote: »

Not if Revenue set aside/look through the limited company.

So you're saying that contractors should operate on the basis that the Revenue will set aside the transaction and ultimately the real employer will take the hit on the employers PRSI?

Tbh unless the industry dictates I don't see the point of contractors. The likelihood is that the ultimate employer is not "getting off" any of their employment rights, there is a tax risk and managing contractors appears to be a time consuming job and a pain in the hole.

I've been actively involved in a number of large contractor cases over the past 3 years and it's always an absolute mess.

smeharg

Shane732 wrote: »

So you're saying that contractors should operate on the basis that the Revenue will set aside the transaction and ultimately the real employer will take the hit on the employers PRSI?

Tbh unless the industry dictates I don't see the point of contractors. The likelihood is that the ultimate employer is not "getting off" any of their employment rights, there is a tax risk and managing contractors appears to be a time consuming job and a pain in the hole.

I've been actively involved in a number of large contractor cases over the past 3 years and it's always an absolute mess.

I'm not quite sure that I follow you.

As it stands now the employing company can avoid employing an individual if it the individual operates through a limited company and that company contracts with the employing company. So, the individual does not have any employment rights and the employing company doesn't have any employer obligations, including PRSI ER on payments to the contractor company.

The individual is chargeable to PRSI at class S, therefore the contractor company isn't liable to PRSI ER.

You claim that contracting companies aren't safe just because they are companies. What I'm saying is that, if in the scenario I've just outlined, Revenue come in and say, "no, the contract is actually between the employing company and the individual (not the contractor company)", then it is the employing company that must regularise the situation (as we have seen medical practices do with locums in recent years).

Provided the contracting company has met all its tax obligations and not exploited the expenses regime, then the contractor/contracting company should have no further obligation.

In response, to your initial question, are you suggesting that the contractor should pick up the tab for empoyers PRSI? I'm saying that if Revenue set aside the arrangement it's not the "employee" that has the problems.

But at this point it's all speculation as Revenue aren't examing these contracts at present.

Dellfly

Hi

The revenue are suggesting that a contractor may have a company of his own at a registered address but he is actually working in an office of an other company therefore he cannot claim expenses for going to work at this other company because he place of work is the office of the other company not his own company's address.
Some might agree with this others disagree but either ways the validity of these expenses is ambiguous. Some accountants say they are legitimate others not.
I would suggest that the revenue should compromise here, rather that define these expenses as a deliberate under declaration of income and therefore incur a fine, they should accept it good faith that the interpretation is ambiguous and simply accept the under-declared tax liability without fine.
They might make more progress with this.

daigo75

srsly78 wrote: »

They have challenged peoples arrangements in the past, and they will do it in the future. Having a limited company and certain word in your contract is not a 100% bulletproof defence against this.

Very similar stuff has been going on in the UK for a while now (IR35), as usual we are lagging behind them by a few years.

Personally, I would welcome any action against all sorts of disguised employments, especially in IT. It would be great to see contracting becoming real contracting, like I have seen in most Countries in the continent (i.e. Contract for Service), rather than just being an employee with more expenses, more duties and less privileges. If I have to show up in Customer's office every day on a 9-to-5 basis and bill by the day, it's not contracting and it doesn't make any sense to call it like that.

Still, it seems that most agencies and companies think that disguised employment is the normal way of "contracting". They even expect a "contractor" to go through the same a whole set of interviews! As if one would interview a plumber, or an electrician!

It would be interesting to see what Revenue is planning to do about it, even if I doubt that will take action any time soon.

srsly78

Why do they need to do anything about it? What is the problem exactly? Tax evasion is a completely seperate discussion btw. Contractors often pay MORE tax than normal employees.

IT contractors here provide flexible labour, it works out well for the employer and the contractor. I choose my own days btw, it's just polite to inform the customer if you are gonna take holidays or whatever. I worked for a UK company recently (mostly from home in Dublin), was I not exporting services? Are all those VIES forms I filed wrong?

xabi

Update on this - http://mcgibney.ie/2014/03/14/latest-from-revenue-on-contractors-project/

Has anyone been audited?

xabi

Apparently this had ended since July, anyone hear anything?

barneystinson

xabi wrote: »

Apparently this had ended since July, anyone hear anything?

Define ended!

AFAIK Revenue were intending to either agree settlements (or agree nil liability), or raise assessments by the end of July on the cases opened in the project.

The project ending also doesn't mean no more contractors will be audited - it simply means there isn't a regional or national sector-specific project.

xabi

I read it in one of the briefings from revenue and someone confirmed on another site. It mentions phase 1 ending though, is there a phase2