Revenue guidelines for contractors – an engineer's guide
12 February 2014
With a lot of engineers opting for contract work rather than permanent positions, it has never been more important to make sure you are fully compliant with Revenue guidelines.
In 2013, the Revenue Commissioners launched a ‘national contractors’ project’ to investigate the tax affairs of contractors. The project has highlighted some significant issues in relation to the claiming of expenses by contractors for tax purposes.
According to Barry Flanagan of Contractors.ie, “The investigation was a massive undertaking by the Revenue and, as such, they’re leaving no stone unturned. For those contractors who have yet to be contacted by the tax officials, we’d urge them to take action straight away if there’s even the tiniest bit of doubt that their tax affairs may not be in order.”
In a letter to the Irish Tax Institute (ITI) in August, Revenue stated that where a person makes an “unprompted disclosure” (where no notice of audit or investigation has been received), they will be subject to a 10% penalty – however, a “prompted disclosure” will be penalised at a rate of 50%.
Barry went on to say, “While it may or may not be deliberate, some people conducting contracting services strayed from Revenue guidance when accounting for expenses, but Revenue has become very aware of this issue so ultimately these people will not go unnoticed. The Revenue’s brief states that travel expenses incurred by a director/employee on the journey from his/her home to his/her normal place of work (and vice versa) do not qualify for a statutory deduction under Schedule E and may not be reimbursed free of tax.”
In response to a query from the ITI, the Revenue had this to say:
“If the taxpayer decides not to make a disclosure, or that there is no disclosure to be made, we agree as a concession applying to this project only that, rather than sending all documentation to the District within 21 days, a letter from the taxpayer saying that there is nothing to disclose, and enclosing a brief reconciliation for the four years in question will be acceptable. A taxpayer should make their best efforts to comply with this requirement within the timeframe. Revenue will not rule out discussion on the contents where that would be helpful.”
The reconciliation is required to reflect the fact that these cases have been selected because of the apparently high levels of tax-free deductions from gross income. The reconciliation should show, for each year, the major (5% or more) deductions from gross income to arrive at the salary paid to the contractor(s). A note explaining unusually high expenses should also be included. It may be that the nature of a business is such that expenses that would otherwise appear high are fully justified. We will then consider these reconciliations, and revert with more specific requirements to allow the audit to be conducted.”
If you are currently working as a contractor and would like to find out more about Revenue guidelines surrounding the declaration of expense, check out Contractors.ie for advice. Contractors.ie is currently offering an ‘early bird’ discount on their tax return filing service.