Contractors' Project - Now Active in All Regions
As highlighted in Friday’s TaxFax, audit letters in relation to the “national contractors’ project” have now issued from all the 4 Revenue regions - South West (SW), Border Midlands West (BMW), East South East (ESE) and Dublin. These desk audit letters are issuing to both the companies under audit and to their directors.
In today’s bulletin we focus on:
- The Institute’s work on behalf of members, including key issues raised and Revenue’s
- Resources for members.
Institute Work on Behalf of Members
The Institute has been engaging intensively with Revenue over a number of months on issues arising for members from this project. We have had Branch meetings with the SW, BMW and ESE regions recently and discussions with Dublin Region. We have also discussed the issues at TALC Audit and Main TALC, at the Joint Conference and directly with senior Revenue officials.
The most recent issues we raised with Revenue and their responses are summarised below:
The scope of the audit letters is very broad in applying a four-year audit period to all contractors and there is no mention in the letters of the “60 day extension” to prepare a qualifying disclosure.
“The four-year approach is to ensure consistency. You may recall that in the early stages in the South West there was some concern about variation or lack of clarity in the number of years covered. Clearly, where there are no issues, the audit intervention should be short and not unduly onerous.
If there is a disclosure to be made, that fact must be notified within the 14 days indicated in the audit letter. As stated previously, Districts will be reasonable in response to genuine difficulties experienced by taxpayers and agents, and will allow the normal 60 days for completion of disclosure, as well as co-operating with genuine efforts to make a qualifying disclosure.”
Where no disclosure is being made the Revenue letter still requires the taxpayer to provide a very large amount of information to Revenue, within a short timeframe.
“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.”
The issue of audit letters to the second director of the company appears to be a change from previous practice in this project.
“With regard to the second director receiving an audit letter, this is standard practice in such cases to provide for situations where the personal affairs of a director may be inextricably linked with the company, and does not necessarily mean that separate full audits will be conducted.”
There are a number of other key matters that the Institute has been actively pursuing over recent weeks. These are:
Guidance - we have asked that Revenue, as a matter of urgency, issue further guidance on their position in relation to the treatment of travel and subsistence expenses in common scenarios arising and we have provided some scenarios for consideration e.g. where there is regular intra-site travel by contractors, where a contractor must spend some months working in different locations, scenarios where multiple contracts are in place etc. We understand clarification via eBrief on a number of aspects of the project is to issue.
Penalties - we have sought that cases be judged on their merits in determining what penalty is appropriate and pointed out that some taxpayers genuinely thought they were operating within industry norms in relation to expenses claimed. Revenue has stated that exceptional cases will be considered, but these will have to be signed off at Assistant Secretary level.
Unprompted disclosures - As noted in our earlier bulletins on the contractors’ project, Revenue has clarified that taxpayers who choose to make an unprompted disclosure in advance of receiving an audit letter, will be able to avail of a 60 day period to prepare a disclosure, beginning from the date on which the notice of intention to make a disclosure is provided to Revenue.
Resources for Members
The Institute has developed a dedicated webpage, which we will be updating with further developments as they arise. This webpage includes our 3 bulletins on the roll out of the projects in the SW, the BMW and the ESE regions. Also included are links to current guidance Revenue has referred to to date – e.g IT51(Employees’ motoring/bicycle expenses), IT54 (Employees’ subsistence expenses) and Statement of Practice IT/2/07 (Tax treatment of the reimbursement of expenses of travel and subsistence to officeholders and employees).
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