Review of Important Tax Developments in the Past Months

REVENUE ACTIVITY

Consultant’s Project

Revenue identified single employee consultancy companies as an area for concern and have targeted this area with audits throughout the summer. The focus of these audits are mileage and subsistence claims, expense payments and payments to family members. Revenue indicated that erroneous expense claims would be treated as deliberate behaviour for the purpose of determining the penalty attached to any underpaid taxes. 

These cases provide a perfect example of how taxpayers can fall foul of not seeking proper counsel. The dreaded “pub talk” advice that practitioners have to combat on a regular basis no doubt resulted in many consultants telling their advisor how a colleague was able to claim mileage to work and refusing to acknowledge the risks attached. These same consultants will on the whole be surprised to discover that their error is now being categorised as a deliberate default.

Whilst clearly a client’s query in relation to tax deductions should never be dismissed without investigation, the consultants project may provide practitioners with a useful anecdote for counterbalancing the next time a client insists one of their friends assures them there’s an easy way to avoid tax.

Medical Consultants

Revenue also wrote to the Irish Medical Organisation and the Irish Hospital Consultants Association to inform them that medical consultants who had incorporated their business into a company owned or controlled by the consultant would come under scrutiny. The letters set out five particular areas that Revenue had identified as being of concern. In short these were:

  • The valuation of goodwill on incorporation
  • The use of reliefs to reduce or eliminate potential CGT liabilities
  • The allocation of income between the company and the sole-trade
  • The calculations of deferred income recognised in the company accounts
  • Unsupported and/or excessive expense claims

The letters noted that no opinion was being expressed in relation to the incorporation of medical consultancy businesses, however “cases with little or no commercial reality or validity, and/or cases where unacceptable aggressive accounting or taxation practices have been adopted, will be vigorously challenged. Any agent or promoter who encourages, promotes or facilitates such arrangements will also be challenged.”

In the absence of any legal barrier to incorporation there is no reason that medical consultants should be singled out by Revenue ahead of any other professional who wished to incorporate. As the incorporation of medical practitioners has become more prevalent over the last few years a number of issues have arisen and need to be addressed. Incorporation of medical consultants is certainly an area that should not be entered into lightly. Any practitioner who has a client in this position is advised to review the incorporation and its operation.