Update on Revenue Audit of Contractors

As part of the National Contractor Project, the Revenue Commissioners issued a tax briefing to clarify the circumstances in which travel and subsistence expenses may be reimbursed free of tax.  To read the full content of the briefing please click here.   The publication of the briefing followed the Revenue’s audit of a large number of professional service contracting companies.   A recurring issue in the cases audited has been the tax treatment of various expenses of travel and subsistence.

Revenue’s practice in relation to tax-free reimbursement of travel and subsistence has been available for quite some time and is set out in detail Revenue Leaflets IT 51 and IT 54.  

The tax briefing gives examples to assist contractors to determine their ‘normal place of work’.   In a nutshell, the Revenue is taking the view that where a contractor is required to be at a client site, that the client site is the ‘normal place of work’ and no travelling or subsistence can be claimed in respect of the journey to and from that site – regardless of the extent of the work done there and no matter how short the period of time he/she is required to be there.   In certain, limited circumstances, travelling expenses can be reimbursed free of tax; such expenses must be incurred in the performance of your duties, for example:

(a)    A return journey to a client, to and from your normal place of work  (see example two on the attached briefing)

(b)   If you have to visit a customer of your client and you start the journey from your home – the expenses that may be reimbursed free of tax are the lesser of those incurred on the journey between your home and the customer’s premises and those incurred on the journey between your normal place of work and the customer’s premises (see example 3 on the attached briefing).

(c)    If you work from home by choice and once a month you visit your client, you cannot claim the cost of travelling to and from your client.  If, however,  you have more than one client and you visit two (or more)clients on the same day, the travelling and subsistence expenses you incur on the journey from your home to the first client and from the last client to your home may not be reimbursed free of tax.  The travel and subsistence expenses necessarily incurred by you in travelling between your client’s premises may be reimbursed free of tax.

If you are currently claiming travelling and subsistence free of tax from your company, I suggest that you review all your journeys to make sure that they qualify as business journeys.  If you claim travelling and subsistence expenses for non business journeys you not only have to pay the tax that should have been paid, but you also have to pay interest on tax paid late and a penalty for deliberately defaulting on paying the correct tax at the correct time.

The Irish Tax Institute outlined their concerns in their response to the Revenue’s tax briefing.  To read the full response, please click here.  The Institute outline a number of situations where they believe travelling and subsistence costs should be allowed, for example in genuine situations where an individual’s work operations are based at their home and the majority of their work takes place at home, rather than at any other premises.  The Institute has also highlighted the fact that the Revenue approach to contractors is different to other accepted practices which exist at the moment, such as “country money” arrangements and allowable subsistence for foreign travel.  They have requested that these matters are discussed at the next meeting of the Taxation Administration Liaison Committee (TALC).  I will issue a further update following that meeting – hopefully by the end of October.

OSK Talks on Revenue Audits

OSK plan on running a series of presentations for contractors in our offices once we have more clarity from Revenue. Please register your interest in attending these talks by emailing OSK today .

The National Contractor Project started in the South West region but has now been extended nationwide. If you wish to discuss any aspect of this please contact Imelda Prendergast at OSK on 01 439 4206 or prendergasti@osk.ie