small business and taxes

Selfemployed · 28 Jun 2002

PAYE tax credit

Can I conclude from the recent contributions that the PAYE allowance was justified 15 or 20 years ago, but it should be scrapped today, because there is no *reasonable* justification (bending the rules etc. not beeing considered) for it – or there should be an equivalent PBYE (Pay Before You Earn) tax credit for the self-employed who pays by standing order?

Middenface McNulty · 29 Jun 2002

PAYE tax evaders

3. Tax Evasion

Observer,

What about the guards who work as bouncers?
The teachers who do grinds?
The labourers who accept cash ?
Clerks who do Clerking ( off the record, of course )
Secretaries who type etc?

What audit system exists for these paye categories ?

Do we all turn a blind eye?

Observer · 29 Jun 2002

PAYE tax evaders

Fair point, but it hardly elevates them to Ansbacher status! Or even bogus non-resident status. I'm all for compliance across the board, but I can't see the most stringent audit of the categories you mention produce an average figure of over 20k in evaded taxes. Can you?

Actually, if you think about it, the real beneficiary in the case of the "bouncing guard" is the employer who gets away with paying far less than market forces would dictate if the payment went through the books. Not to mention employers PRSI.

Tommy · 1 Jul 2002

Re: PAYE tax evaders

 Fair point, but it hardly elevates them to Ansbacher status!

Correct, Observer, but didn't you make a good effort earlier at somehow trying to tar all sorts of tax dodger smears on the small business self-employed sector? So now it's apparently OK, from your viewpoint, for PAYE people to be evading tax, once they're not in the Ansbacher league?

Is it not a cop-out to plead that the "real beneficiary" (as you term it) of the "bouncing guard" syndrome is the employer? After all, both employer and employee are dodging tax (under various categories) on the part-time employment, and if the employee is in receipt of untaxed income from whatever source, they have a legal obligation to include same on their annual tax return and pay whatever balance of tax is outstanding thereon. If they don't, they are evading tax and they are breaking the law every bit as much as their crooked employer.

On another point, you made some earlier suggestions regarding mandatory RSI-numbers for large purchases. Believe it or not, the Revenue introduced strict rules for the reporting of all such business-to-business transactions (under what was called "monthly control statements") about 10 years ago and they had to withdraw them about 6 months to a year later.

The reasons...
(1) businesses found that the extra bureaucracy was costing them a fortune, and many companies had to recruit new office staff to do the huge volumes of work involved, thus drastically driving up admin costs
(2) the vast volumes of information generated were useless from the Revenue's viewpoint. In the initial cases where they undertook inspections and audits of the Monthly Control Statements, the Revenue found themselves literally submerged by the masses of information presented to them, all of which were duplications of the figures in the company books and records.

The biggest irony of all was that the unnecessary bureaucracy was all concentrated on legitimate transactions by compliant taxpayers and the whole exercise was only distracting the Revenue's gaze from the black economy, which they were in the process of dealing with at the time. (Believe me, the black economy in Ireland was much more prevalent in 1992 than in 2002). They would have needed the bureaucracy of Soviet Russia to go through them all.

Unless we go down the road of a police state, that particular idea won't be implemented again.

Tommy
www.mcgibney.com

Get Real · 1 Jul 2002

Tax Evasion

Hi All,

I don't disagree that the black economy was bigger ten years ago. However, Observer's basic point is accurate and remains valid. Compared to the PAYE sector, the self-employed (either directly or via companies) have the ability to take extensive liberties with tax evasion, do take them, and are unlikely to be caught.

I work as an IT consultant and supply my services to approx 10 sole traders/family companies - modest sized operations, with turnovers ranging from €500k to €3m p.a. As part of my work I advise on various accounting systems, and therefore have access to, but no vested interest in, what goes on in their accounts.

Amongst the items I have seen put through the business' books are:
* Holidays, including spouses and family members;
* Golf club memberships;
* Cable TV bills;
* Cleaning of private houses;
* Building work on private houses;
* A myriad of smaller items (dry cleaning etc) usually funded from petty cash.

One genius even funded an SSIA from a company account. In fairness, he may have corrected this - I know his accountant advised him to.

Just to be clear: I know that this is dishonest, I know that not all sole traders (I am one myself, after all) take such liberties. However, it is a consistent picture from a sample of individuals who in my judgement are collectively neither more nor less honest than the average. Observer is correct -  our tax system does allow the self-employed sector to engage in large-scale tax evasion, if they wish to do so, with little prospect of being caught.

Tommy · 1 Jul 2002

Re: Tax Evasion

Hang on a minute, there is nothing illegal or unethical about a company director paying personal bills from a company account (assuming that the amounts involved are not sufficiently large to breach company law provisions), provided that all these items are fully accounted for as personal drawings when the end-of-year accounts are prepared.

Part of the work of an accountant (and to an even greater extent, of the auditor, if an audit is done at year-end) is to identify all such items appearing in the company books, and to ensure that they are treated correctly, and re-posted as appropriate. From the viewpoint of the practising accountant, this exercise is an integral part of every audit and the vast majority of accounts preparation assignments.

Furthermore, in the event of a Revenue inspection or audit (which most business face under either VAT, PAYE/PRSI, or Income/Corporation Tax on average every 5 years or so), this area is usually given close scrutiny by Revenue personnel. Admittedly, it is quite common for Revenue to discover problems in this area, which generally lead to additional tax liabilities. However, it would be incorrect to assume that all cases of personal expenditure items remain uncorrected by the time final accounts and tax returns are prepared.

In your own case, unless you also have access to your customers' final accounts and the details of personal addbacks on their tax returns, I would suggest that you are most probably making an unwarranted judgement on your customers' taxation affairs. I certainly hope, for your own sake, that you have not been foolish enough to make any such allegations within earshot of your customers or colleagues.

Tommy
www.mcgibney.com

Get Real Twice · 1 Jul 2002

Tax Evasion

Is it just me or does anyone else find Tommy very quick to jump to personal judgements about other contributors who disagree with him.

 Of courseI haven't <blockquote>Quote:<hr> been foolish enough to make any such allegations within earshot of your customers or colleagues.<hr></blockquote> Apart from anything else, it's none of my business. It is however germane to this discussion, and I have no problem rehearsing it anonymously (both me and my customers) here.

Why Get Real Twice?  Of coursethe amounts in question are not treated as drawings. If they were, I wouldn't have commented on them. You're right, maybe my clients will eventually be caught out by Revenue audits, though none have been so far, and I've worked with some for a lot longer than five years. And while we're on that point, isn't your admission that
<blockquote>Quote:<hr> it is quite common for Revenue to discover problems in this area, which generally lead to additional tax liabilities<hr></blockquote> effectively confirmation that Observer's original point is indeed correct?

Observer · 1 Jul 2002

Tax Evasion and the self-employed

Tommy, fair dues to you, you're really trying hard on this one! Am I now to believe that it makes good sense for a company director to run a myriad of personal bills, some big, some small, through the company accounts. THEN, keep meticulous records to make sure they are indeed treated separately AND finally, pay an auditor and/or accountant to verify that this is indeed the case. Whoops, there go those pigs past the window again!! Wouldn't it be simpler and cheaper just to keep separate accounts for business and personal expenditure??? Unless there was a strong reason for keeping them aggregated!! (Remember Ray Burke and his "seamless" public/private personas)

Sorry, Tommy, I just don't buy it.

Just to clarify my position Tommy also said:
<blockquote>Quote:<hr>
So now it's apparently OK, from your viewpoint, for PAYE people to be evading tax, once they're not in the Ansbacher league?
<hr></blockquote>
Now I don't mind being attacked for what i did say. Bit I think its a bit unreasonable to be attacked for stuff I didn't say at all.
For the record I am opposed to ALL tax evasion. Big and small. To point out that a certain category is small compared to another is NOT the same as condoning it, OK? Merely point out that there are degrees of evasion, thats all.

WRT the black economy, Tommy said:
<blockquote>Quote:<hr> Is it not a cop-out to plead that the "real beneficiary" (as you term it) of the "bouncing guard" syndrome is the employer? After all, both employer and employee are dodging tax (under various categories) on the part-time employment, and if the employee is in receipt of untaxed income from whatever source, they have a legal obligation to include same on their annual tax return and pay whatever balance of tax is outstanding thereon. If they don't, they are evading tax and they are breaking the law every bit as much as their crooked employer.
<hr></blockquote>
I agree, of course they are breaking the law and should be followed up. However, it is interesting to examine the construction industry, possibly the greatest abuser of the notionally "sub-contracting" employee. It is the workers in the industry and their unions who have been leading the fight to have the industry regularised. In fact two workers were imprisoned for their part in this struggle. (technically for refusing to comply with a court order not to picket) Strange how its easier to see the inside of a jail for trying to pay taxes/PRSI than for trying to evade them, eh?

<blockquote>Quote:<hr>
On another point, you made some earlier suggestions regarding mandatory RSI-numbers for large purchases. Believe it or not, the Revenue introduced strict rules for the reporting of all such business-to-business transactions (under what was called "monthly control statements&quot

about 10 years ago and they had to withdraw them about 6 months to a year later.
<hr></blockquote>
Fair point, but what I had in mind was large person to person or person to business transactions, such as property purchase, car purchase etc. Would it really add that much bureaucracy to have RSI numbers of property owners listed in the Land Registry. As for bank accounts, to open one now, you gotta supply a raft of details including photo ID, proof af address, employment details etc for anti-money laundering purposes. Why not just add a requirement for RSI number as well.
Furthermore the beauty of a receipt with RSI number system is not that all monthly returns can be audited but that selective random spot checks can be made easily and cheaply.

Finally,
<blockquote>Quote:<hr>
Admittedly, it is quite common for Revenue to discover problems in this area, which generally lead to additional tax liabilities.
<hr></blockquote>
Now, if  I had said that...........! Sounds like an admission of hands in the honeypot to me.

And an audit every five years on average......with only 16000 odd audits per years......hmmmmm?

Random, comprehensive, lifestyle audits with adequate investigative resources and penalties that bite.......the only way to go, in my opinion.

Tommy · 2 Jul 2002

Re: Tax Evasion and the self-employed

<blockquote>Quote:<hr> Am I now to believe that it makes good sense for a company director to run a myriad of personal bills, some big, some small, through the company accounts. THEN, keep meticulous records to make sure they are indeed treated separately AND finally, pay an auditor and/or accountant to verify that this is indeed the case. Whoops, there go those pigs past the window again!! Wouldn't it be simpler and cheaper just to keep separate accounts for business and personal expenditure??? Unless there was a strong reason for keeping them aggregated!! (Remember Ray Burke and his "seamless" public/private personas)

Sorry, Tommy, I just don't buy it.<hr></blockquote>

Observer, I didn't say that this was  good  practice. I said that is  common practice and a problem that auditors and accountants regularly come across in the course of their work.

Given my position, it's important that I make this clear, and I would ask you to please withdraw any implication that my posting was somehow supportive of tax evasion by means of such practices.

It is simply wrong for you to extrapolate that all such cases of poor accounting on the part of business operators are in themselves indicators of tax fraud. (I'm sure the standards of bookkeeping that you use to maintain your own personal financial records is impeccable...)

Of course, some people get caught by the Revenue with their hands in the honeypot, as you term it, but isn't that proof that the system is working.

To finally conclude on this topic, I am frankly tired of trying to reason with you, on the basis of common sense and my own observations and experience from working at various levels in accountancy since the late-'80s, when all you seem to respond with are sweeping, unfounded and frankly offensive rants about all the flaws that you see in the tax system but that (according to you) the govt, the revenue and everyone else are too stupid or lazy to do anything about. Of course it is telling that you are doing so from a position of total anonymity, so in that scenario it is easy to throw stones at everyone else without having to be accountable for what you say.

Why don't you contact the Revenue HQ at 01 6475000 to let them know your concerns? I'm sure that they will be very receptive to your comments and perhaps you might learn a little from them as to how the system actually works. That might clear up some of your misconceptions (for a start, RSI numbers are  already required by the Revenue, for Stamp Duty purposes, when the legalities of any property transaction are being executed).

Tommy
www.mcgibney.com

Dearg Doom · 11 Jul 2002

Tax Efficiencies for the self-employed

I just caught up with this thread and have a question for Tommy if he hasn't cleared off completely - if being self employed isn't advantageous from a tax point of view, surely it should be? Should the government be encouraging enterprise instead of having us all take the PAYE route? Are you saying that there is absolutely no tax advantage to becoming self employed (e.g. pension payments, etc.)? Do we as a society have no reward for entrepreneurs?

[For clarification I'm PAYE and I believed until I read this thread (and still do to some extent) that self employment was (rightfully so) more tax efficient.]

DD.

rainyday · 11 Jul 2002

Re: Tax Efficiencies for the self-employed

Hi Dearg Doom - Just my tuppence worth - The reward for the self-employed is the money they make from their business, not any tax break they may or may not get!

If risk is to be rewarded through the tax system, then surely those who operate in risky industries (like the tech industry in the current environment) should pay less tax. Or those who those who move up to senior management roles which are always 'politically' risky (and first to get chopped when times get tough) should pay less tax.

Also, I don't think it's really accurate to think of the many sole traders as entrepreneurs. There is nothing particularly entrepreneurial about a painter or a plumber or an accountant in sole practice.

Marion · 11 Jul 2002

<blockquote>Quote:<hr> There is nothing particularly entrepreneurial about a painter or a plumber or an accountant in sole practice.<hr></blockquote>

I absolutely disagree. An entrepreneur is defined as anybody who takes the initiative and risks of setting up a business or enterprise.

Marion :hat

Tommy · 11 Jul 2002

To reply to Dearg Doom, yes there are some tax advantages to being self-employed. However there are also some severe tax disadvantages, not least the obligation to pay preliminary tax on one's earnings in advance of a major element of those earnings being (1) earned and (2) collected. (These problems are particularly acute for seasonal businesses and businesses with typically long debtor collection periods).

I don't accept the argument that the self-employed should , as of right, have cast-iron entitlement to preferential treatment in the tax code (even though any sort of arrangement of that nature would suit me perfectly). However, it is important that self-employed taxpayers are treated fairly and equitably under the tax system and not penalised (as they are in certain respects at the moment) on the basis of some vague and unspecific suspicion that they are ripping off the system.

On the other hand, Rainyday, I'm afraid you are gravely mistaken if you think there is nothing particularly entrepreneurial about setting oneself up in a trade or professional practice. If you've ever had to plough your own savings or personal borrowings into a business or if you've ever had to worry about where to find the cash to pay next Friday's bills or loan repayments, then, in my book at least, you're an entrepreneur, regardless of the industry in which you operate.

Tommy

Liam D Ferguson · 11 Jul 2002

Battle Hymn of the Self Employed

I have to throw my cent worth into the pot to disagree with RainyDay. A self-employed painter, plumber etc., may be doing work which has been done the same way for years, but apart from the worries Tommy mentioned above, s/he also has to step outside of their professional abilities and take on other skills to develop their business, particularly marketing, in order to ensure that they have a steady stream of customers to maintain their income.

By marketing, I don't just mean the obvious advertising etc., which may not be relevant to a tradesperson, but marketing themselves by simply offering a good service in an efficient and pleasant manner so that existing customers will recommend them to others. A PAYE tradesperson doesn't have to worry about such skills.

CM · 11 Jul 2002

Battle Hymn of the Self Employed

 Also, I don't think it's really accurate to think of the many sole traders as entrepreneurs.

Maybe Rainyday meant that this might not be considered entrepenurial because, in many cases, no new jobs are created? On the other hand in many cases I presume it could be argued that new jobs  are created, both directly and indirectly (via services used)?

 but marketing themselves by simply offering a good service in an efficient and pleasant manner so that existing customers will recommend them to others. A PAYE tradesperson doesn't have to worry about such skills.

Yeah - us PAYE workers don't need to be arsed about how we do our job! >:

Dearg Doom · 11 Jul 2002

Re: Battle Hymn of the Self Employed

>There is nothing particularly entrepreneurial...

I disagree with this too. There is a signicant element of risk in opting out of any salaried employment to create work for yourself (and perhaps others). Perhaps no new jobs are created in some instances, but an indigenous business is, which IMO is a good thing. I also believe that this should be encouraged by society, be it via tax breaks or any other means.

> A PAYE tradesperson doesn't have to worry about such skills.

I don't agree with this either.

DD.

Liam D Ferguson · 11 Jul 2002

Re: Battle Hymn of the Self Employed

I'm not saying that PAYE employees  don't take pride in their jobs, and carry them out to the best of their abilities, but they don't  have to. Unless their remuneration is in some way linked to the performance of the company, a PAYE employee can do their job well or badly without having to care much for the implications. They'll still get their pay-packet, unless they do it so badly as to incur disciplinary actions.

This wasn't intended in any way to infer than self-employed people by definition work better than PAYE, merely that there is, in many cases, more direct responsibility on a self-employed person to maintain a high standard of work.

rainyday · 12 Jul 2002

Re: Battle Hymn of the Self Employed

Obviously, I touched a nerve here. Just to clarify (rightly or wrongly), my image of an entrepeneur is someone who creates a new business that gives employment to others. I understand that the sole trader self-employed person faces certain challenges and risks that don't exist in the PAYE sector.

However, I think Liam has gone too far in the opposite direction. I don't know any PAYE employee who doesn't have to worry about how he's doing his job in today's environment. It's true to say that there is probably not a direct relationship between his performance and his next pay-packet. But you can be damn sure that if he's not doing a decent job, he won't have that same pay-packet in 12 months or 24 months time. He'll either be fired/replaced/pushed out/made redundant, or if his management is too lazy/dumn to notice his poor performance, the company just won't exist in the long term. The days of the 'job for life' are long gone, I'm afraid. This certainly applies in MOST of private industry, apart from maybe a few sheltered sectors.

Marion · 12 Jul 2002

Re: Battle Hymn of the Self Employed

<blockquote>Quote:<hr> This wasn't intended in any way to infer than self-employed people by definition work better than PAYE, merely that there is, in many cases, more direct responsibility on a self-employed person to maintain a high standard of work.<hr></blockquote>

Yes, and in general, the income reward will be high. This is the obvious risk/reward trade off. The primary motivator for the entrepreneur is  profit.  I'm sure nobody decides to be self-employed because of the tax advantages per se.

It has been established in this topic that there are tax advantages to being self-employed, and it has been established that entrepreneurship should be encouraged because it is anticipated that it will foster a culture of enterprise, which should ultimately lead to job creation.

I agree that there should be tax advantages to encourage new business start-ups, but I wonder whether sole traders should continue to derive tax benefits forever and ever amen regardless of whether or not they create jobs? Should there be an income limit beyond which tax breaks would not apply unless jobs were created?

Marion :hat

Liam D Ferguson · 12 Jul 2002

Re: Battle Hymn of the Self Employed

 "This certainly applies in MOST of private industry, apart from maybe a few sheltered sectors."

I don't know RainyDay - surely you (like me) frequently come across the man/woman behind the counter at the supermarket / post office / coffee shop / burger bar etc., who's far too busy discussing the weekend to even look at you while accepting your business, much less say "Thank You" ?

small business and taxes

Selfemployed

Guest

Middenface McNulty

Guest

Observer

Guest

Tommy

Guest

Get Real

Guest

Tommy

Guest

Get Real Twice

Guest

Observer

Guest

Tommy

Guest

Dearg Doom

Guest

rainyday

Guest

Marion

Guest

Tommy

Guest

Liam D Ferguson

Guest

CM

Guest

Dearg Doom

Guest

Liam D Ferguson

Guest

rainyday

Guest

Marion

Guest

Liam D Ferguson

Guest