Travel & Subsistence expenses - Revenue e-brief

[mandelbrot]

The Revenue south West letter to the ITI concerned itself pretty much exclusively with contractors with unusually high overheads, and concluded that a % of same were bogus, hence all were being invited to "clarify" their position.

Well lets be clear about the context here, as it's narrower than overheads generally:

You said

And if you do rent an office, they will (1) claim that your overheads are "unusually high" and seek to audit you on that basis...

I replied, in the context of renting an office

If I was an audit manager I'd brain anyone who would attempt to justify issuing an audit letter on the basis solely of "unusually high" overheads - I'd be amazed if that happened anymore - much more likely they'd raise an aspect query and ask to see a full set of accounts, and if still unhappy a copy of the lease.

Maybe I should have been clearer that I meant unusually high "other expenses"; rent doesn't have its own designated space on the accounts information panels in the CT1 / Form11, so it ends up in "other expenses" - I'm talking about a situation where an audit letter would issue prior to the auditor knowing what actually comprises the "other expenses".

 

[mandelbrot]

So have the registered office somewhere else?

The location of the registered office is irrelevant - that's why I don't understand Tommy's allegations of discrimination. It doesn't matter where your office is, if it's your normal place of work.

 

[mandelbrot]

The way I read the scenarios, my travel from my office/home to clients place of business would be disallowed.

Travel from your normal place of work to a temporary place of work in the preformance of the duties of your office/employment can be reimbursed tax free.

Do you foresee a problem with being able to objectively demonstrate your home office is your normal place of business? Isn't it where you meet clients, prep their working papers, year-end accounts, tax work and company secretarial work?

 

[T McGibney]

So are you saying there's no such thing as a person's normal place of work??

That is a strawman question. My point is that concepts like "normal place of work" are becoming increasingly fuzzy as work patterns, communication media and lifestyles evolve. In some cases, pre-existing practices and customs are being utterly turned on their head.

For example if I need to talk to a client this morning, my default action will be to call them on their mobile as I probably won't catch them if I call their landline.

Or to put it differently, business people no longer sit in offices waiting for the phone to ring.

This wasn't the case 10-12 years ago when many people didn't even have a mobile phone let alone an online presence. Yet Revenue's logic and terminology have not evolved accordingly and are still rooted in 1980's norms of a business person turning up at an office in the morning, taking lunch break in the middle of the day and going home once their 7.5 - 8 hours work is done.

 

[mandelbrot]

That is a strawman question. My point is that concepts like "normal place of work" are becoming increasingly fuzzy as work patterns, communication media and lifestyles evolve. In some cases, pre-existing practices and customs are being utterly turned on their head.

For example if I need to talk to a client this morning, my default action will be to call them on their mobile as I probably won't catch them if I call their landline.

Or to put it differently, business people no longer sit in offices waiting for the phone to ring.

This wasn't the case 10-12 years ago when many people didn't even have a mobile phone let alone an online presence. Yet Revenue's logic and terminology have not evolved accordingly and are still rooted in 1980's norms of a business person turning up at an office in the morning, taking lunch break in the middle of the day and going home once their 7.5 - 8 hours work is done.

I don't see how it's a strawman TBH.

A business person who is out on the road in the manner you're describing won't fall foul of the clarifications in the ebriefing - unless the nature of the work they perform and the contractual arrangements with their customers is such that they spend so little time in their office (be it at home or otherwise) that it can't be objectively argued to be their normal place of work. But the concept of a travelling appointment is also catered for in SP IT/2/2007 to cover that situation.

To avoid a problem with the deductibility of what they feel are legitimately incurred expenses, a business person could always opt to trade as a sole trader, based from home, and claim deductions based on the Case I "wholly and exclusively" test. (A business person could do this, but I'm sure they wouldn't need to, whereas a contractor couldn't because they'd fall to be classified as employees of the company they contract into.)

Your use of the term business person is actually interesting, because I was talking to a friend over the weekend who has previously worked as a contractor, and they certainly don't/didn't consider themself a business person - they considered themself an employee in all but name - and they agreed that my use of the term "pseudo self-employed" to describe their situation while contracting was pretty much on the money.

You seem to be very exercised over this issue Tommy, and it's clear you're quite unhappy about existing policy/practice, but I can't get any sense of what you think should be the case?



Are you saying that you genuinely don't see any problem with a situation where an employer can say to an employee:

• We'd like you to go off payroll and set up a company;
• You'll do the exact same job as always but we'll pay you 30% more per hour to compensate you for the risk of the contract not being renewed and your loss of entitlements as an employee;
• You can set the company up as operating from your home (or wherever you fancy), and claim a tax free expense for the commute and a daily subsistence expense;
• As a result your net pay will be massively higher than it is now, the total cost to us of employing you will be no higher (given the onerous obligations we're sidestepping).

That's a win-win for the parties involved, and the losers are the rest of the workforce in employment who have to pick up the tab. Do you not see it as an area of substantial tax avoidance and loss to teh exchequer that should be addressed?

 

[T McGibney]

It most certainly isn't a win-win for an employee to come off payroll and operate via a limited company. Job security and social protection entitlements based on employment service are invaluable assets for any employee, and anyone who voluntarily surrenders them is either grossly misinformed or insane. The past 5 years of recession have certainly proved that.

The problem is that the world is changing and particularly in recessionary times, many employers don't have enough resources to keep certain specialist staff in long-term full-time employment, so both employees and employers are having to rethink and redefine their mutual engagements. This means that some employees are left with little choice but to market themselves as contractors, where they contract part-time to their former employer but also concurrently to other customers.

The scenario you paint where an ex-employee gets tax relief on the expenses of a daily routine commute to their former place of employment is a caricature. Any tax advisor worth their salt would suggest to that person that they wouldn't stand a chance with get away with claiming expenses in such a manner if/when it comes to Revenue attention. And I wouldn't class this commuter as a "business person" either.

 

[Strongback]

I'm a small engineering consultant who has been caught up in the net of audits of 'one man bands' even though I have an employee. I have met with the Revenue and in the interview they were focused on having vouchers for all expenses. The inspector offered 40% of what I had claimed should I not be able to produce receipts, this was a one time deal only he said and after the meeting this offer would be off the table. I didn't take the offer. 40% is the figure they are using for the 'one man band study'. He kept reiterating that the study has strict requirements for the need for vouchers to be produced and nothing will be accepted without receipts.

My read of the study is that they are interested in the type of people who work in pharmaceutical, high tech and the computer industries many of whom work on contract and have set up one man band limited companies. I personally know people who work for a single multinationals as their only client. They go to the same place of work every day and work alongside full time stuff but trade as Ltd companies They charge millage to and from where they are working every day and charge subsistence every day at the full day rate of €33.41. They then jack up their expenses where they can and include making claims for home office expenses even though they never work at home. Many of these people have very specialized skills/experience and the industries they work in are pretty much closed shops to technical staff that don't have particular industry related experience.

In terms of my audit I am lucky my expenses are low and the Revenue even suggested I was under claiming. This was quickly followed by 'it doesn't matter if your claims are low receipts must be produced or the expenses are not admissible'. I have a bit of chasing up to do to get my hands on some receipts.

 

[T McGibney]

In terms of my audit I am lucky my expenses are low and the Revenue even suggested I was under claiming. This was quickly followed by 'it doesn't matter if your claims are low receipts must be produced or the expenses are not admissible'. I have a bit of chasing up to do to get my hands on some receipts.

Have you sought expert advice on this? If so, has your advisor concluded that the inspector is acting within their powers in retrospectively demanding receipts for expenses claimed in compliance with IT51/IT55? In such case, have they outlined the precise basis for their opinion?

 

[Strongback]

Have you sought expert advice on this? If so, has your advisor concluded that the inspector is acting within their powers in retrospectively demanding receipts for expenses claimed in compliance with IT51/IT55? In such case, have they outlined the precise basis for their opinion?

My accountant prepared the initial submission based on the Revenue audits request for information, bank statements, invoices etc. My accountant attended the meeting with the Revenue with me and did most of the talking. He argued the toss and did any negotiating. Personally I have put about 100 hours of my time into preparing for the audit.

Btw they looked for evidence I carried profession indemnity insurance (for designers) as some one man band Ltd companies don't carry it if they are working under the PI insurance of a bigger company they are contracted to. I have PI so it was no problem for me but it could trip others up.


I am not familiar with the requirements of IT51/IT55 but I did feel my accountant was on the ball and put forward a good case for me. In the end it is really coming down to can I provide receipts for everything. As I said I have never really bothered going down the road of maximizing expenses because if I'm truthful I was a bit naive as to my entitlements. In saying that it is a good thing in terms of how the Revenue are viewing me now, I'm small potatoes. If my expenses had been high I feel he would have gone about picking holes in them.

On subsistence he wanted some snap shots that I was say down the country if I claimed I was such as a visa card purchase for lunch or something. He said he wouldn't be going through every single subsistence claim individually but he wanted some general evidence I was in the different places I claimed I was.

 

[T McGibney]

Are you operating through a limited company? If so, IT51 & IT55 apply and these don't force you to have receipts for every single expense item. If you're a sole trader, you must have such receipts.

 

[Strongback]

Are you operating through a limited company? If so, IT51 & IT55 apply and these don't force you to have receipts for every single expense item. If you're a sole trader, you must have such receipts.

I am a limited company. The study being carried out has very particular requirements to ensure everybody in the study is assessed like for like. It appears on some particular issues it is being carried out more stringently than a typical audit. Whereas a view can sometimes be taken on some things during audits with this study they are looking for evidence that people people are not claiming for driving to work and jacking up subsistence, expenses etc. There appears to be very little flexibility on mileage or diesel, subsistence and receipts. I believe the study criteria can be read on line, I have not read it myself.

My experience is much in keeping with the extracts a poster above has put up on the Revenues examples of what is admissible for mileage and subsistence. My accountant tells me there has been recent discussions between the Revenue and bodies representing companies in relation to these issues.

To me, and it's only my opinion, it seems they are gathering information on one man band Ltd companies that are basically contracted into large companies. Many of these one man band Ltd. companies appear to me to be being seen as essentially no different to ordinary full time permanent staff and as such should only be making modest expenses, mileage and subsistence claims.

 

[mandelbrot]

Are you operating through a limited company? If so, IT51 & IT55 apply and these don't force you to have receipts for every single expense item. If you're a sole trader, you must have such receipts.

I'm not sure if you're taking the same understanding as I am from what Strongback is describing, Tommy.

As far as I can tell, the auditor is looking at the company's payments of tax free travel & subsistence to the employee, and they are seeking verification from the employer to confirm that the employee was in fact away from their normal place of work on a sample of the dates in question. If you were performing a statutory audit of the company, is this any more than you would want to see to satisfy yourself that the claims paid were legitimate? It's very easy to have a claim logged which satisfies the information recording requirements of IT51/IT55, but the employer would need to be able to demonstrate how they satisfied themselves that the employee was in fact off-site during the periods claimed for.

For example the Revenue auditor will have claimed mileage and subsistence for the day(s) on site at the audit. They will have submitted a claim to their manager for the expenses, but if/when the C&AG's come to audit, they will look at the time clocking system to see that the employee was clocked out of the office at the time, and they might review the audit papers which should have the auditor's notes of interview etc on the date(s) in question.

The need to seek corroborative evidence like this has arisen because of auditors' experience in previous audits, whereby people have claimed T&S for driving around the countryside to clients, on dates when they were out of the country on their summer holidays with the family, or in hospital after an operation etc...

While in strictness Strongback's agent could probably tell the auditor to go whistle for receipts (since these would be the individual's rather than the company's), it is the easiest way to clarify the position, and if Strongback has them and wants to get the thing sorted then it'd be sensible to furnish them. If they don't want to play ball in that regard, then the auditor will need to see diaries, timesheets, invoices (don't engineers normally charge a per diem / mileage on the invoice for site visits?) or other correspondence with clients referencing the site visits... bottom line is they'll have to produce something to support the log.

It's also worth bearing in mind that the treatments in SP-IT/2/07, IT51 and IT55 have no legislative basis, they're entirely concessional.

 

[T McGibney]

My comments were in response to this: "it doesn't matter if your claims are low receipts must be produced or the expenses are not admissible'". IF this is an accurate summation of what the inspector said, then there is a possibility that they are exceeding their powers, a qualification which I noted while making the remarks. If the inspector is merely seeking to validate a small audit sample, then I would expect that in most cases there will be existing circumstantial evidence readily available on their files to do so. It shouldn't be unreasonable for the inspector to seek additional evidence to corroborate the broad thrust of the taxpayer's story but on the other hand the fact that this is being done on a retrospective basis may present difficulties for the taxpayer unless they have been exceptionally meticulous in keeping records and receipts for inconsequential items. This should be taken into account when adjudicating on their case.

 

[mandelbrot]

My comments were in response to this: "it doesn't matter if your claims are low receipts must be produced or the expenses are not admissible'". IF this is an accurate summation of what the inspector said, then there is a possibility that they are exceeding their powers, a qualification which I noted while making the remarks.

I get what you're saying, that quote does appear inconsistent with a flat rate expenses claim.

Unless maybe Strongback is claiming expenses on an actual basis, which would explain both that statement and the one where he says the auditor suggested he may have been under claiming (eg. claiming a tenner for lunch rather than claiming a 10-hour day)...

 

[Strongback]

In my case one example was the discussion on motor expenses. I do not have records for all company vehicle diesel purchases. The officer stated that in this study receipts are required for diesel used in company vehicles. He repeated this on three separate occasions. Of course we argued that a vehicle with mileage clocked up did not travel around on thin air. We will see what happens but the officer said the current study gives him very little flexibility if receipts are not produced.

He also requested copies of utility bills, mobiles, etc and invoices for all claimed purchases.


A quick question for the more knowledgeable: Are the one page statement of account that the utility companies issue sufficient for the Revenue or are individual bills required?

I will ask my accountant but its good to have a second opinion.

 

[mandelbrot]

So there is a company vehicle, and the expenses in question are the running costs of this vehicle which the company has paid?

In which case what the auditor has said about the requirement for receipts is entirely correct. How were the expenses calculated if not on the basis of receipts?

Has the company accounted for a benefit-in-kind on you as director for personal use of the vehicle?

 

[Joe_90]

@strongback you need to clarify the situation.

I would be surprised if you went into a Revenue Audit missing the basic backup for payments and then appear to question the Auditor when they ask you to provide documentary evidence for the payments.

 

[headache]

I’m curious as to how a director can claim ‘tens of thousands of euros of tax free expenses’? I am probably a bit naive about such things so I am curious as to how this is done. Other than the overnight allowance at 365 days to give you €39,780 what else can you claim? And surely if the P35 listed expenses that high for one director Revenue could hardly say ‘Oh look, he/she spends every day of the year away from their office, that’s just fine!’

There are plenty of directors who genuinely work from home but travel to oversee projects on a weekly or monthly basis. According to that ebrief, those persons are no longer entitled to claim mileage and some of that mileage would be quite substantial.

In addition to that, I would be concerned that this could be extended to sole traders. I am not incorporated but am in a similar position to Gervan. I can sometimes be on the road 4 days in a week to clients to manage their day to day book-keeping. Or this week, I’ve been at home 4 days. I have reduced my client base by half in the last two years. Mostly because I am tired and because I couldn’t stand the sight of some of them anymore!! So I think Revenue could argue that my normal place of work is not home on certain days and curtail my motoring expenses. To be fair, I only claim one third anyway and trust me when I tell you I seldom go anywhere other than work.

Although I always felt these expense claims by some of these one-man companies was pushing the limit, it seems Revenue’s response is to punish every director working out of a home office and that is not fair or equitable.

 

[Strongback]

So there is a company vehicle, and the expenses in question are the running costs of this vehicle which the company has paid?

In which case what the auditor has said about the requirement for receipts is entirely correct. How were the expenses calculated if not on the basis of receipts?

Has the company accounted for a benefit-in-kind on you as director for personal use of the vehicle?

There is a company van and personal cars. I have a personal car I use for work and had several employees during the period being audited.


The company van expenses are based on lease hire, insurance, servicing and diesel receipts. I do not have a full record of all diesel receipts and made a claim for some I do not have. The van covers on average of 14000km per year, the claim is for €1750 of diesel per year which all attending the meeting felt was a modest amount. The officers stated while the claim was low he would only consider claims with receipts. He extended this to all expenses except subsistence and millage on private cars where he wanted evidence a person was were they said they were. He requires invoices for all purchase invoices.

I hope this clarifies things.

Btw my accountant is not giving up on the unreceipted claims.

 

[Branz]

This thread refers to IT51 and IT55

Should it not be IT51 and IT54
Employees' Motoring/Bicycle Expenses - IT51
http://www.revenue.ie/en/tax/it/leaflets/it51.html

Employees' Subsistence Expenses - IT54
http://www.revenue.ie/en/tax/it/leaflets/it54.html

IT 55 - The Employment and Investment Incentive (EII) - Relief for Investment in Corporate Trades
[broken link removed]

What brought me here was the following:

A neighbour has spent the last 3 or four years developing a professional services consultancy business through a limited [ close] company and she works from home.
She is a director of the company.
Up to now her CT1 returns have shown tax losses, she expects to start reducing these tax losses in 2015.

in her CT1 calculations thus far, for travelling around the country she has used the Civil Service mileage rates for the motor expenses charges in the accounts.
She has charged no flat rate subsistence, she has receipts for hotels etc.
Neither has she charged any wages or salary for herself

In the light of the thrust of this thread she is concerned that the motor expenses claimed thus far are wrong.

In addition she wonders what she needs to do once the company becomes profitable: does she need to become an employee of the company and the company pay employer PRSI etc and then she gets taxed through the F11
Thanks