Great SBP article on Revenue's challenge to medical consultants

[Brendan Burgess]

The Sunday Business Post has a very good article by Ian Kehoe and Jack Horgan-Jones in today's paper about how a Revenue clampdown has recovered a lot of tax from medical consultants.

Apparently, on the advice of their accountants, they were doing the following.

1) They would set up a company for the income from their private practice. (Their salary from public practice was not affected.)

Apparently, that is fine. And if it had stopped there, there would have been no problem.

2) They sold the goodwill of their practice to the company for €750,000.
This would be subject to CGT but many paid no CGT as they had losses forward or used the Retirement Relief.

3) The company paid 12.5% Corporation Tax

4) The company used the after-tax profits to pay for the goodwill.

(There were other problems as well - e.g. not making any Corporation Tax returns or claiming false expenses in the company or paying their children a salary.)

One of the firms of accountants behind the scheme, Houlihan Cushanan, is being sued by many consultants.

Eddie Hobbs makes a good point in that medical consultants would be too busy to study these schemes for themselves. They tend to follow their peers - if everyone else is doing it, it must be ok.

The Revenue is now moving on to other professions who may have used the same scheme.

Brendan

 

[Joe_90]

The valuation of goodwill should be based on what an independent person would have paid for it.

€750k is the limit for Retirement Relief so if anyone was to sell there business to their own company for €750k it would appear to be an incorrect valuation.

The corporation tax rate should be 19% as in most cases the Close company service surcharge would apply.

The issue with solicitors and dentists is different they can not incorporate their business so some set up a company to do the non legal work and then charge a service fee to the practice. It becomes a issue where the charge out rates are too high again that an independent person would not pay.

 

[Brendan Burgess]

Hi Joe

Very interesting.

If a medical consultant had asked you for a second opinion on this tax scheme, would you have said to them:
1) This will not work as it's totally artificial and you will end up paying the tax with interest and penalties.
2) Revenue might challenge this and it's 50/50
3) If you proceed with this, disclose it to the Revenue in advance to make sure that you don't store up problems for yourself
4) Your goodwill is worth only about €100k and you might get away with that. But anything more than that is illegal tax evasion.

Or some other advice?

Brendan

 

[T McGibney]

Or some other advice?

My short advice in such situations: if it sounds too good to be true, it usually is.

 

[Steven Barrett]

From what I gather, a number of accountancy practices are being sued after advising their consultant clients to incorporate. When the Revenue unwound things, they've ended up being sued. And Eddie Hobbs is correct. Like anyone paying for professional advice, you expect them to give you expert advice and correct advice. Isn't that what you are paying them for? If you have a long standing relationship with them and they say it's above board, you sign the forms (see Leo Messi and his tax in Spain).

Incorporating professions was all the rage during the Celtic Tiger but from what I gathered, if it was done by the book, it had limited scope as they can't incorporate their core business ie medical advice.

I wasn't aware of the Goodwill though. I work with a number of hospital consultants and I have asked them over the years is there any way of building up a value for their private practice. All of them have told me there's no value to their private practice, they get referred by GP's and that's it. You are buying that consultants expertise. How can they sell their expertise to someone else? I would be surprised if there is more than a handful of consultants who have built up a private practice that can be sold.


Steven
www.bluewaterfp.ie

 

[Steven Barrett]

My short advice in such situations: if it sounds too good to be true, it usually is.

Agree 100%. You get it with pensions too. Transfer the money to this country, easy access to funds, larger tax free lump sum etc.


...that is, until the Revenue look into it and unwind the whole lot. As an advisor, to mess up like that can ruin your whole business (although some who have done worse still seem to operate and peddle such dodgy schemes!!).


Steven
www.bluewaterfp.ie