Medical consultant loses appeal over €320,000 tax bill

J

JamesBM

Registered User
Messages
28
Interested to know views on the the basis for this. Is it that money was taken by the consultant by way of expenses and that the second director's salary was channeled to the doctor?
There is a comment that the appeals commissioner noted "the salary recorded as having been paid to the consultant by her company “was well below that which could reasonably have been expected by a doctor of the Appellant’s expertise and seniority”."
Is this just commenting on the likelihood of the other payments being routed to her or is it inferring that she would be taxable on the basis of what she "should earn"?
The mislabeling of expenses seems clear as does the reality of the payment to the other director. However I didn't think there was a requirement to pay minimum fees/salary to a director and that in extremis all earned income could just accumulate (net of Corporation Tax and any surcharges).
 
www.irishtimes.com

Medical consultant loses appeal over €320,000 tax bill

Tax Appeals Commission rules recorded salaries paid to company directors ‘had no basis’ in fact
www.irishtimes.com www.irishtimes.com

In correspondence, Revenue told the medic that the salaries for the two directors entered on returns and accounts “had no basis” in fact and issued the consultant and her firm with a tax bill of €167,804 to her and €151,455 to her company.

The medic and the firm lodged appeals to the TAC against the assessments. However, commissioner Conor O’Higgins ruled that the Revenue assessments “are correct and stand affirmed”. Mr O’Higgins found that on the balance of probabilities the second director was never paid the total sum of €107,350. He found that the sums to the second director were in fact withdrawn by the Appellant for the purpose of remunerating herself.

Mr O’Higgins found that the salary recorded as having been paid to the consultant by her company “was well below that which could reasonably have been expected by a doctor of the Appellant’s expertise and seniority”.

The Commissioner also found that the costs borne by the company on behalf of the consultant relating, firstly, to her travel from home to the hospitals at which she worked as a locum consultant and, secondly, her accommodation in proximity to those hospitals, cannot be treated as deductible expenses.
 
A medical consultant sets up a company and pays someone else. Doesn't sound right.

And didn't pay herself the salary she should have been paid.

It sounds like too aggressive tax planning.

I wonder did a tax consultant advise them on this?

Brendan
 
Brendan Burgess said:
A medical consultant sets up a company and pays someone else. Doesn't sound right.

And didn't pay herself the salary she should have been paid.

It sounds like too aggressive tax planning.

I wonder did a tax consultant advise them on this?

Brendan
Click to expand...
Thanks Brendan. Paying someone else a substantial amount plus there being no evidence the payment was made seems clear. The disallowance of the expenses seems clear also. What I am not sure of is the reference to the salary the consultant drew. Does this suggest that directors must be paid a "market rate" for tax purposes? I understood that there was no lower bound on a director's salary/fees.
 
I notice nobody other than the legal representative is named in the Irish Times article. Is there a reason for this?
 
Gordon Gekko said:
I don’t know the detail but I’d read the low salary comments as factors in relation to the other things. i.e. there’s ambiguity about whether you paid this other mystery punter, your expenses look ropey, and your own salary isn’t normal. Ergo, this is scam central.
Click to expand...
Thanks Gordon. As you say the totality of the facts seem to indicate that there was something untoward at play here. Just wondering if low directors' salaries in isolation could be used by Revenue as a basis for challenge. Recent cases regarding the close company surcharge have reduced its scope so would Revenue look for another means of disincentivising director shareholders leaving profits within a private limited company? It would be unprecedented to my knowledge but could they use what they viewed as low salaries in isolation (absent the more egregious factors in the case above) as a basis for inferring a liability. The more I write about it the more difficult it would seem to be for them to do so as the example I am thinking of would involve no attempt to extract money from the company for the director shareholders' benefit.
 
So James question is.

I am a medical consultant.
I set up a limited company.
It earns fees of €500k in 2023
It pays me €50k and retains €450k profits.

There are no distracting features like inappropriate expense claims or paying someone else who clearly did not do the work.

Would Revenue challenge the low salary?

Brendan
 
Reading between the lines the other director was likely the spouse

They would probably have got away with it claiming a €40k “salary” but they got greedy.


Leper said:
I notice nobody other than the legal representative is named in the Irish Times article. Is there a reason for this?
Click to expand...
AFAIK tax appeals judgements are anonymised on a routine basis.
Brendan Burgess said:
I wonder did a tax consultant advise them on this?
Click to expand...
Possibly on the set-up of the scheme but unlikely to have recommended the amounts.
 
Last edited:
Brendan Burgess said:
So James question is.

I am a medical consultant.
I set up a limited company.
It earns fees of €500k in 2023
It pays me €50k and retains €450k profits.

There are no distracting features like inappropriate expense claims or paying someone else who clearly did not do the work.

Would Revenue challenge the low salary?

Brendan
Click to expand...
It would appear so. That's what triggered the audit in the first place.

Revenue commenced the audit as a consequence of the gulf between the turnover of the woman’s company and the remuneration paid by it to the medical consultant.
Click to expand...
 
JamesBM said:
Thanks Gordon. As you say the totality of the facts seem to indicate that there was something untoward at play here. Just wondering if low directors' salaries in isolation could be used by Revenue as a basis for challenge. Recent cases regarding the close company surcharge have reduced its scope so would Revenue look for another means of disincentivising director shareholders leaving profits within a private limited company? It would be unprecedented to my knowledge but could they use what they viewed as low salaries in isolation (absent the more egregious factors in the case above) as a basis for inferring a liability. The more I write about it the more difficult it would seem to be for them to do so as the example I am thinking of would involve no attempt to extract money from the company for the director shareholders' benefit.
Click to expand...

The whole point of this case was that the money left the company and was either not taxed at all (as being tax-free expenses) or at a very low rate (wages to an individual in another country without other taxable income here).

The point about the level of salary relates entirely to that context, where there's lots of money coming in, and lots of money going out (with no credible evidence that the money going out actually related to what it was purported to relate to), and only a relatively small amount of that has gone to remunerate the person whose work has actually generated all of that money.

The full paragraph from the determination is here:

"The factual question that arises from this is what was the purpose for the withdrawals that the Appellant attributed to the second director? In this regard the Commissioner finds as a fact that on the balance of probabilities it was taken out for her own benefit and use.
This factual finding is made because, in the Commissioner’s view, the salary recorded as having been paid to the Appellant by the Appellant company, which she controlled, was well below that which could reasonably have been expected by a doctor of the Appellant’s
expertise and seniority. It is striking in this appeal that the Appellant’s remuneration as recorded in the nominal accounts, CT1 returns and P35 returns for each of the relevant years was in fact lower than that which she received in the years 2011 – 2013 when employed directly by the HSE as a non-consultant doctor. Perhaps this trend could be explained if the Appellant company had revenues that were less than could sustain remuneration of the kind assessed by the Respondent in the amended assessments and notice of estimation under appeal. However, as the revenue figures specified at paragraphs 11 and 58 of this determination attest, this was not the case. For this reason
the Commissioner finds as a fact that the sums accounted for as having been withdrawn as remuneration for the second director were in fact withdrawn by the Appellant for the purpose of remunerating herself."
 
toblerone - that is very interesting.

But forgetting this case for the moment.

If a doctor's company has an income of €500k and pays out only €50k in salary and retains the rest, is that ok?

Or is there an obligation for the company to pay its employee a "market" salary if the money is there?

Brendan
 
Steven Barrett said:
It would appear so. That's what triggered the audit in the first place.
Click to expand...

Absolutely not, if a company has 500k of income, with 50k of it is drawn as remuneration and taxed to income tax, and the remaining 450k being recorded as profit subject to corporation tax, then Revenue would have nothing to challenge.

Neither Revenue nor the appeal commissioner were trying to dictate what level of salary the individual drew (or ought to have drawn), they're pointing out that there's a major incongruity that would require robust explanation and evidence, and since none is available then the balance of probabilities swings unfavourably.
 
Last edited:
torblednam said:
Absolutely not, if a company has 500k of income, with 50k of it is drawn as remuneration and taxed to income tax, and the remaining 450k being recorded as profit subject to income tax, then Revenue would have nothing to challenge.

Neither Revenue nor the appeal commissioner were trying to dictate what level of salary the individual drew (or ought to have drawn), they're pointing out that there's a major incongruity that would require robust explanation and evidence, and since none is available then the balance of probabilities swings unfavourably.
Click to expand...
torblednam, Thank you. That seems very clear and consistent with my (albeit non specialist) reading of the law.
Off-topic: do you like fractals?!
 
Brendan Burgess said:
Mr O’Higgins found that the salary recorded as having been paid to the consultant by her company “was well below that which could reasonably have been expected by a doctor of the Appellant’s expertise and seniority”.
Click to expand...

This is the bit which confused me.

So what if is the salary was well below?

Brendan
 
Brendan Burgess said:
This is the bit which confused me.

So what if is the salary was well below?

Brendan
Click to expand...
The factor that would've triggered an audit is the high salary for the non-doctor director and the high level of expenses paid, in conjunction with the low salary for the person generating all of the company's revenue.
 
I see no issue or grounds for challenge with a low salary from a high-earning company. None whatsoever.
 
Gordon Gekko said:
I see no issue or grounds for challenge with a low salary from a high-earning company.
Click to expand...
The article said that this was what triggered the Revenue audit in the first place.

A locum hospital consultant isn’t an entrepreneur. They don’t have many purchases and another director can only be doing so much.
 
You must log in or register to reply here.
Back
Top