A number of high-profile medical consultants put in place PSC type structures which were poorly implemented and, frankly, unfit for purpose. While new companies were legally incorporated, few implemented the necessary legal steps to give substance to the new arrangements. As a result, many consultants failed to update their contractual arrangements post incorporation. Consequently, transactions were simply 'booked' as being for the benefit of companies without any regard for the true legal and tax position. To compound matters, the structures were often then leveraged with large royalty and other payments being used to transfer income, without any legitimate basis or grounding in fact. When the Revenue Commissioners came calling, consultants were unable to answer basic questions about the structure of their operations. They were also unable to provide Revenue with tax advice or opinions to support the structures put in place.
To make matters worse, one accountancy firm in particular misrepresented their clients to Revenue and refused access to files to help their clients respond to Revenue enquiries. The actions of that firm resulted in its clients being named as tax defaulters, which was highly damaging to their reputations, and facing substantial tax costs and legal fees. Some of the people concerned had retired. These matters are the subject of ongoing legal actions.
Many individuals are pressurised into using their own company for employment purposes. This practice is particularly prevalent in the IT, media and construction sectors. Lessons can be learnt from the recent experience of those working in the UK media who receive significant tax bills from the HMRC.
Issues that often trigger tax exposure for personal service companies are unauthorised deductions, payment of expenses tax-free, and the reimbursement of mileage, subsistence and accommodation. Where funds have been taken from a company for the benefit of an individual, Revenue may have the power to raise an assessment on the individual who benefits rather than the company itself. Accordingly, Revenue can circumvent 'limited liability' protection of a company and pursue the ultimate beneficiary of payments for tax, interest and penalties.
Many accountants mistakenly believe Revenue's authority to examine tax returns is limited to four years. On the contrary, in cases such as those outlined above, Revenue has the power to audit returns well outside this period and from the date of incorporation if necessary.
If you contract your services through a company, here are some tax questions that you should consider:-
Were you provided with a written 'tax opinion' by your accountant, tax consultant or financial advisor? If you have a written 'tax opinion' does this identify the risks with your structure and make recommendations as to how the structure should be used to minimise these?
What legal agreements were put in place on implementation of your structure? If a solicitor was not involved in restructuring existing arrangements it is possible that your corporate structure is a sham and is at risk of challenge from Revenue.
Are you engaged in software development or engineering or another highly skilled profession? Are you aware of the special tax scheme that applies to your sector?
Have you made any payments for royalties or intellectual property or levies in the last three years?
What percentage of your gross income is used to make travel and subsistence payments?
For more information on this, or to discuss your own situation, contact Derek Andrews by email or call at +353 (0)1 6978012.