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CREDIT CARD INFORMATION AND TAX EVASION

It was reported earlier this month that the Revenue were to begin targeting credit card transactions as a way of uncovering tax evasion. This new endeavour came to light after it was revealed that over 2000 Irish companies had made payments to the Revenue Commissioners after failing to declare tax in full.

The Revenue Commissioners say that the practise of examining credit and debit card data to investigate tax payments is now active. The information is being released by merchant acquirer firms. These firms process credit card payments on behalf of the merchant you purchase from. Their data will then be compared to the data submitted by the individual or business in order to assess any issues or differences. Any discrepancies found would be flagged as a potential risk of evasion, to be given a closer look.

How is this information being released, you may ask? Legislation enacted two years ago states that these merchants are obliged to divulge information on transactions over a certain threshold. The Revenue are currently making an attempt to ramp up its digital focus as concerns grow regarding the easier tax evasion in this area.

The general idea here, is to ensure that The Revenue Commissioners have all the information they possibly can, in order to assess effectively. In order to do this, As the Revenue Commissioners have now increased their digital focus, they are now engaging new teams in the advanced analytics area. This process utilises a wealth of digital resources in order to flag potential tax evasion.

Declan Rigney, assistant secretary in the Revenue’s planning division has stated that the information has been of great benefit to their research into potential evaders:

“We are able to match information up with our records and see firstly, do we know about them, and secondly, have they registered with us and have they declared income and so on. After that, we can examine if that cumulative figure for the year matches what they have told us in their income tax or corporation tax returns”

Revenue have now stated that their advanced software, known as the Risk Evaluation Analysis and Profiling (REAP) system – (which sounds a lot more violent than it is we promise), can now accurately predict whether someone is potentially evading tax payments or not. This system can also compare cases in order to highlight potential issues that may otherwise have gone unnoticed.

So, it would seem that the ‘Tax Man’ has now well and truly entered the modern age, and with all this technology at the Revenue’s disposal it hopes to ensure that tax evasion becomes a thing of the past.

If you require any assistance or advice on managing your own or your businesses taxes and finances, please don’t hesitate to contact us at DCA Accountants.

DCA Q&A – SHOULD I MAKE AN UNPROMTED DISCLOSURE?

Q: My business struggled in the past with meeting tax obligations, and has been selected for an audit covering 2011 and 2012. Having gone through the accounts for these years, I’m pretty confident that there are no problems. However, I’m concerned about a claim made for the 2010 tax year – new guidance issued by Revenue on allowable expenses and subsistence makes me worry that there would be an issue with it. The amount isn’t huge – I could afford to pay any tax bill arising from it – but I’m now somewhat worried that it could result in a significant fine or more problems. Should I disclose it, and what would the likely attitude be.

 

A: Yes. It might sound glib to say, but paying your taxes is the right thing to do – and, if you leave this to lie, it will be a constant source of stress.

 

There are very few arguments to support not disclosing the matter. If I were to play Devil’s Advocate, I’d say that Revenue are unlikely to look back into your 2010 accounts if 2011 and 2012 prove squeaky clean. But you’d be taking a major chance – and the longer it lies, the worse it will look.

 

If Revenue you make this as an unprompted disclosure, then you may be surprised at how flexible they can be. As you explain it, this appears to be a genuine mistake arising  from your misinterpretation of the law in lieu of Revenue guidance – I can’t speak without knowing all the details, but I would be optimistic about your chances of a settlement to pay any outstanding amount with some interest rather than a fine.

 

If you have been are preparing for this audit and disclosure yourself until now, I’d highly recommend getting professional advice. At DCA, we often go through a client’s books and help clear up issues like this. Don’t hesitate to get in touch if you would like an initial, no-obligation meeting to discuss your options.

 

Declan Dolan

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

DCA Q&A: HOW DO I REPORT MY CONCERN?

Q: I have been working at my employer for a few years, and recently got promoted to a position where I see the company accounts on a month-to month basis. What I’ve seen has me very concerned.

I’m not an expert, but it appears that there is income coming in to the company that is not reported – in the most recently-filed accounts, I’ve identified several discrepancies. Now, I’m worried that my employer is engaging in tax evasion, and quite stumped as to what I do next.

Do I have a legal obligation to report this matter? Could I face prosecution if, having failed to report the issue, it subsequently comes to light? What should my next move be?

 

A: You’re right to be anxious, and to seek advice – the wrong move at this point could be damaging for you. To answer your first question, the legal obligations on reporting evasion fall largely on accountants and tax advisers. If you’re not in this role at your employer, then the situation is a little less clear, and any prosecution for sitting on your hands is less likely.

 

However, if you are a Director in the business, you could face restriction from acting as a Director in another firm if this comes to light and the company collapses – quite apart from the impact on your career and reputation. That’s even before you consider the moral imperative not to let tax evasion stand unchallenged.

 

There is one caveat, however: as you say, you’re not an expert, and this could be a simple misunderstanding on your part. Is there a person in the organisation who you trust, who also has access to the accounts and a level of expertise to understand them? If you can, ask them if everything is kosher. This may call for some subtlety, and there is a risk of your employer lashing out against you – for that reason, be careful not to share information with anyone who shouldn’t officially have access to it, as that could form a pretext for disciplinary action or dismissal. If your employer does look to get rid of you, having evidence that you dealt with the perceived problem internally and through proper channels will be important.

 

If you are not getting satisfactory answers – or if your employer goes on the defensive, then you can of course report the matter to Revenue. You can find contact details here for the Investigations and Prosecutions Division to pass on your concerns.

 

 

AVOIDING THE AUDIT

No company wants to be selected for a Revenue Audit, but how can you keep your firm chugging along without the taxman’s intrusion?

 

Even firms that do everything meticulously by the book find Revenue audits a pain: aside from the risk of uncovering liabilities (with added interest), audits take up a huge chunk of valuable management time. Fortunately, the Revenue Commissioners don’t look to put compliant firms through the wringer. In fact, they adopt certain procedures designed to target companies with a heightened risk of intentional or unintentional non-compliance. If your business can avoid raising Revenue’s red flags, you can minimise your risk of an audit and all the hassle that goes with it.

 

Be Timely

One of the easiest ways to show up on Revenue’s radar is a late filing, or a late payment. Delays in paying and filing present two possible scenarios – a business that is struggling, or a business that isn’t as organised as it should be. Either instance increases the risk, in Revenue’s eyes, that a company is deliberately or accidentally making inaccurate returns. For that reason, it’s important to make sure that any required documents are submitted in a timely manner, and that you pay liabilities when they are due. If, for whatever reason, you are unable to do so, you should make contact with Revenue to explain the situation rather than having them chase you – if you can’t be on time, be pro-active at least.

 

File Correct Paperwork

Similarly, a company making mistakes in its paperwork raises certain red flags: a businessperson who submits the wrong form is more likely, in Revenue’s eyes, to misreport their income or fail to keep correct records. So, when you are making any filing to Revenue or the CRO, check the paperwork exhaustively. And, when you’re sick of the sight of a document, check it again.

 

Keep Overheads Proportionate

Revenue know all the tricks there are to reduce liabilities: claiming 100% business use for a vehicle, inflated home-office costs, and claiming personal leisure as a business expense. Unfortunately, because some people abuse the system to write off their personal expenses and reduce their tax bill, it puts the onus on honest businesspeople to prove that their listed business expenses are legitimate.

If your overheads are significantly larger than the average for your industry, you are running a heightened risk of an audit. Unfortunately, Revenue don’t have a way of discriminating between honest businessperson working with high costs and someone abusing the system without taking a look at the books. If you can’t do anything to control your overhead costs, make an extra effort to ensure that every expense is documented properly.

 

Even if you follow all these steps, your business can still be selected for an audit. However, having all your paperwork in order and keeping records will make the process far simpler, and also make officials look on any honest errors that the process uncovers more sympathetically. At DCA, we advise many companies seeking to prepare for a Revenue audit or, better yet, to avoid one by having all their paperwork in order. To see how we can help, just contact us for an initial, no-obligation meeting.

 

DCA Q&A – HOW SHOULD WE MANAGE OUR TAX?

Q: I have been working in a moderately successful partnership for a little over a year now. From the outset, we both agreed what salary we should both take out of the business and paid ourselves monthly after meeting our liabilities. However, since we submitted our tax returns, a potential snag has come to light. He is married, and claims his wife’s tax credits, while I separately dealt with some medical bills during the year. The upshot of this is that we both have different income tax liabilities to pay, with his being a few hundred less. When we set out, we originally intended to pay tax out of company funds, but he is arguing that this arrangement isn’t quite fair. I do see his point, but I’m now trying to figure out the best way to manage things. What’s your advice?

 

A: Thinking of partnerships almost as a limited company (with a little extra tax benefit) s is a common enough mistake – hence your original plan to pay tax out of ‘company funds’. In reality, you’re running a profit share, and you’re individually liable for tax on the profits that you take out of the venture (along with any other income). In that context, it’s good that you see your partner’s point of view.

 

There are three ways in which you can approach this. One option is for each of you to pay whatever you owe to Revenue back into the business’ account, and for the business to write a cheque for Revenue covering the total amount. Otherwise, you can both deal separately with Revenue to sort out payment details – or a payment plan if required. This would probably be the neatest way to do things.

 

If you do want to pay your income tax out of ‘company funds’, then your partner should get paid the difference between his liability and your own to be fair. Bear in mind that you will also have to account for this when you’re filing your tax return later this year. To be frank, your original plan is a bit messier than it should be.

 

This little problem underlines the importance of making advance preparation for your tax liability, and also having watertight agreements to cover every foreseeable issue. It’s good that you’re being reasonable and fair about a few hundred Euro, but business-busting rows have happened over less.

 

At DCA, we can advise partnerships on day-to-day matters such as their personal tax arrangements, along with key strategic issues such as partnership agreements and negotiating with Revenue. To set up a no-obligation initial meeting, simplycontact us.

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

DCA Q&A – SHOULD I GO AS A SOLE TRADER?

Q: I have been working on a fixed-term contract with a multinational company. However, my contract is up in December, and it’s unlikely to be renewed or replaced with a permanent offer. The reason for this, I’m told, is a company-wide hiring freeze that is expected to change in the middle of next year.

Between now and then, I have been asked if I would like to continue on as a self employed contractor for a number of months. Before I agree to this, I have a few questions about how it will work. Because I will only be working for one company, would the Revenue have a difficulty with my sole trader status? Also, the company is VAT-exempt, but my income will be over the VAT exemption threshold. Will I still need to charge VAT? I would expect also that I will be using my car  for business75% of the time. Will it be possible to claim car-related expenses as deductable because of this?

 

A: You’re right to be thinking extremely carefully, as making this change in your career is a significant decision. You may be aware, for example, that it will affect your social welfare entitlement if things don’t pan out as you expect. That alone would be enough to put some people off going ahead with this temporary arrangement.

 

However, if you decide to continue working with this firm, there are a few things you should know. Revenue do have an issue with self-employed ‘contractors’ working exclusively with one company. If Revenue deem you to effectively be an employee, they have the right to assess the company, you or both for any taxes that they deem should have been paid. Therefore, even if you only have one other small client as a sole trader, it’s worth keeping that up.

 

As for VAT, you will have to charge it. Deductions for use of the car are on a receipted basis for petrol and other expenses. You should keep a detailed diary tracking your business mileage versus your total mileage to get an idea of how much you can deduct. A rough estimate, unfortunately, won’t cut it. If your vehicle will be primarily used for business purposes, your insurance company will have to be informed.

 

Even though you are thinking of this as a temporary arrangement, it’s important not to assume that you will be made a permanent employee after a few months, so set yourself up in a professional manner. Engage the services of an accountant, keep track of your business expenses and invoicing, and set aside money for your future tax liability.

 

We advise many people taking the first steps into entrepreneurial activity, and we’re more than happy to offer a no-obligation initial meeting to discuss your needs. Just contact us to get the ball rolling.

 

Eamonn Garvey

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.