REVENUE GUIDELINES FOR INSOLVENCY PRACTITIONERS

The Personal Insolvency Act 2012 introduces fundamental reforms to Irelands insolvency and bankruptcy laws as it introduces three different types of debt resolution process including a Debt Relief Notice (DRN) Debt Settlement arrangement ( DSA) and Personal Insolvency Arrangement (PIA).

This is a brief note to highlight the how Revenue will expect Practitioners in this area to deal with taxation maters that may arise in relation to these processes.

Information Required by Revenue Caseworkers

In the published guidance Revenue have helpfully outlined the information they will require as a minimum when engaging in a process that involves Revenue debt. It is stressed that if this information is not forthcoming Revenue will have no option but to opt out of any relieving proposals that may be proposed.

i. Information required for Revenue to decide whether to opt in/out of process

a. Name address PPS number and confirmation of PIP/AI appointment

b. All Tax Returns must be up to date

c. A specified prescribed financial statement must be prepared and in the case of a DSA/PIA arrangement details of PIP fees must be included

ii. Additional information required once initial decision to “opt in” has been made

a. Details and supporting schedule of Assets including charges/liabilities arising

b. Details of how debt has been addressed to date

c. Details of future projections/expected gifts/ other income etc

d. Where the Revenue debt exceeds €20,000 details of any other debt outside of the DSA/PIP process will be required also

By way of background it will be noted that Revenue through the auspices of the Collector Generals office in Limerick have already well developed procedures and processes to deal with taxpayers who either fall behind in submitting Tax Returns and/or fail to settle any tax liabilities as and when they become due for payment. This can include allowing outstanding taxes to be settled through a series of phased installment payments over time, the imposition of interest, and debt recovery through enforcement etc.

In order to ensure there is in place a clear and streamlined engagement between Revenue on the one hand and various other stakeholders on the other such as the Practitioners and the Insolvency Service of Ireland, Revenue have decided that the first point of contact for ALL queries in this area will be the dedicated Insolvency Unit of the Collector Generals office in Limerick. This can be contacted by secure email or by telephone on 061/488061.

Where an Approved Intermediary (AI) or Personal Insolvency Practitioner (PIP) makes contact with the Insolvency Unit in relation to a specific case, arrangements will be made by that Unit for the relevant Revenue caseworker to discuss the specific tax issues arising with that Practitioner. The Unit will monitor progress on all cases from a Revenue compliance perspective and will ensure that statutory deadlines are met. However while it may advise the Revenue caseworkers as to issues that may arise, it will be the caseworker in consultation with his/her management team within the Revenue District that will decide whether Revenue “opt in” or “opt out” of a debt settlement resolution process.

By “opting in” in a DRN case Revenue will be consenting to a Debt Relief Notice in relation to a Revenue Debt. IN the case of a DSA or PIA, an opt in will mean that Revenue are consenting to the inclusion of Revenue debt in an proposed settlement arrangement that may be formalized.

It should be noted that a 70 day protective notice period will be applied by Revenue in all cases so that a Revenue caseworker will not initiate any enforcement action for 70 days from the date that formal notification of a debtors intention to seek a DRN etc is received.

Revenue have also stated that they will only consider any arrangement that provides for all current taxes to be kept up to date as provided for in legislation. Where a Revenue audit is ongoing or indeed scheduled to commence in any case applying for personal insolvency the AI/PIP should contact the Insolvency Unit which will then determine internally within Revenue whether it is appropriate to “opt in” while the audit is ongoing. If there is any suspicion that there are undeclared assets/sources of income Revenue will have no choice but to opt out of any proposed arrangement.

It is understood that if Taxes are under Appeal Revenue will take the view that it has no option in the short term but to opt out of any proposed arrangement until that Appeal is concluded as it is only at that time that the tax can be accurately quantified.

Use of Other Intermediary Companies

Even if a taxpayer is not claiming tax free reimbursement of mileage from home to place of work other issues can still arise in practice on a tax audit which can be best illustrated by an example.

Example

Joe an IT expert living in Balinasloe forms Joe Limited and engages with a large independent contractor PLC Limited based in Galway City. PLC limited obtains a contract in Clifden and Joe on a practical basis works with the management team of PLC Limited in Galway and in Clifden to deliver the practical aspects of the assignment. Joe in this case historically claims NO mileage from his company in relation to travel to/from his home to Galway and back but does claim reimbursement for expenses incurred from Galway to/from Clifden.

In the event of a tax audit Revenue would look for practical evidence that Joe de facto spends most of his working time on site in Galway City in the premises of PLC Limited if a claim for tax free reimbursement of actual expenses incurred from Galway City to Clifden is to be allowable.

Latest Revenue Material

In late July 2013 a new Tax Briefing (No 03/2013) was issued by Revenue which reiterated the standard position that no employee can claim tax free reimbursement of expenses in relation to travelling between his/her residence and place of employment. A number of examples were provided of various scenarios in which a typical employee could and could not claim such reimbursement.

This is of course not in any way contentious for the vast majority of PAYE employees who are engaged under standard contracts of employment with totally unconnected Employers.

However as certain Professional Bodies have highlighted in their response to Revenue this poses real and significant issues for contractors who have by necessity set up a Registered Office of their own single person company in their own home AND in addition are obliged to exercise significant duties as a Director of that company from that address.

Revenue appear to be adopting a “one size fits all” approach and have not on first review addressed the multiple different circumstances that may arise in practice. There is for example an enormous difference in practice between an Engineer who is contracted via his own intermediary company to work 40 hours a week “on site” in the premises of his client, and an Architect who sets up her own Home office replete with Broadband, second phone line etc. and is able to more than adequately provide services from that home office for the majority of the week.

The Engineer, would find it difficult to justify that daily commute from home to his sole client qualified for tax free reimbursement of expenses but surely occasional visits undertaken 2/3 times each week by the Architect to a client would qualify for reimbursement?

Unfortunately the Revenue guidance is at best vague on this matter quite unlike the equivalent UK guide issued by HM Revenue & Customs which runs to 76 pages and has many helpful and practical examples to assist taxpayers in this area who cannot reasonably be expected to have anything other than a layman’s knowledge of tax law and practice.

The onus of proof is very much on the taxpayer to prove this and in recent times it is noted that Revenue can look for independent confirmation of a person’s physical attendance in various locations before being satisfied that the claims are legitimate.

UK Guidance again on this point is quite clear and concise and many examples are included to highlight when a taxpayer may and may not claim expenses from his/her company in this manner. The Irish guidance from a practical perspective is far less helpful and in any given situation it is up to the taxpayer with hopefully the assistance of a competent professional and experienced advisor to assist clients in defence of a situation that they had in many cases considered to be fully compliant on first principles.

In summary this is in practice a complex and sensitive issue for many independent contractors and it is expected that there will be ongoing issues coming to light for the foreseeable future.