Revenue Crackdown on Contractors Expenses

Contractors and in particular tech contractors are this week anxiously considering their tax situation following the recent annoucmenet by the Revenue Commissioners of a crackdown on this sector of taxpayers.

Those who should pay particular attention to this issue are companies, and their directors, whose main source of income is a contract with a larger company. Companies like this, who do not appear to have any substantial business outside of these contracts will be focused on.

The big issue here it seems is the business expenses being claimed by companies like this. What is drawing attention in particualr is the practice of claiming travel expenses and subsistence costs to the company which you would not be able to claim were you an employee of the company you are contracting for.

So if you are in this situation, getting to grips with what is and is not an 'allowable expense' is crucial. The easiest rule to apply is to ask yourself was the expense incurred 'wholly and exclusively' for the purposes of your trade. That is to say the expense must apply only to your business and not to your personal expenses. For example you can claim expenses for business travel or for using your personal computer, telephone for business purposes. One of the most common items people are surprised to find out they can not claim for is client entertainment. You can also not claim for things like lunch while you are at your normal place of business.

What to claim when it comes to motor expenses is an issue that crops up again and again. Your place of business or base will determine where you stand on this issue. So if for example you work as a plumber, servicing clients across the city/country your motor expenses are allowed from the moment you leave your home as it is considered your place of work or base. However, if you work as a contractor and you make the same journey from home to work every day your motor expenses will not be considered allowable as your home is not your normal place of work.

The key here is to be reasonable in what you claim for and again you should apply the rule of whether or not the expense was incurred for the purpose of your business. So if you make a business call on your personal mobile you can claim this an expense. To arrive at a % figure you should assess what % of your phone bill is spent on business calls and what % of your time motor costs were spent on business travel etc…

To ensure you are claiming reasonable expenses and to avoid any possible penalties or fines you should discuss your arranagements with an Accountant.

Date published 17 Apr 2013

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.