Companies being slapped with large tax bills for incorrectly classifying employees as contractors

Warning to small businesses to review their use of freelancers

Both the Department of Social Protection and the Revenue Commissioners have recently increased their focus on businesses that treat members of their workforce as self-employed contractors when they should be treated as employees. A code of practice on what constitutes an employee has always been available from Revenue however a renewed focus, and indeed a concentration by Minister Regina Doherty in recent weeks to put this code on a statutory footing, has seen the start of a further clampdown.

Businesses found to be falsely treating workers in this manner are now beginning to feel the consequences- with fines of over €50,000 commonplace.

In cases where the Revenue have found that a worker’s employment status was incorrectly classified, at a minimum they will look for the backdated employers PRSI to be paid from the employer. If the situation has been going on for several years, the Revenue will pursue the employer for the unpaid amounts for each of those years. They will also most likely apply substantial fines and interest.

Michael Scanlan, Technical Manager at TaxAssist Accountants, advises that Revenue will then turn their attention to the contractor “Over the last year we have experienced Revenue getting stricter on the issue of contractors. From the employers’ point of view, because a lot of these contractors tend to be earning high amounts, the unpaid tax bill and therefore the risk of classifying them wrongly is often quite high, in fact we’ve seen bills of over €50,000 recently.  When the Revenue have focused on the employer they will often then turn their attention to the contractor themselves and pursue them to ensure their taxes were correctly filed”.

Michael finished by saying - “The risks for both sides are such that any small business that is regularly utilising the services of contractors/freelancers should take this opportunity to contact their accountant for advice on this issue.”

Date published 22 May 2019 | Last updated 22 May 2019