Building sites, pubs and fast-food outlets spring to mind when the taxman goes searching for unpaid revenue lurking in the shadows of the economy.
However, a series of audits in recent months indicate the accounts of health professionals are a more lucrative source of revenue.
The Revenue Commissioners recently expanded a review of the tax affairs of medical consultants who have set up “controlled companies” for their businesses.
The tax authority is vigorously challenging hundreds of cases where these transactions had “little or no commercial reality” or cases where there was very aggressive accounting or taxation practices.
In all, tax authorities have investigated – or are about to investigate – more than 550 medical consultants.
Most of these have been based in Dublin, but officials are expanding their investigation to include consultants right across the State.
To date, tax settlements have yielded some €31 million which relate to 210 cases.
A further 300 or so cases are still being investigated, while another 30 or so are due to get under way shortly.
The inquiry raises questions about whether consultants deliberately took risks to evade tax. But it also shines a spotlight on the role of accountants involved in advising medics how to best manage their financial affairs.
Within the medical community, for example, some feel they have been hard done by after believing what they did was legal and tax-compliant.
The Revenue says it is also challenging accountants or tax advisers who have been involved in promoting these arrangements.
There is nothing wrong with a sole trader or consultant moving to incorporate their business. It’s a practice widely used in areas by high earners in areas such as entertainment or media.
But the aggressive accounting and tax planning involved in specific cases raised a series of red flags with Revenue.
Liabilities
Capital gains tax – arising from the sale of consultants’ businesses to their private companies – is one of the key liabilities involved.
In a number of cases, the amount of tax paid was significantly reduced – in some instances to zero – by the use of reliefs such as capital losses and retirement reliefs.
However, the Revenue has successfully challenged the bona fides of many of these reliefs being claimed.
In other cases, consultants were unable to tell Revenue when they moved from being a sole trader to an employee. This, in turn, raised questions about whether some of the company’s income was earned when the consultant was still a sole trader.
Tax officials also uncovered aggressive tax avoidance policies in relation to the deferral of income, later found to be without justification. There have also been instances where little, if any, documentation has been provided to substantiate business expense deduction claims.
Excessive claims
Of even greater concern has been that claims for expenses not relevant to the business have been lodged in a number of cases, giving rise to significant underpayment of tax.
“Revenue will not accept any such unsupported or excessive claims for expense deductions,” it says.
Doctors, accountants and legal professionals have paid tens of million of euro in the last year and a half.
Their liabilities have typically included undeclared income tax, false claims or non-allowable expenses and tax reliefs claimed as losses.
Contractors providing professional, technical, scientific and IT services, mostly to large businesses through company structures, have also been targeted.
In many cases, these were cases of “bogus self-employment”, provided through a company in which they were the only employee,
However, tax-free expenses being drawn from these companies by the contractors were either not incurred at all, or were personal rather than business related.
The move has proved controversial, as some contractors claim they acted on professional advice.
Revenue, however, has said all citizens have an obligation to be tax-compliant.
