Tax authorities are to begin identifying builders who have not signed up for the home renovation tax incentive scheme as part of a crackdown on work being carried out for cash.
The scheme, introduced in budget 2014, was aimed at incentivising homeowners to use tax-compliant contractors and stimulating growth in the construction sector.
The popularity of the scheme resulted in 5,300 contractors registering with the scheme in relation to work on some 22,000 properties.
As a result of the large uptake, Revenue has begun examining geographical areas where contractors have not registered, to identify whether they are carrying out work for cash.
The scheme operates by contractors uploading details of qualifying renovation work online, including payment details.
The homeowner can view these details and claim a tax credit in the year after the work was carried out.
Tax relief
To date, work with a value of some €468 million – or more than €5 million a week – has been entered onto the system. The estimated tax relief due to homeowners is about €32 million.
Just €15 million has been claimed so far by homeowners, which can be offset against taxes in 2015 and 2016.
The majority of renovation work being claimed for related to home extensions, followed by general repairs, window replacement and kitchen renovations. The average value for one of these jobs so far is €18,300.
Construction has long been a target of Revenue when it comes to work being carried out in the so-called shadow economy.
It is regarded as high risk internationally because of its mobile nature and the number of different contractors involved in individual projects.
A number of initiatives in recent years, however, have helped Revenue minimise risks to the payment of tax, especially on large construction sites.
They include changes to the way VAT is paid, shifting risk away from sub-contractors and placing responsibility on the shoulders of principal contractors running individual projects.
Main contractors
In addition, the electronic “relevant contracts tax system” has also meant that main contractors are obliged to provide details of all payments to sub-contractors.
This is fed into Revenue’s computer system, which analyses the risk of tax liabilities.
“The combined effect of the changes in how taxation operates in the construction sector has helped mitigate the major risks involved, particularly in big-ticket construction projects,” according to internal Revenue records.
In recent compliance checks, the authority examined the tax paid relating to major projects in the private and public sector that employed more than 100 contractors.
An in-depth examination of records and tax returns indicated that up to 85 per cent of the taxes due on both contracts were correctly paid in full and on-time.
Revenue says that while these measures have helped ensure a substantial proportion of taxes are fully paid on a self-assessed and voluntary basis, it remains a “mobile and highly complex industry” which requires careful monitoring.
The key areas that the authority is due to focus on over the coming months include examining bogus self-employment and pursuing “off-the- books” payments to employees.
