This week we’ll look at travel expenses and proper records to pay them without deducting tax. Expenses for travel and subsistence is a focus area for Revenue. What isn’t a focus area for Revenue these days? I’ll introduce you to Slim Milkman who had a run-in with Revenue. They wanted €300,000 from Slim’s company for taxes owing on expenses claimed. There was a disagreement, and it went to appeal.
Let’s look at
- Background
- Evidence for the company
- Submissions by the company
- Revenue Submissions
- Appeal Commissioner
- Lessons Learned
Background
Slim Milkman is the majority shareholder in CloudTech Ltd. Based in Co. Dublin the business provides IT services to its customers around the country. He is the CEO and Director of the company, and his background is in sales and marketing.
Revenue raised Assessments in December 2021 and December 2022 for the years 2016 to 2019. The liabilities raised came to €297,728 for PAYE, PRSI, and USC. The reason for the liabilities is that Revenue didn’t allow certain travel expenses. They did this because Cloud Tech Ltd [the company] didn’t keep proper records. As a result, expenses claimed by two directors and a spouse were not incurred in travelling
“In the performance of the duties of that office or employment”
The company appealed the assessments raised by Revenue and the appeal commenced on the 14th of August 2023.
The liabilities making up the €297,728 arose over the 4 years as follows
| 2016 | €66,138 |
| 2017 | €69,049 |
| 2018 | €76,781 |
| 2019 | €85,770 |
| Total | €297,728 |
The company generates its business by visiting customers around the country. This requires a lot of travelling by the company directors and some employees to many locations.
Evidence for the company
Slim, as CEO, gave evidence for the company. He confirmed he is the majority shareholder. His main role is to generate business, market awareness, brand awareness, and sales. His spouse is an employee of the company and works on the advertising and marketing side of the business. He stated that the company has 20 employees.
Slim testified that they hold regular seminars around the country. At the time of the seminars, he would call to customers and drop in promotional material. He mentioned that things were less formal down the country. You didn’t need prearranged meetings with businesses.
Slim was under the impression that, as a company director, he didn’t need to keep receipts for travel expenses. Records were kept in notebooks as he travelled or sheets of paper. Then he’d upload the information to an expense sheet, putting in the date, the distance, the client, and the rate. He didn’t think it was necessary to keep the notebooks or sheets of paper once he had the expenses claim completed.
Slim confirmed that the corruption of the expenses sheet was a genuine error and a mistake.
Cross-examination
On cross-examination by Counsel for Revenue, several issues came up. In September 2020 the company made a disclosure to Revenue, part of which related to excess director’s travel expenses. Revenue weren’t happy that it was a complete disclosure and began an audit. And this led to them raising the additional assessments.
The practice for the other employees of the company was to submit backup documentation when claiming expenses. This applied to everyone except the CEO, his spouse, and the CFO. It was accepted by all parties that there were excessive travel expense claims. But Revenue doesn’t accept the revised claims because their view is that none of the journeys were made during the relevant years.
Some discrepancies were put to Slim in relation to the travel expense sheets. As part of Revenue’s book of documentary evidence, they had an invoice from the USA. Slim was in the USA on that date and couldn’t be travelling in Ireland. Slim accepted that there were mistakes and errors and this was one of them. He confirmed that we were “at the end of our tether” in terms of the information requested by Revenue. As a result, he went to some customers to get them to confirm he was at their premises on certain dates.
While accepting there were errors made, he is not accepting that he didn’t do the mileage. It was put to Slim that there exists no records of meetings, such as emails confirming a visit or thanking a customer following a visit. He confirmed that
“It is more relaxed in the country and that he might call to a customer unannounced or someone in the office might speak to him personally, or on the phone, about calling into a customer”
Submissions by the company
As part of the submissions by the company, they confirmed the following.
When a director is in a town or county for a seminar or customer visit, they will make visits to other businesses. This is to develop relationships, provide promotional material, and generate business. The officers spent two, three, or even four days of the week on the road during the years in question. As a result, the expenses were
“wholly, necessarily and exclusively laid out for the purposes of the trade”
The CFO of the company maintained a record of these expenses on his work computer. There was a spreadsheet of the trips taken which included the
- Date
- The customer
- Address of the customer and
- Kilometres travelled
However, when working with Revenue, they realised they used the incorrect rate. When they corrected the rate the spreadsheet was corrupted and the original data was overridden. This was the only record, and they didn’t take a backup. Following the audit, Revenue found significant inaccuracies and that the records were not vouched. The company submits that it did keep records as required by law. It knows they are not accurate but the reason for that is the corruption of the file and overwriting of data
The company was able to produce some supporting records. These included printouts from their events, tweets, and photographs. This demonstrated that the officers and employees in question travelled a lot during the relevant years. Some customers provided letters confirming specific events and visits. And one customer gave video evidence of such a visit
Revenue Submissions
Counsel made Revenue submissions as follows
The company didn’t provide any supporting documentation to prove that it incurred the expenses. It is up to the taxpayer, the company, to prove that it can pay the expenses without the deduction of PAYE, PRSI & USC. The company is required by law to maintain books and records. The only evidence of the expenses is a corrupted Excel spreadsheet.
One would expect to see other records such as e-mails, which would show the planning of the business trip. As such, the company failed to provide proper records and linking documents. Given the lack of records and evidence, the payments to the directors and employees are pay. As a result, the company should have deducted PAYE, PRSI, and USC from the payments.
Appeal Commissioner
Claire Millrine is the Appeal Commissioner, and her main findings were.
The burden of proof rests on the taxpayer. The taxpayer must prove on the balance of probabilities that an assessment to tax is incorrect. Citing the case of Menolly Homes Ltd v Appeal Commissioners, Charleton J states that
“The burden of proof in this appeal process is, as in all taxation appeals, on the taxpayer”
Miss Millrine stated that the taxpayer must establish that the expenses incurred were
“expenses of travelling in the performance of the duties of that office”
She found that the evidence provided by the company and its officers wasn’t enough to support the expense payments. She reviewed the expense sheets and found significant inaccuracies and a lack of vouching records. One example given is that on Monday, sometime in 2018, Slim travelled from the office in Dublin to Limerick and back to Dublin. But, in Revenue’s book of evidence, he was at a meeting in Austria on that same date.
The Commissioner didn’t find the testimony of the company CEO or CFO to be persuasive concerning the inaccuracies. She was satisfied that they made no effort to identify which record could be relied on and what was inaccurate in the expense sheets.
She pointed out that on some dates when seminars were taking place the CEO and CFO stayed overnight. On those dates travel to and from the company office in Dublin couldn’t have taken place. But they have claimed expenses for these dates. She also mentioned that Slim had a medical appointment in Dublin on a certain date. But, per the spreadsheet, he was in another county visiting a customer. When put to him, he couldn’t remember attending the medical appointment.
Commissioner Ruling
The Commissioner considers that
“The records are wholly unreliable in terms of the travel claims made. And that the evidence of the witnesses was not persuasive in terms of the corruption of the data being the reason for the considerable number of inconsistencies”
The Commissioner noted that the company CFO held no vouching documentation. Yet, other employees had to submit vouching documentation to support their expense claims.
She further found that it is not credible that no e-mail or written correspondence exists between the company and its customers. This was about travel and visits undertaken by the CEO, CFO, and a spouse. She also mentioned the lack of receipts such as for a tea/coffee, sandwich, or fuel when making round trips from Dublin to Kerry or Cork. While the witness, Slim, confirmed he used cash, that could still produce some record of the travel. In her view “there exists no credible record of the travel undertaken”
She made further reference to Revenue’s Tax & Duty Manual for the tax treatment of expenses of travel and subsistence. Under records to be kept it states that where expenses are reimbursed based on an acceptable flat rate allowance, the employer must retain a record of
- The name and address of the director or employee
- The date of the journey
- The reason for the journey
- The kilometres travelled
- The starting point, destination, and finishing point of the journey, and
- The basis for the reimbursement of travel and subsistence expenses [e.g. an overnight stay away from an individual’s normal place of work]
It comes as no surprise that the Commissioner determined that the company failed in its appeal. The company didn’t succeed in showing that the tax is not payable. As a result, the assessments issued by Revenue for the years 2016 to 2019, in the sum of €297,738, will stand.
Lessons Learned
There are a lot of lessons learned from this case. For me, a few stand out more than others. The lack of supporting evidence of meetings and some glaring inaccuracies in the expense claims carried a lot of weight. You’d think there would be some e-mails or dates in a calendar for arranged meetings. The company had a proper vouched system for their other employees but not for the main directors.
It would be interesting to know the level of expenses claimed by the spouse of the owner. It was Slim and the CFO did the seminar work while her role was more in the marketing and advertising side of the house.
Using software like DEXT could be valuable for all those fuel and smaller subsistence-type receipts. You can use this as a storage hub. Plus, you can find receipts for different suppliers and different years if Revenue look for them. Think of it as every last scrap of paper for your business backed up in the cloud
The other important element is to have a proper bookkeeping system in place so that you capture all your expenses. Part of this is a water-tight expense claim procedure where different people approve and sign off.
Maintaining proper records isn’t a nice to have. It’s a must-have and that forms the foundation of your business. Investing in your bookkeeping and putting proper systems and procedures in place adds value to your business. That keeps you on the right side of Revenue. Not at the end of your tether getting documentation to Revenue for an audit. And after that, writing a big cheque to Revenue to get rid of them.
Avoid the Revenue wolves by investing in your bookkeeping. Need Help? If so, start here
