Be aware of your normal place of work when claiming expenses. Are you entitled to claim them and what are the things to watch out for?
We’ll take a look at a case that came before the Tax Appeals Commission last year. Let’s find out more about
- The Stars
- The issues
- Case for Jerry
- Case for Revenue
- The Outcome
- Learnings
The Stars
Jerry Maguire is hot in tech. He has got a particular skill set. Clients are happy to show him the money. Back in 2012 Jerry had a reputation for getting things done. Reputable financial service companies wanted him. They needed him for transformational projects. He set up his company, Hot Chip Ltd, in October 2012, through which he provides IT services.
Elizabeth Trunchbull worked for Revenue for years. Clever and eager, she worked her way up and is well regarded. She knows her tax law and is good at dealing with people. She got a promotion in 2007 and was the lead on Revenue Audits in her particular field.
Claire Milrine is the Appeal Commissioner. The judge or the referee in the middle of the arm wrestle between Jerry and Elizabeth. A more than capable lady.
The issues
Ms. Trunchbull carried out an audit of the books and records of Hot Chip Ltd in January 2018. Jerry, being meticulous, thought he had nothing to worry about. He was wrong as he found out in a letter from Revenue in August 2018. The main issue was expenses.
“Travel, subsistence and entertainment expenses included in the accounts for 2013 – 2016 are not an allowable expense”
Revenue regarded the expenses as personal and not deductible as a business expense. As a result, they wanted €46,768.
Revenue didn’t accept that Jerry’s home was his normal place of work. Where the company has its registered office and keeps its books isn’t the normal place of work for the director. Their view.
Background
Hot Chip Ltd signed a contract to provide IT consultancy services to a UK financial provider. The rate agreed was £500 per day plus expenses of £200 per day. Jerry, being the consultant, would provide his services through his company. A very common practice.
In 2017 Revenue selected his company for a “profile interview to examine risk areas”. A comprehensive audit took place in January 2018. The focus was on corporation tax, PAYE/PRSI/USC, and Vat from 2013 to 2016.
Jerry’s opinion is that his normal place of work is his Irish office [his home]. After all, part of the agreement with his client was that he’d carry out the services from his office in Ireland. He maintains that he wasn’t required to attend client sites. Plus, any travel that ensued was to engage with stakeholders and to develop business.
Revenue raised assessments because the Director was
“not entitled to claim travel expenses from his home to the airport, parking at the airport and flight costs from Ireland to the UK”
Their view was that the client premises in the UK was the normal place of work. And not Jerry’s home office in Ireland. To provide the services Jerry had to take frequent trips to the UK as he had to be on site at times.
Revenue raised an assessment in October 2018 for PAYE/PRSI/USC owing on the expenses. They regarded that as net pay and that Hot Chip Ltd must pay the taxes owed. Jerry, not happy at all about this, appealed to the Commission.
Case for Jerry
In evidence, Jerry said the whole audit and appeal process had a very negative effect on him and his family. He felt like a criminal and was going to wind up Hot Chip Ltd after the appeal.
He entered into the contract with his UK client in October 2012 and Hot Chip Ltd was set up for this purpose. Given his reputation the client allowed him to work from home in his office in Ireland. Jerry wanted to base himself in Ireland as he had a young family. To do the work he set up a proper secure office in his home.
It became clear there would be a lot of engagement with senior people in the banking industry. He stated that he could carry out the services from his office in Ireland. But he confirmed that it was necessary to travel to the UK for weekly meetings. The reasons behind this were
- It was better to be there in person than remotely,
- Relationship management
- Reputational management
- Reassurance
- Future business development
He confirmed that being in the UK resulted in repeat business for Hot Chip Ltd. Despite that, he wasn’t required to work in the UK and it wasn’t in the agreement to do so. It was always the case he could provide the services from Ireland.
When present at the client sites, he used hot desks or other secure areas if there was no desk available.
Case for Revenue
Miss Trunchbull made the case for Revenue. She mentioned that a Revenue official visited Jerry’s office to see if it was fit for purpose.
She stated that Hot Chip Ltd was providing services to a UK client. This involved frequent trips to the UK by the Director as he had to be on site, at times. She argued that the UK client premises was Jerry’s normal place of work. As a result, he couldn’t claim travel expenses from his home to his normal place of work and from there to his home.
As evidence, Revenue had the detail of the number of trips made during the period under review
- 54 trips in 2013
- 45 trips in 2014
- 42 trips in 2015
- 40 trips in 2016
She argued that the Director spent a substantial part of his week in the UK and that it is his normal place of work.
Miss Trunchbull had her work done, quoting various case law in support of her case. To bolster the argument there was further reference to a prior Tax appeals case, plus Revenue Guidance.
The Outcome
Miss Milrine confirmed the starting point in any appeal case is that the burden of proof is on the Taxpayer. The taxpayer must prove that an assessment to tax is incorrect.
The central issue for her to determine was the normal place of work. Is it the home office in Ireland or the client site in the UK?
The main tax case put forward by Miss Trunchbull to support Revenue’s position was “Ricketts v Colquhoun”. The Commissioner’s view was that case didn’t marry well with modern day work practices such as
- the use of technology
- remote hubs and
- working from home
Nor did the circumstances in that case tie in with the circumstances in this appeal. In the “Ricketts” case there was a directly employed employee travelling from home to his employer’s workplace. In this appeal, the evidence is that the Director is not an employee when arriving at the client site. He has
- No entitlement to a fixed place within the client organisation or physical infrastructure
- He uses a transient hot desk and is acting on behalf of his company to fulfil a contract.
As a result, her view was that it was incorrect to say the place of work is the client site as contended by Revenue.
She also took the view that there are situations where a person’s home is the main place of work. The position adopted by Revenue didn’t recognise the changes in work practices with modern technology. She was happy that the appeal didn’t fail because the Director worked from home.
Her ruling
She ruled in favour of Hot Chip Ltd and Jerry. The Director was
“necessarily obliged to incur the expenses of travelling in the performance of the duties of the employment”.
In support of her conclusion, she mentioned the number of trips made to the UK each week. In the period October 2012 to September 2015, the average duration of each trip was 2 days. There were some exceptions when the average duration was 3 days. Based on this she was happy that the majority of the working week, 3 out of 5 days, was from the office in Ireland.
Ms. Milrine also noted the expenses claimed for travel in the UK to different locations. While in the UK the Director didn’t always stay at the same site. There was travel to Edinburgh, Birmingham and various locations in London. This was consistent with the director having a hot desk while working in the UK. And consistent with the evidence that the Director’s normal place of work is not the client’s site in the UK.
She found that Jerry’s evidence was credible. They negotiated the contract on the basis that the company would deliver it from Ireland. She accepted that there was an expectation of face-to-face meetings to perform the duties of the contract. She also noted the three affidavits submitted by Mr. Maguire in support of his appeal. These mentioned the seniority of his role. And that he could undertake the main duties of the contract from his office in Ireland.
The result for Jerry and Hot Chip Ltd was that the tax assessment is reduced to nil.
Learnings
So, we have a rare victory for the taxpayer and a defeat for Miss Trunchbull and Revenue. What are the key learnings for company directors?
- Does your company have a contract in place that states you can work from home/office?
- Do you spend the majority of your working week carrying out that contract from home/office?
- Is there a fixed place of work when you go to a client’s premises or a hot desk?
- Do you only have one client or more and, if one, are there different client sites?
- Have you got the correct paperwork to support your expense claim?
- Does your company pay for all the travel and subsistence expenses? If so, you can’t claim expenses too.
While this case teaches us a lot, every person’s circumstances are different. It’s vital to get the right advice for your circumstances. If you don’t, you’ll have Miss Trunchbull breathing down your neck.
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