Revenue Interventions

Death and Taxes

The theme of this blog is Revenue interventions and the sectors where they get extra cash. Extra cash means the tax owed, plus the interest & penalties. Revenue love interventions in the construction industry. One could say it’s an obsession of theirs. Yet, it’s rental and the professions that they get most of their money from. So, more money for less work by concentrating on landlords and the professions.

Our focus will be on

  • Revenue information
  • Landlords make it easy
  • Professions watch out
  • Summary

Revenue get their Information

There are so many sources where Revenue get their information that it’s frightening. Big Brother is watching and knows what car you drive, who owns that car, and the properties you own. Plus, so much more. And most of this information is at the touch of a button. The raw data comes from many sources including

  1. Department of Social Protection, Residential Tenancies Board, Grants, Probate, 46Gs, RTDs, etc
  2. Banks, Digital Platforms like Airbnb, letting agents, etc
  3. Retail websites, online payment facilitators
  4. Other countries. Automatic exchange of information with 111 other countries.

Out and about

Revenue are out and about visiting construction sites. There were 1,300 construction site visits in 2023. Plus, 3,300 site visits to salons, pubs, restaurants, food businesses, animal trades, etc.

Revenue are normal consumers who are buying a coffee in your cafe, having lunch in your restaurant, and enjoying a pint in your pub. Apart from enjoying the quality fare you are offering; they’ll be keeping an eye on your

  • Till system
  • Number of staff working
  • Number of other customers on the premises
  • The receipt you give them

What’s stopping them from walking past the vacant property that you haven’t let? Would it pique their curiosity if two cars were parked in the driveway?

Tax Returns

You give them so much information in your tax returns. The 2023 Form 11 Tax return runs to 44 pages. In that form, you tell them how many properties you let. You tell them if you meet your RTB obligations. If you sell a property, you confirm what you got for it and the gain you made. Plus, you tick a lot of boxes to get other tax credits like the mortgage interest credit and the rent tax credit.

You’ll find that with a lot of the newer tax credits you must be tax-compliant to get the credit. That includes being up to date with your Local Property Tax [LPT]. For the new Rental Premises Rental Income Relief [RPRIR] you need to have

  • Tax clearance on the 31st of December each year
  • LPT is up to date
  • You register the property with the RTB

Other returns like Forms 46G, VAT Return of Trading Details [RTD], and letting agents return provide a wealth of information.

Landlords Make It Easy

Some landlords make it easy for Revenue. It’s like shooting fish in a barrel. The yield per intervention was almost €20k in 2023. That’s the second highest after the professions. Landlords were 10% of all published tax settlements in 2023. For Revenue, the main focus areas are

  1. Undeclared or under-declared rent
  2. Short-term accommodation like Airbnb etc and
  3. Incorrect deductions from rental income

Undeclared or underdeclared

No explanation is needed for this. A typical case here would be student accommodation with a landlord getting the rent in cash. It’s usually a ‘good deal’ for the parents because they can’t find something reasonable or any place for their darling Johnny or Mary. The taxpayer paying the rent doesn’t claim the rent tax credit for fear of ending the cosy agreement. However, some taxpayers know the name and address of the landlord and will give the details on their return. After all, this is worth €1,000 to a couple in 2023 and up to €1,500 in 2024.

You tell Revenue the number of rental properties you let in your tax return. Say, in 2022 you let 5 properties but in 2023 you only let 4 properties. You didn’t sell a property as there is no Capital Gains tax return or payment on record. Plus Revenue can see from the property register you own 5 properties. So, if a property was vacant did you pay the Vacant Homes Tax? That is now 7 times the LPT liability!

There are many genuine reasons why a property is vacant. Getting it ready to sell or repairing it is fine but renting it and not declaring the rent is dishonest. Revenue will come calling eventually loaded with information and it will be up to you to prove them wrong.

Short-term accommodation

The short-term accommodation sector isn’t a landlord-tenant situation. It’s more akin to a guest house or hotel. One of the main booking platforms is Airbnb and they report all their payments to Revenue every year. It’s a very simple exercise for Revenue to check this information against tax returns.

Incorrect deductions

Revenue take issue with incorrect deductions from rental income. If this happens over a few years you can see where the €20k comes from. This is a combination of poor practice from taxpayers and their advisors too. Take a category like repairs, the landlord tells you that it was €1,000 in 2023. Do you, as the advisor, accept that figure and include it in the tax return, or ask your client to send you the receipts?

The client signs the tax return and after all, it’s self-assessment. But do you want the hassle of dealing with Revenue afterwards and not having the supporting documents? This is time you may not get paid for and sometimes we need to protect clients from themselves.

And what types of deductions can’t you claim? Things like

  • Your labour
  • Mileage rates to travel to the property
  • Pre-letting costs in some cases
  • Mortgage interest unless the tenancy is registered with the RTB
  • Local property tax
  • Costs for your home and not the rental property

Did you really spend €5,000 on curtains for a rental property? Some examples of expenses claimed, given by Brendan Twohig on a recent webinar included

  1. A deduction for chimney repairs in an apartment
  2. A lawnmower expense for an apartment with no garden
  3. Letting agent’s fee at 8% plus VAT but there was no letting agent involved

Professions Watch Out

Professions watch out. Some of the professions are not covering themselves in glory. And yes, this includes accountants too. The average yield per intervention in 2023 from the professions was €21.5k. In the latest list of tax defaulters, some of the settlements from the professions are

Accountant €93,457
Medical Practitioner €303,499
Solicitor/Landlord €356,299
Medical Consultant €303,665
Civil Engineering Contractors €164,867
Accountant €160,331

It’s interesting to note Revenue’s comment on this

“These published settlements reflect only a portion of all Revenue Compliance Interventions. In the 3 months to 30 September 2024, a total of 15,261 Revenue Compliance Interventions were settled resulting in a total yield of €172,425,048.”

If we do the maths that’s an average of €11,300 per intervention. The above cases are more high profile as the name of the offending party and the amount they owe gets published. That’s on the Revenue website before the other media pick up on it. The above figures are the total amount owed which is the tax, interest, and penalties. And if you haven’t paid Revenue the amount owed the balance owed by you/your business also gets published. And who said all publicity is good publicity?

Goodwill

In some cases, with the professions, there is a move from a sole trader or partnership to a limited company. This can be for many reasons but one of those is to avail of lower company tax rates. As part of the move, the consultant is transferring their business to a company. If your business has a brand, then there is an element of goodwill. So, you have clients, staff, premises, etc that result in repeating income. That is called goodwill. You can value that goodwill and transfer it to the company.

But Revenue will always challenge goodwill in a case where only one person is carrying on the business. Like a medical consultant. The advantage of selling/transferring goodwill to your company is that the company owes you the value of it. There has been a lot of Revenue activity with medical consultants over the last few years.

Many of the settlements by the consultants are around this goodwill piece. Revenue will look to view the payments received from the company as net salary. So if you took €200k tax-free from the company then you owe another €200K to Revenue for PAYE, PRSI & USC. The clear message here is

  1. Is there Goodwill in the first place and, if so,
  2. Do you have a proper valuation for the Goodwill

Revenue will challenge very high valuations and have had some success in the Tax Appeals Commission with this.

Other Areas

There are other areas where the professions are falling down and these include not

  • Applying the professional services surcharge
  • Paying Income Tax on loans or TRS
  • Applying the close company surcharge
  • Spreading lump-sum pension payments
  • Applying BIK on cars and other benefits
  • Paying the correct VAT amount

And the list goes on and on!

Summary

The above isn’t meant to scare you. It’s to inform you of the vast resources and information at Revenue’s disposal. There are so many easy wins for them because they have the information already. If you get a Level 2 compliance letter or a Revenue Audit, they have already identified the risk area. And they expect to get money.

In the rental space, many landlords and their advisors are making it very easy for Revenue. It’s as easy to be compliant as not and there are many ways to save tax by doing things right. Plus, there are a few useful planning techniques that reduce the Revenue take and keep you compliant. We have discussed these in previous blogs and will do so again.

For companies and their directors, the tax rate is 12.5%. That rises to 20% for the professions trading through companies. Those same professions will pay tax of up to 55% if in a sole trade or partnership. So, a 35% tax saving. It makes no sense to mess around and not be compliant. Is there a lax attitude in your company to filing returns on time? Have you the right people working on the numbers in your company? Have you got the right accountant and bookkeeping team to keep you compliant and give you quality numbers?

Plenty to ponder coming into Christmas and the New Year.

A big thank you to Brendan Twohig for his excellent and entertaining presentation on this topic and to Omnipro too.

Keep off the naughty list by having a nice team behind you. If interested, start here