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The National Contractors Project; Clarity on Business Expenses

April 22, 2016 Expenses 0 Comment

The following document is an update on Revenue National Contractors project regarding Mileage and Subsistence claims.

Mileage and Subsistence

Much of Revenue’s current National Contractor Audit Project was centered on the matter of allowable travel and subsistence costs. Intrinsic to this is the definition of “normal place of work”.

An allowable business journey is one in which:

(i) an employee travels from one place of work to another place of work in the performance of the duties of his/her employment and;

(ii) involving a temporary absence from their normal place of work.

In order to establish what travel and subsistence costs may be claimed in respect of business journeys, it is therefore critical to firstly establish the location of your normal place of work.

Working from home

Per IT51, Revenue state that;

“An employee’s home would not be regarded as the normal place of work unless there is an objective requirement that the duties of the office or employment must be performed at home”.

In more recent guidance (Tax Briefing 03/13) Revenue have elaborated on this by providing some examples of scenarios and giving their opinion as to how normal place of work rules should be applied to these. While this relates to contractors it can be used as a guide and an indication of revenues current approach in this matter.

 

“Objective requirement”

Per the statement taken from IT51. “An employee’s home would not be regarded as the normal place of work unless there is an objective requirement that the duties of the office or employment must be performed at home”.

It seems therefore that there may be limited circumstances in which Revenue will allow the home to be treated as the normal place of work i.e. where there is an “objective requirement” for this to be the case. So what exactly is an objective requirement?

We would suggest that if you are required to work from home you should have this written into your contract. Revenue have not clarified as to whether this would fully satisfy their definition of an objective requirement, but it would certainly be an extra strengthening factor to support the case in the event of a Revenue Audit.

If you look at the wording of some of the examples provided by Revenue in Tax Briefing 03/13, you will see that in both cases Revenue have taken the trouble to indicate that, in this case, contractors work from home by personal choice. In Example 8, Revenue specifically state that Alison works from home “by choice”.

In example 5, they state that Deirdre’s clients “allow” her to work from home (where previously she worked at their premises). The use of the word “allow” seems to indicate that it is not required and is something which Deirdre has requested. If the element of personal choice on the part of the contractor can be removed from the scenario, it may be the case that there is instead an “objective requirement” that they work from home.

Please note that living a distance from your office, such that a daily commute would not be feasible, this does not in itself create an objective requirement. Within their guidelines Revenue have also emphasised their position that a person’s place of residence is a matter of personal choice.

This is most clearly outlined in Tax Briefing 04/13, which states “the length and cost of the journey is not imposed by the office or employment but is dictated by the choice of the place of residence of the individual”.

The implications of this seem to be that Revenue believe if non-tax deductible travel costs are prohibitively high, this is down to your own personal choice of where you live and does not in itself mean that there is an objective requirement that your home is your normal place of work.

Rented office premises

Normal place of work; To manage this objective requirement is it possible for a someone to rent an office space outside of their home? Per the initial guidance given it would seem that if a contractor worked primarily from a rented office space outside of their home there would be no dispute over this location being accepted as their normal place of work.

In a letter to Revenue dated 14th August 2013, the Irish Tax Institute raised the scenario of a fictional contractor, Brendan. Brendan had been renting an office premises outside of his home, but due to the economic downturn was forced to surrender the lease and transfer his business activities to a home office.

The Irish Tax Institute pointed out that Revenue’s stance would seem to be that Brendan’s office space was previously acceptable as his normal place of work, but now that he is carrying out the exact same activity from home, the home office cannot be considered to be his normal place of work, simply on the basis that the building is also his home.

Revenue responded to this by saying that it is not necessarily correct that Brendan’s rented office space was indeed ever acceptable as his normal place of work, arguing that it would depend on the specific circumstances of the case.

Revenue stated “it could be that the normal place of delivery of the service is the premises of [the client] but Brendan does his work at a different location for convenience… in which case the Tax Briefing applies”.

The inclusion of the word “convenience” would seem therefore to be the only basis for Revenue disallowing Brendan’s office as his normal place of work.

Depending on the value of your travel and subsistence expense claims and the exact circumstances of your business activity and arrangements in place with your clients, it may be worth looking into the option of renting a cheap office space. However be aware that this is not a hard and fast solution under current Revenue guidelines.

Challenges to Revenue

The Irish Tax Institute has strongly argued against some of Revenue’s stance on the normal place of work rules.

In a letter written to Revenue dated 14th August 2013, they argue, “there are situations where a person’s home is their main place of work, and that is not negated by the fact that the building also functions as the person’s home. In the modern working environment, there are many cases in which a person’s home is their main place of work. The position in the Tax Briefing [03/13] does not recognise the changes in working patterns which modern technology has facilitated in recent years.”

They go on to argue, “where…the person carries out the majority of their work from their home office, their normal place of work cannot logically be anywhere other than their home office.

It necessarily follows that travel from their home office to their client’s premises is travel from their normal place of work to a temporary work location”.

Revenue responded to the Irish Tax Institute in a letter dated 27th November 2013. Revenue did not respond specifically to the points outlined above, advising the Irish Tax Institute that “you have also included comments of a more general nature which do not appear to have immediate bearing on the current project, and while they are of course noted, I do not propose to deal with them directly in this letter”.

Revenue did however respond to some scenarios that the Irish Tax Institute put to them, some of which were intended to draw out more information regarding the application of normal place of work rules.

Revenue’s responses to the relevant scenarios confirmed their hard line stance. This response can be viewed in full on the Irish Tax Institute website.

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