Locums Incorporating their Trades – Areas of Concern

In recent years Revenue have paid significant attention to Medical Consultants and, in particular, to those who have incorporated their business. The systematic review, dubbed the “Medical Consultants Project”, began in 2013 and has yielded significant tax settlements over the years. Revenue have recently released further guidance regarding the incorporation of locum practices and some of the stumbling blocks they have identified during the audit of these entities. We have summarised their main points below:

  • In order for travel expenses to be reimbursed to the employee tax free, the travel expenses must be incurred wholly, exclusively and “necessarily” in the performance of the duties of that employment. Expenses incurred which merely put an employee in a position to exercise his or her employment are not incurred in the performance of the duties of the employment. For example, expenses incurred on travel between an employee’s home and normal place of work are not allowable. In most cases, the normal place of work of an employee/director of an intermediary (locum company) will be the premises of the intermediary’s client, for example, a hospital or office. Obviously when Revenue audit entities that provide locum services, those companies are failing to treat the reimbursement on some travel expenses as a Benefit in Kind and, therefore, liable to income tax.
  • Another area that Revenue have focused on is in relation to expenses which they consider not to be deductible for corporation tax purposes but have been claimed by taxpayers as a deduction nonetheless. It is important to ask yourself prior to taking a deduction for any expense whether that expense was truly “wholly and exclusively incurred for the purposes of the trade”. Revenue have also directed people’s attention to the requirement to maintain proper books and records. Obviously these matters, which should be fairly straightforward, are causing problems for taxpayers and this really shouldn’t be the case.
  • Revenue have also pinpointed wages paid to family members as a bone of contention. As part of their audits Revenue must have come across situations whereby a salary was paid to a family member who was not actually providing any service to the company or an excessive salary was paid to a family member that was not in keeping with the services being provided. On these occasions Revenue have indicated that the salary, or a proportion thereof, will not be deductible for corporation tax purposes.
  • VAT treatment of locum services (considered in detail in Section 1).

With the exception of VAT, most of the above would apply to any personal service company and not just those providing the services of a locum. Given Revenue’s increased scrutiny in these areas and the hefty interest and penalties being imposed, it is more important than ever that corporation tax returns are prepared correctly and in line with the facts of the situation. As these audits have borne significant fruit from Revenue’s perspective it is unlikely that they will go away in the near future.

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Ronan McGivern

Taxation Partner

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