Qualifying Disclosure
Qualifying Disclosure – Revenue Compliance Interventions
Qualifying Disclosures. Prompted or Unprompted. Revenue Compliance Interventions. Audits and Investigations. New Code of Practice.
The Revenue Commissioners published a new Code of Practice for Revenue Compliance Interventions, which took effect from 1st May 2022. From that date onwards, if you receive a Revenue Letter or Notification to examine your tax affairs it will be described as a “Compliance Intervention”, classified under three risk levels: Level 1, Level 2 or Level 3. The type of qualifying disclosure varies, depending on the risk level.
What is a Qualifying Disclosure?
According to Revenue’s most recent guidance material, “a qualifying disclosure is information you give to Revenue if you:
- have not reported all of your income or gains or
- have made an error on your tax return.
This qualifying disclosure may be unprompted or prompted.”
Under a Level 1 Compliance Intervention, an unprompted qualifying disclosure may be made. This means a disclosure can be made at any time before a Revenue Audit Notification letter is issued or an investigation commences. This includes a full disclosure of the tax underpaid, accompanied by full payment of the tax liability along with statutory interest. Taxpayers can also avail of the self-correction without penalty option, provided tax returns are corrected within the required timeframe. An unprompted qualifying disclosure reduces (i) penalties and (ii) avoids publication on Revenue’s Tax Defaulters List.
Under a Level 2 Compliance Intervention, it is no longer possible to make an Unprompted Qualifying Disclosure from the date of issue of Revenue’s Letter of Notification. However, a taxpayer can still make a prompted qualifying disclosure in relation to their tax underpayments. This is possible right up until the commencement of the compliance intervention. The information to be included in a prompted qualifying disclosure is dependent on the category of behaviour giving rise to the tax default. Taxpayers have 28 days to make a disclosure following notification of a Level 2 intervention. A taxpayer can request an additional 60 days to prepare the prompted qualifying disclosure. This Notice of Intention must be made within 21 days from the date of the compliance intervention notification.
A Level 3 Compliance Intervention is the most serious level of intervention and relates to investigations. The taxpayer cannot make a qualifying disclosure in relation to the matters under investigation once notified of a Level 3 compliance intervention.
How do I make a qualifying disclosure?
According to Revenue’s most recent guidance material, “to make a qualifying disclosure, you must:
- give all relevant information about the issues that have resulted in tax being due
- state the amount of tax and interest due, and the periods for which they are due
- send this to Revenue in writing, sign it, or have it signed on your behalf
- include a declaration that as far as you know all information in the disclosure is correct and complete and
- include a payment for any tax or duty, and interest due for late payment.
To be accepted by Revenue, a disclosure must be accompanied by a payment of the tax or duty, and the interest due. It is possible to arrange for payment in instalments.”
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Please be aware that the information contained in this article is of a general nature. It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.
Revenue Investigations for Airbnb Hosts
Revenue Investigations. Rental Income. Airbnb Income. Qualifying Disclosures. Income Tax. Business Tax. Short term Property Rentals. Revenue Notification Letters.
The Irish Revenue is cracking down on anyone who has a listing on the accommodation website Airbnb. It appears that Revenue is focusing on the tax years 2014, 2015 and 2016 but please be aware, Revenue have the legislative powers to extend the scope of their investigation to include previous years. If you have a received a Letter of Notification from Revenue and believe you’re at risk of a Revenue Investigation, please get in contact with us. If you haven’t yet received a Notice of Investigation, there may be still time to prepare a Qualifying Disclosure.
The questions to ask yourself are:
- Are you letting a property through Airbnb?
- Have you recently received a Letter from Revenue advising you that your tax affairs are “under investigation”?
- Do you believe that you may be at risk of a Revenue Investigation?
So, what does that potentially mean for a Tax Payer?
Once the Tax Payer receives a Notice of Investigation the option to make a voluntary disclosure no longer exists.
Previously unreported income from the letting of property via an accommodation website such as Airbnb will be liable to interest and penalties with potential publication of the Tax Payer’s name on the defaulters list.
What should the Tax Payer do?
If you haven’t received a Notice of Investigation, then you should file the relevant Income Tax Returns NOW. If you have already filed tax returns for 2014, 2015 and 2016, you should make the necessary amendments to those forms as soon as possible.
If you file your Tax Returns immediately you are reducing the risk of being selected for a Revenue Investigation.
What should the Tax Payer include in his/her Return?
Your Rental Profit is liable to Income Tax, PRSI and Universal Social Charge.
The profit is arrived at by reducing your “Rents Receivable” figure by expenses which are wholly and exclusively incurred for the purpose of your business which include:
• Repairs and Maintenance including decorating, laundry and cleaning.
• Airbnb fees/commission
• Insurance
• Legal fees
• Accountancy / Taxation Fees
• Advertising Costs
• Utilities
Non-allowable expenses include:
• Food
• Commuting/Travel
Recent Revenue eBrief
Revenue eBrief No. 59/18 was published on 17th April 2018 in relation to the Tax treatment of income arising from the provision of short-term accommodation:
This comprehensive and detailed guidance material differentiated between frequent hosting and occasional hosting:
Frequent Hosting – Schedule D Case I
If the property is expected to be available for rent on a frequent and/or regular basis as opposed to a once-off or occasional basis then any profits arising from the provision of the accommodation will be liable to Income Tax under Case I Schedule D.
Allowable Case I Expenses:
- Capital allowances – The annual wear & tear allowance of 12½% for plant and machinery used for the purposes of a trade e.g. furniture and fixtures.
- Pre-trading expenses – expenses incurred up to three years prior to the date of commencement of a trade are completely tax deductible where the expenditure would be deductible had it been incurred after the trade commenced. Examples include the cost of painting or wall papering a room or purchasing towels and bed linen in advance of the guest accommodation being put into use for the first time.
- Expenses wholly and exclusively expended carrying on a trade
Occasional Hosting – Schedule D Case IV
If the property is let only on an occasional or infrequent basis then the profits generated will be taxed under Schedule D Case IV.
Allowable Case IV Expenses:
- No Capital Allowances
- No Pre-trading expenses
- Annual costs with a property will not be permitted such as the Television licence, Insurance, etc.
Additional Tax Issues to Watch Out for
VAT @ 9% could arise if your turnover figure is greater than €37,500. Please be aware that the VAT registration is based on Turnover (i.e. what you received in rental income) and not Profit (i.e. the difference between your rental income and the allowable expenditure).
In the event of a subsequent sale of this property, since it won’t have qualified as your home for the entire period of ownership, you may not be entitled to the full CGT exemption afforded by Principal Private Residence Relief.
What to do Next
If any of this post has affected you and you’re worried about a potential tax liability or Revenue Investigation, please don’t hesitate to contact us to see what we can do for You.
Please be aware that the information contained in this article is of a general nature. It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.