Carthy raises ‘Bogus Self-employment’ with Revenue at Public Accounts Committee
Cavan Monaghan Sinn Féin TD, Matt Carthy, has said that the use of bogus self-employment is the most longstanding method deployed by some corporates to avoid paying taxes and to deny entitlements to their workers. He said that the practice breeched the social contract that was the bedrock of the social welfare system and also created huge difficulties for those workers who find themselves out of employment with no financial supports.
Deputy Carthy engaged with the chair of the Revenue Commissioners, Mr. Niall Cody, at the Public Accounts Committee in the Dáil last week. He said that if the issue of Bogus Self-Employment was not addressed then some large companies would expand their use of other, more elaborate, methods of tax avoidance and worker exploitation. He particularly raised the conditions within meat factories.
Exchange at Public Accounts Committee
Deputy Matt Carthy: I would like to discuss the issue of bogus self-employment and the impact it has on Exchequer funding. I wonder, first of all, if Revenue has an estimate as to the rate of bogus self-employment, or an estimate of what it costs the Exchequer?
Mr. Niall Cody (Revenue): We do not have an estimate of what it costs because, like any non-compliant activity and all of the tax gap, it is difficult to put an estimate on any of those figures.
Matt Carthy: I am sure that Mr. Cody has seen various estimates that have been put forward by other organisations and presented to other committees in these Houses. One suggested a figure as high as €1 billion. I have seen everything from €80 million to €1 billion. Is it something that Revenue prioritises?
I noted in one of Revenue’s briefing documents a reference to different types of intermediary-type practices that are now being used to absolve companies from paying adequate contributions to their staff. Bogus self-employment is probably the most long-standing of those practices. Will Mr. Cody categorise where the issue falls on Revenue’s list of priorities?
Niall Cody: It is important to put it all in context. There is bogus self-employment and then there is actual self-employment.
Matt Carthy: Absolutely.
Niall Cody: It is also part of an actual—–
Matt Carthy: To clarify, what we are talking about is people who work primarily or exclusively for one company but that company, through its arrangements, has standardised its employees as self-employed. We have seen instances of that in the construction and other sectors. That is what I am referencing.
Niall Cody: We have put a lot of work into addressing bogus self-employment. Our joint inspection units do regular site visits to the construction sector. As the Deputy mentioned, and as our briefing document stated, the system has evolved a lot. I have spoken to a previous configuration of this committee and to the joint committee on finance about bogus self-employment. The trend is very much towards company structures – personal services companies and managed services companies that are set up to provide the employment to the principal contractor through a company.
We have no legal entitlement to look through that corporate veil. We have carried out extensive projects in respect of those companies and their tax compliance. The matter was the subject of an examination by the Comptroller and Auditor General a few years ago. We have done our exercises on medical services provided through companies and across the board. Part of the challenge is that there is no legal basis to look through the corporate structure—–
Matt Carthy: A test case was presented to the Oireachtas that had been made by the Department of Social Protection with the agreement of the Revenue Commissioners. It was done primarily in respect of the courier sector. I understand that practice has ceased. Will Mr. Cody confirm that and whether a cost associated with the test has been extrapolated? How much did it cost the State? Was there any legal basis for its implementation? I have found it difficult to find a legal basis for that test case having been sanctioned.
Niall Cody: I will have to get back to the Deputy about that. When he talks about a test case, I am not 100% certain. If he has a reference, it would help.
Matt Carthy: We will get that. It was publicised in the House.
Mr. Cody mentioned inspections or investigations within the construction sector. Will he confirm whether Revenue has carried out any similar investigations in respect of this issue within the meat-processing sector?
Niall Cody: What we do in the meat processing sector is keep an eye on the employment status. Most of the meat companies have employees or recruit through agencies. If they recruit through agencies, the agency has a role as the employer in that context. We are keeping a very close eye on it and pay close attention to what is said in this House about various practices. We are also very open to any information from trade unions and we are in regular engagement with various agencies around practices. The challenge is that it is a matter of contract law and sometimes the relationship is unequal. Unless we can get information that allows us to look beyond something, we are sometimes constrained.
The biggest driver, from a fiscal point of view, is the employer’s PRSI. That is the big saving, but other workers’ rights arrangements are not the subject of our control. Two years ago, I think, there was a consultation by the then Department of Employment Affairs and Social Protection and the Department of Finance, which we supported, and I think we gave the committee a link to the report and the documentation we provided. That highlighted the challenge, as has been experienced in other jurisdictions, where the legislation has looked at, effectively, a different type of worker and having a different set of rules—–
Matt Carthy: A particular type of company engages in this. Can I extrapolate from what Mr. Cody stated that he accepts there remains an issue with bogus self-employment?
Niall Cody: The relevant contracts tax was introduced in the construction sector in 1971 as a requirement in respect of subcontracting and its variants. This is a factor in all jurisdictions and will always be one we have to take care of. A commission on tax and social welfare is being set up and the area needs a lot of consideration.
Concluding, Deputy Carthy said:
Mr. Cody said that he would come back to us about bogus self-employment in writing. Could I prompt him to examine correspondence that was sent to this committee by Revenue on 9 August 2000? The reference I am told is PS 3422M/00. That correspondence enclosed letters dated 7 March 1997 and 3 April 1997 to K. Ryan & Co, which represented courier firms, an issue we discussed earlier. The Revenue letter to the Committee of Public Accounts stated that the letters outline the agreement reached for tax purposes. It might give Mr. Cody an indication of the issue raised by the Chairman and myself.
I reiterate that bogus self-employment is a crucially important issue because of the income that is lost but also because it breaches the social contract in which we are all engaged with significant repercussions. There has been significant political debate regarding pension age. If we do not take in enough PRSI receipts, it gives succour to those who want to force people to work longer.
I ask for a tough approach on the part of Revenue. If ten people working in the same place all have their accounts to Revenue presented by the same company and all have similar working hours and arrangements, Revenue can be fairly sure there is bogus self-employment. Likewise if somebody is working in a meat factory and earning the minimum wage, Revenue can be fairly sure he or she is not genuinely self-employed. If somebody coming from eastern Europe finds himself or herself working in a meat factory under a new company and he or she decides out of the goodness of his or her heart to give that company half of his or her wages, there is a problem.