Here are four common ways people find themselves on the wrong side of the law.
Gabrielle Monaghan
The Irish Independent
22nd Sept 2024
Before the Celtic Tiger roared, tax-dodging was rife among the self-employed, the wealthy, and some politicians. Throughout the 1990s and early Noughties, tax evasion scandals frequently dominated the headlines.
These included the Dirt inquiry into the use of thousands of bogus non-resident accounts at local branches of banks such as AIB and BoI. The idea was to hide money and avoid paying deposit interest retention tax (Dirt).
For the great and the good of Irish society, there were so-called Ansbacher accounts in the Cayman Islands, organised by accountant Des Traynor – financial adviser to former taoiseach Charles Haughey.
“More and more people are taking up a ‘side hustle’, as the traditional ‘nixer’ is now known”.
They let rich people keep money offshore, have no record of their deposits in Ireland, and yet have access to their funds within the State.
“A lot of people grew up in a culture, prior to Ireland joining the EU in 1973, of avoiding tax wherever they could,” says Kieran McAuliffe, a certified financial planner and director at Provest Private Clients, a financial services firm in Cork.
“But over the last 20 or 30 years, there has been a lot more tax compliance in this country. The black economy is still there, and is part of any economy, but there’s a lot more compliance.
"The nature of the banking system means everything is electronic or online now, and cash use is less prevalent than it was 20 years ago.”
Ireland has long facilitated tax avoidance for multinationals and wealthy individuals, earning it a reputation as a global hub for aggressive tax planning.
Indeed, the EU’s highest court earlier this month found that the European Commission had been correct in 2016 in deciding that Ireland had given Apple illegal state aid and that the tech behemoth must pay Ireland €13bn in back taxes – plus interest.
Tax avoidance can be an ethical grey area of tax law; it typically involves exploiting legal loopholes to gain a tax advantage. But tax evasion is downright illegal.
While tax evasion is often deliberate, ordinary taxpayers with poor tax literacy and no access to affordable and reliable tax advice can unwittingly veer onto the wrong side of the law.
Indeed, more than half of Irish workers are confused about their legal tax obligations, a survey by Taxback.com found in 2021.
“It’s easy for people to be intimidated by tax," says Sophie Sweeney, a lecturer in accountancy, finance and taxation at the University of Galway. Sweeney is an adviser at the university’s free tax clinic, which was set up to provide tax information to working students and members of marginalised communities.
“The people at Revenue are very helpful and the Revenue website is a brilliant source of information. But unfortunately tax information isn’t clear enough and it’s complex.
"There can be people who aren’t tech savvy enough to use it or language barriers for international students working part-time.”
Here are some of the ways you can unintentionally land yourself in hot water and how to avoid the financial and reputational consequences of tax evasion.
Not filing a tax return when selling your home
Typically, when selling your home, you are exempt from capital gains tax (CGT) on any profit under Principal Private Residence Relief. But you can only claim the relief for the time you lived in the property.
If you rented out your home for a period because, for example, you spent a year travelling or you became an accidental landlord during the recession, it’s likely you cannot claim full relief from CGT, unless you were compelled by your employer to live elsewhere for work.
Even if you don’t have to pay CGT, you still need to file a tax return when you sell your home.
Failing to declare extra income
The cost-of-living crisis has prompted more people to take up a “side hustle”, as the traditional “nixer” is now known.
But not reporting or under-reporting this income can be considered tax evasion – and you could be liable to pay the outstanding tax liability and interest on that liability.
In some cases, you could also liable to sanctions such as penalties or even criminal prosecution.
For instance, if you share content on social media and are either making an income from it or else receiving free goods or services as a result, you need to file a return and pay tax.
Indeed, at the start of this year Revenue said that – prompted by some companies who pay content creators – it has been sending out letters to influencers to warn them about their tax obligations, citing how some content creators were “very young” and unfamiliar with the tax system.
The tax authority issued 142 letters to influencers last year under a Level 1 Compliance Intervention, or an early warning that income, gifts, free goods and services needed to be properly accounted for.
Even if you mow lawns for cash during the summer or rent out your home on Airbnb while you’re on holidays, you need to declare this to Revenue – even if there’s no record of the transaction.
“People might say: ‘Sure, it’s only €200 or €500.’ But the value doesn’t matter, if you are in receipt of income that hasn’t been taxed at source by your employer,” Sweeney says. “It’s up to you to report to Revenue and to pay taxes on that.”
If you make a genuine mistake when filing and paying tax and didn’t intentionally set out to avoid your tax obligations, Revenue could give you the opportunity to correct any errors and pay in full.
If you fail to do this, you could face a Level 2 Compliance Notification, such as an audit or a risk-based review that checks the data you provided in your tax returns.
If you receive a notification of a risk review or audit, you may be given the opportunity to make a qualifying disclosure.
If you don’t do this, you could face a Level 3 Compliance Intervention in the form of a Revenue investigation, which typically focuses on tackling high-risk practices and cases displaying risks of suspected fraud and tax evasion.
“If it’s a smaller issue, such as accidentally claiming a tax credit online that you weren’t entitled to, and you later realise you’ve done something wrong, you can correct your return within four years and pay the money to Revenue,” Sweeney says.
“It’s up to them whether they charge interest and penalties.
“If Revenue finds out before you figure it out, it’s at their discretion as to what to do. But deliberate non-compliance and any fraudulent activity, like falsifying medical expenses, is taken very seriously.”
Not declaring a gift
The surge in property prices – which were up 9.6pc in the 12 months to July alone – has seen parents step in to help their children get a foot on the property ladder, a phenomenon known as the “Bank of Mum and Dad”.
But if you receive a large gift or inheritance to fund a deposit for a house, and you use up at least 80pc of your tax-free group threshold for capital acquisitions tax (CAT), you must file a CAT return, even if there’s no tax due yet.
“Over the years, people have been receiving inheritances – gifts, in particular – and not declaring them,” McAuliffe says.
Many years ago people would receive a deposit for a house and it went under the radar – but we’re seeing that being clamped down on now.
“Let’s say you receive a gift of €32,500 from a grandparent. You’ve exceeded 80pc of the Group B threshold, which is €32,500, and you need to file a return with Revenue. But I’d be suspicious of how many people are actually making a return.”
Exceeding the rent-a-room relief limit
Rent-a-room relief – which enables you to earn up to €14,000 per year tax-free by renting out a room or rooms in your home – has been a blessing in helping tide over many homeowners during the cost-of-living crisis.
But few taxpayers realise that if their gross income from renting out a room exceeds the €14,000 exemption limit, they are liable for income tax, PRSI and USC on the entire amount, Sweeney says.
“If you exceed €14,000 per year, Revenue will treat the full rental income – minus allowable expenses – as part of your total income for tax purposes,” McAuliffe says.