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Taxing matters

By Mindo - 02nd Dec 2015 | 9 views

The ‘Medical Consultants Project’ within the Office of the Revenue Commissioners has continued in earnest in recent months.

As of the end of September, 586 “compliance interventions” had been undertaken. Of these, 244 have been closed, with total settlements of €34.37 million in tax, interest and penalties, figures released to the <strong><em>Medical Independent</em></strong> (<strong><em>MI</em></strong>) show.

Some 342 interventions were open as of 11 November. A further 30 audits were due to commence, with another 25 cases under appeal. Seventeen doctors have been published in the list of defaulters and more will likely grace the pages of <em>Iris Oifigiúil</em>.

<h3><strong>Systemic approach </strong></h3>

Having noted issues of concern, Revenue’s systemic approach began in 2013. In May of that year, it wrote to the IMO and IHCA, advising that a review was being undertaken of medical consultants’ tax affairs. A particular focus would be on instances where the medical consultant transferred his or her business (or part thereof) to a company owned and controlled by him or her.

A spokesperson for Revenue told <strong><em>MI</em></strong>: “The main focus of this programme, which originally was largely Dublin-centred and has now been extended nationally, has been to address the tax issues arising from the incorporation of medical consultants’ businesses.”

Revenue’s campaign is a hot topic within the medical profession. Earlier this year, a hospital consultant initiated High Court proceedings arising from a dispute over financial advice. The referenced cause of action is “negligence” and court records indicate that the case will be defended.

A Dublin-based hospital consultant told <strong><em>MI</em></strong> he knows a number of people “badly hurt” financially following Revenue scrutiny. “Some settled voluntarily; some took on the Revenue for a while and suddenly found that they are not someone you take on…” Doctors with whom Revenue has engaged are increasingly eschewing appeals, it is understood.  

<blockquote> <div> <p class=”QUOTEtextalignedrightMIstyles”>Doctors with whom Revenue has engaged are increasingly eschewing appeals, it is understood

</div> </blockquote>

In its broadest sense, the trend towards medical incorporation was set against a backdrop of over-borrowing in the Celtic Tiger era, declining incomes, pension levies and the introduction of the controversial Universal Social Charge. As a hospital consultant outside Dublin remarked, many colleagues were seeking “more efficient ways” of managing their financial affairs.

There are legitimate potential benefits associated with incorporating, and as more doctors began to do so, the apparatus around medicine responded in kind.

This was evidenced in June 2011, when the State Claims Agency (SCA) issued a statement on incorporation as an unlimited liability company and the application of the Clinical Indemnity Scheme. The Agency said that, provided the doctor rendered his or her professional medical services in a “natural person capacity”, it had “no interest” as to whether that doctor had incorporated him or herself, or entered into a formal/informal partnership or similar arrangement, for tax or other administrative purposes.

Regardless of whether a clinical claim arose against a doctor or their incorporated entity, for example, the SCA advised that it would treat the claim as against the doctor in their “natural person”.

The formulation of the above position (which remains current) clearly reflected the growth of incorporation among doctors.


A number of respected taxation consultants outlined to <strong><em>MI</em></strong> why incorporation of medical practices became more popular, and how the manner of some accounting practices prompted Revenue’s concern.

Mr Brendan Twohig, Tax Consultant at MK Brazil, Waterford, said the practice of medical professionals incorporating as private unlimited companies became more common from the late 2000s. This followed a clarification from Revenue that the cap on relevant earnings for pension contributions was per person and not per income stream.

Prior to this stated position, it was understood that the relevant earnings cap for pension contributions applied separately to different sources of income — income from the HSE and private practice, in the case of many doctors. Revenue’s clarification repainted the landscape.

“Traditionally, doctors would have utilised pension planning to mitigate the tax applying to their private practice income,” explained Mr Twohig. “But effectively, the individual’s relevant earnings cap is first allocated to non-private practice income, such as HSE salary or GMS income, so doctors can lose over 50 per cent of their private practice income in taxes. This motivated the medical profession into looking at alternative structures.” 

Operating via a company can bring cash-flow benefits and open up other pension planning options. “The potential pension planning alone ensures that incorporation merits consideration,” said Mr Twohig.

Nevertheless, Mr Twohig was one of the first to publicly raise concerns about the incorporation trend among medical practitioners. “Incorporation doesn’t automatically reduce tax,” he said, “it is more complicated than that.” He emphasised that the merits or otherwise of incorporating a medical practice need to be fully explored.

<h3><strong>Dublin region</strong></h3>

Revenue has said its focus on incorporation of medical practices should not be considered as an opinion on same. Rather, its interest is in the manner in which some standard accounting practices associated with incorporation were applied.

In May 2013, correspondence issued by Revenue’s Dublin Regional Office provided a panorama of concerns. It outlined that it was reviewing the tax affairs of “medical consultants” in the region, with a special focus on those who had incorporated their business or part thereof. In Dublin, this had been an area of attention “for some time” and was being expanded in the region and nationally.

Revenue said it had identified areas where considerable tax loss was at risk and stated its intention to write to taxpayers not already under enquiry, and their agents. In cases of failure to respond, or where matters were not addressed, Revenue said it would escalate to full audit.

This correspondence gave examples of some issues giving rise to “serious concerns”. One related to goodwill, which is the difference between the value of a business and the sum of all of its constituent parts.

Revenue said the value attributed to goodwill — sold by the medical consultant to their controlled company in connection with the transfer of the business — was “at a highly inflated and unrealistic price” in some cases.

<blockquote> <div> <p class=”QUOTEtextalignedrightMIstyles”>Traditionally, doctors would have utilised pension planning to mitigate the tax applying to their private practice income  

</div> </blockquote>

“In many cases it is arguable whether any value at all could reasonably be attributable to goodwill, having regard to the particular circumstances of the case and, indeed, the nature and validity of supporting documentation. Revenue will not accept excessive goodwill values in relation to such business transfers and will challenge all cases where it is considered that there is negligible or no goodwill.”

Another concern centred on capital gains tax (CGT) following disposal of the business to the company. “In a number of cases, the amount of tax has been mitigated (in some instances to zero) by the use of capital losses or retirement relief, etc. Where reliefs against CGT liabilities are claimed, the <em>bona fides</em> of these claims will be challenged, as appropriate.”

Revenue also warned that it was not sufficient for a medical consultant or their accountant to treat certain income as being that of a controlled company where there were “no salient facts or contracts to support those contentions”.

The letter added that “in a number of cases, a very aggressive policy has been adopted in relation to the deferral of income”. It said deferred income should be an exact calculation.

A final key concern was instances where no supporting documentation was available to “substantiate particular business expense deduction claims or the documentation provided is incomplete or inaccurate”. Of even greater concern was that “claims for large expenses that are not relevant to the operation of the medical consultant’s business have been claimed in a number of cases, thereby giving rise to significant underpayments of tax”.


Some observers have suggested that Revenue’s position on goodwill and medical practices lacks clarity.

A Revenue spokesperson told <strong><em>MI</em></strong> that each case is considered “on the facts”. He said that, in the settlements under the project to date, where goodwill was an issue, it was effectively reversed as part of the settlement.

The IHCA has previously called on Revenue to publish guidance for consultants on incorporation. Addressing the aspect of goodwill, Revenue’s spokesperson told <strong><em>MI</em></strong> that it is fundamentally a question of fact. It is assessed on its merits, regardless of the trade or profession involved. “If it does exist, then you are into valuation issues. But as I said, in the medical consultants project, in any case which we’ve settled that involved a goodwill issue, the consultant and the tax advisor concerned have effectively reversed the goodwill… ”

There are different schools of thought on whether goodwill applies to a hospital consultant role, with less disagreement pertaining to GP practices. Some argue that even if a patient is going to see Dr X because of their reputation, that reputation cannot be passed on to someone (or something) as goodwill.

For example, Dr X is a surgeon and has a skillset: their brains and hands. Is this transferable beyond the person? Revenue’s interrogation of the issue suggests it considers this as extremely unlikely. On the other hand, a GP may have a fixed client base at their practice that can endure beyond their own personal capacity. This raises the spectre of goodwill.

The goodwill in respect of GPs would be linked to their private patients. The public patients (GMS lists) are subject to open competition and cannot, as such, be ‘sold on’. “The only exceptions to this would be where a formal partnership exists and even then, it is subject to certain conditions and to HSE approval,” said a HSE spokesperson.

“While a GP may sell on the goodwill and practice premises, etc, of their practice, a GMS panel is not a tradeable commodity. In no circumstances can a GMS panel be sold by an existing panel-holder to another. The assignment of GMS panels is always a matter for the HSE to determine.”


Revenue has advised that responsibility to complete and file correct returns rests with the taxpayer and cannot be devolved to his or her agent. However, it says any agent or promoter who encourages, promotes or facilitates such arrangements “will also be challenged”.

Under the Taxes Consolidation Act, 1997, taxpayer information held by Revenue is confidential. However, this legislation allows a Revenue officer to disclose taxpayer information to a professional body where he or she is satisfied that the work of an agent does not meet the professional standards of a professional body. This facility is something that Revenue is “continuing to look at as the project develops”, its spokesperson told <strong><em>MI</em></strong>.

Many financial professionals have advised doctors on incorporation issues in connection with legitimate tax planning. <strong><em>MI </em></strong>understands that the specific practices that have attracted Revenue attention have involved a smaller number of advisors.

In tandem with its programme, Revenue has been corresponding with doctor representative organisations, starting with dispatches to the IMO and IHCA in May 2013.

A further letter was issued in July 2014. This provided an update on the “project” and again pointed out the options open to taxpayers who were not the subject of a Revenue audit to engage in a self-review of their tax returns submitted. “The benefits of this self-review were highlighted. This letter also advised that second phase of the project would be starting in the coming months,” Revenue informed <strong><em>MI</em></strong>.

An IMO spokesperson said that, following contact from Revenue in 2013 and 2014, it recommended to members that they consult their own tax advisor and/or accountant, “as each consultant has individual taxation arrangements”.

The IHCA provided no comment for this article, despite requests.


In general terms, Mr Twohig maintained some doctors tend not to consider tax issues seriously enough. He believes this attitude is somewhat related to the nature of their work.

“It is not that they consciously do this,” he told <strong><em>MI</em></strong>. “But if you spend all day treating sick people… me picking up the phone and saying ‘you’ve a deadline coming up’ doesn’t scare you as much. What you find with the medical profession is that they are always ‘reacting’.

“I’d wager that there are as many doctors paying too much tax as there are paying too little. There is no doubt about it.”

Meanwhile, while there is acknowledgement that some colleagues were naïve, there is sympathy in the profession for those who acted on the financial advice allegedly received.

One hospital consultant pointed out to <strong><em>MI</em></strong> that goodwill valuation and deferral of income, for example, have a foundation in standard accounting practice. “But the way in which they have been used has caused problems for individual consultants,” he said.

He questioned the approach of Revenue on goodwill and medical practices, which seemed to vary by tax district. 

“Revenue has taken a very hard line on both of these practices, neither of which is illegal in their own right,” he added.

The big question, according to this doctor, is how this happened to people considered as smart and well-educated, “most of whom are honest and very conservative in financial matters”.

He posited that, having not fully understood incorporation, some doctors sought financial advice from people they viewed as experts.

He said incorporation was very complicated and most doctors realised this only in retrospect.

In some districts, he felt Revenue was “making an example” of doctors and penalising them very heavily.

Meanwhile, another problem he referred to was that doctors have no training in finance.

Orientation on financial issues has not been a particular priority within postgraduate colleges.

The RCPI, for example, indicated to <strong><em>MI</em></strong> that it was not its remit to facilitate courses or seminars for doctors on tax planning and the importance of seeking adequate financial advice on earnings arising from professional duties.

There was a similar position at the RCSI. Mr Eunan Friel, Managing Director, Department of Surgical Affairs, RCSI, commented: “RCSI’s focus is to train and support the highest professional standards of surgical practice. As a body, we do not directly engage in matters relating to professional compensation and leave those discussions to other competent bodies.”

<strong> </strong>

<div style=”background: #e8edf0; padding: 10px 15px; margin-bottom: 15px;”><strong>


</strong> <h3>Regulation safeguards</h3>

When considering obtaining financial advice, what safeguards help ensure the right advice from the right people?

Accountancy’s regulatory terrain differs from that of medicine, in that it operates in an environment of ‘supervised self-regulation’.

The Irish Auditing and Accounting Supervisory Authority (IAASA) is the statutory body charged with independently supervising the regulatory processes of prescribed accountancy bodies (PABs).

Each of the nine PABs has its own formal system for dealing with complaints relating to its members/member firms including, where necessary, an investigation and disciplinary process.

IAASA is therefore a step removed. If a member of the public is not satisfied with how a PAB investigated a complaint, IAASA can examine the investigative process and may direct the body to annul its decision, to re-do the investigation and accord it with a fine, as appropriate.

“The actual substance of the complaint or substance of the issue between the member of the public and the accountancy body is not our concern,” said an IAASA spokesperson. “We are not an appeals mechanism; we are not an ombudsman.”

Another body of relevance, in respect of financial advice, is the Irish Tax Institute. It is the leading representative and educational body for Ireland’s AITI Chartered Tax Advisers (CTA) and “the only professional body exclusively dedicated to tax”. The Institute receives and investigates complaints about the professional conduct of members and students.

<strong> </strong></div> <div style=”background: #e8edf0; padding: 10px 15px; margin-bottom: 15px;”> <h3>Doctors face fall-out over tax irregularities</h3>

A quarterly list of defaulters is published under Section 1,086 of the Taxes Consolidation Act, 1997.

The most recently-published list of settlements, from 1 April to 30 June 2015, included 110 entries. Five cases pertained to companies/individuals listed as ‘medical consultant’, ‘general medical practitioner’ and ‘medical doctor’.

There is limited detail on what gave rise to the settlements, with only broad descriptions provided.

In the most recently-published list, medical doctor/company director Dr Humphrey Onome Ugbawa, of Strandhill, Co Sligo, settled for some €1,544,644 in tax, interest and penalties. The case involved “under-declaration of income tax” and was the highest settlement of any person or entity in respect of this listing period.

The other published settlements involving doctors in this period ranged from approximately €109,000 to €411,000.

Significant financial repercussions are at play, but there are also potential employment considerations. The HSE advised that, while being named on the list of defaulters is not a breach of contract, a consultant “must act rapidly to resolve the position and ensure they remain compliant with the requirements of the Standards in Public Office Commission”.

According to the HSE, all new public health contracts insist upon submission of a tax clearance certificate.  By way of a recent example, the under-sixes GP visit card contract specifically requires a participating GP to hold and maintain an up-to-date tax clearance certificate and to confirm same to the HSE.

“Existing standard contracts with third party service providers (particularly those introduced in the 1980s and prior) do not stipulate submission of a tax clearance certificate as a prerequisite to being granted a contract. 

“However, it is the HSE’s intention that all contracts introduced under its stewardship will make the holding and maintaining of an up-to-date tax clearance certificate mandatory. That can be seen from the example of the under-six contract referred to above,” a spokesperson for the Executive said.

In April this year, Ms Hilary Prentice, Chairman of the Board of the Rotunda Hospital, Dublin, noted at a general board meeting the recent listing of Prof Fergal Malone, Consultant Obstetrician/Gynaecologist at the hospital, in <em>Iris Oifigiúil</em>’s list of defaulters. This was just prior to placing his nomination as incoming Master of the Rotunda to the Board for approval.

The entries concerning Prof Malone were in the defaulters list of settlements reached between 1 October and 31 December 2014.

One entry listed medical consultant Fergal Malone with an address in Rathmines, Dublin 6, as having settled with Revenue for the amount of €182,109 in tax, interest and penalties. This case related to under-declaration of income tax.

Additionally, the company Prof F Malone, 1-4 Adelaide Road, Glasthule, Co Dublin, with an occupation of medical consultancy service providers, settled for €438,018.70 in tax, interest and penalties. Prof Malone is a director of the company. The case related to under-declaration of PAYE/PRSI.

The partially-redacted section of the Rotunda’s Board minutes noted that “one of the legal requisites of the Consultants Contract is the requirement to have a tax compliance certification”.

It continued: “Prof Malone has forwarded the Chairman two letters in a personal capacity, which she has shared with Mr [Paul] Ashe”, the Honorary Treasurer. “A Tax Compliance Certificate valid to March 2016 has been submitted to the hospital. This matter was opened to the floor for discussion.

“Mr Ashe concurred with the inquiries made by the Chairman and said he was satisfied with the <em>bona fides</em> of this case.”

A Rotunda spokesperson told <strong><em>MI</em></strong> that candidates for the position of Master were interviewed by a panel of board members and external professionals. “There was no suggestion that any of these candidates were ineligible for interview,” he said.

He said that, as part of the board approval processes and required due diligence, the recommended candidate Prof Malone provided to members of the board all the necessary paperwork, State and professional, verifying that his tax affairs were in order and were compliant with the Consultants Contract.

“All of the board governors were made aware by Prof Malone of the circumstances in which a tax liability arose.  They were confident that Prof Malone was acting on financial advisors’ recommendations and there was no attempt at avoiding that tax liability.

“The board was also satisfied that Prof Malone had settled in full and he was in good standing with the Revenue Commissioners. That concluded the matter to the satisfaction of the board. They formally approved the appointment of Prof Fergal Malone as Master of the Rotunda Hospital, effective from 1 January 2016.”


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