A letter arriving from Revenue notifying you of a Revenue audit will probably make your heart pump a little faster. However, for most businesses there is nothing to worry about. Nonetheless, it’s important to understand the process and how best to manage it.
The below covers what will be involved and what you should do.
What is a Revenue audit?
This is a process where Revenue will check your company’s tax returns and compare them to your tax records.
Therefore, it’s important to keep good business records. For our clients this normally means Xero. If Revenue do send that letter, then you will have all the required details to hand at a click of a button.
What is in the Revenue notification letter?
The notification letter informs you that a Revenue official will visit your office on a certain date to carry out an audit. If you have a tax accountant or agent, they’ll also receive a letter of notification at the same time.
In general, you are given 21 days’ notice. However, if the date doesn’t suit, Revenue is amenable to changing the date, if you get in touch promptly. The letter will also provide details on the years that will be audited, as well as the type of tax that will be focused on (what Revenue calls ‘tax heads’).
Why were you picked?
This could be down to a random audit, an industry specific focus that revenue are reviewing or indeed down to a specific reason. There are three main reasons why you may have been chosen. This may be down to information received or a risk assessment by revenue on their systems.
Often an aspect query may be issued. With an aspect query, Revenue sends out a letter seeking clarification on a tax issue. If you can answer the query satisfactorily, then no further action is taken.
Be honest and responsive
Once you know that the audit is coming up then you need to use the time to prepare. Now is not a good time to put your head in the sand. If you find issues, then it is crucial to make a prompted voluntary disclosure to revenue and pay the tax and interest due in advance of the audit.
So, for example if revenue is focused on VAT, a client may ask us to review a number of periods of VAT returns. If we find a discrepancy in these then it would be advisable to make this disclosure to revenue. The purpose of the preaudit health check is to present information to revenue when the actual audit starts. This will give confidence to revenue that you have taken the matter seriously and done some groundwork.
In addition, if you make a voluntary disclosure then the penalties from revenue will be reduced (could be as low as 3% depending on the circumstances).
What period will the audit cover?
Generally, an audit will focus on one tax year. However legally Revenue can go back four years, and this is a possibility depending on what happens in the year that is initially reviewed.
Revenue can go back more than four years only if they believe that fraud or negligence has occurred on behalf of the taxpayer. Note that companies are legally obliged to keep records for at least 6 years.
Revenue’s code of practice
The main document you can look at when dealing with this is the revenue code of practice. Note that it is almost 118 pages. Most client will leave this document to us to ensure they are covered.
Do not panic. Most businesses will be fine. Do your groundwork and if you pick up some mistakes then disclose these as part of the process. Revenue will expect people to have made some mistakes and if these are disclosed there should not be an issue.
At all times it is important to be responsive and honest with Revenue. If there are issues then it is important to include these in the voluntary disclosure at the start of the audit.
If you have cashflow issues, then you may be able to enter a phased payment arrangement with revenue. You should mention this in the prompted disclosure letter also.