What should you do if you receive notification of a Revenue audit?

Dealing with a Revenue audit is stressful and can be costly for many businesses. If Revenue has selected your business for an audit, don't panic!

The first thing to decide is whether you have enough time to review your tax affairs before the audit is due to commence and if the date and time selected for the audit is suitable. There is generally no difficulty with changing the date of the audit by a week or two by simply phoning the person in Revenue who is dealing with the case as early as possible.

Most audits and investigations are targeted at cases where Revenue believes there is a risk of underpayment of tax.  Audits are rarely random and are generally based on informed selection from knowledge banks or computer based profiling on Revenue’s REAP (Risk Evaluation, Analysis and Profiling) software. Revenue have also increased their focus on targeting particular business sectors.

Kinds Of Audits

Revenue carries out comprehensive audits (i.e. all tax heads), multi-tax head audits (i.e. PAYE and VAT) and single tax head audits.

Stages in the Audit Process

In most cases a taxpayer will first become aware of an audit on receipt of an audit notification letter from Revenue.  It is important that this correspondence is dealt with promptly as it may be possible to scale back the period under review and/or to change the date selected by Revenue.

Often Revenue will agree to conduct the audit at your advisor’s office rather than at your business.  However, the inspector will wish to examine the business facilities first hand and will often take this opportunity to ask questions.  It is important that your advisor is present at this and all face-to-face meetings with Revenue.  Having an a qualified advisor present at the site visit will assist you with questioning from the inspector.

The critical moment of the audit occurs at the opening meeting with Revenue.  At this meeting Revenue will outline the scope of the audit, carry out an interview by questionnaire with the business owner and invite a voluntary disclosure.  A voluntary disclosure might be made to minimise any settlement arising and to avoid publication of the disclosure in Revenue’s quarterly defaulters list.  Failure to make a proper voluntary disclosure will result in higher penalties and possibly publication, if any underpayment of tax is discovered.  A voluntary disclosure cannot be amended or added to once the initial meeting is concluded.

Following the opening meeting Revenue will identify what records they wish to review.  It is good practice to present the books and records in a tidy and orderly fashion.  Records that are complete, organised and cross-referenced will give Revenue reason to be confident that the business affairs are in order.  Generally, Revenue will review the books and records in isolation.  Following this review they will reconcile their findings with any voluntary disclosure made.  If the findings are broadly in line with the voluntary disclosure, it should be possible to conclude the audit subject to agreement of the total settlement which will include the tax underpaid, interest on late payment of that tax and a penalty.  Having an advisor at this stage will ensure that the penalty is not excessive having regard to the nature of the issues identified.

If Revenue identify underpayments of tax that are not included in the voluntary disclosure this may lead to higher penalties, publication and, in serious cases, even prosecution.

Is The Decision Of The Revenue Inspector Final?

If you do not agree with the Inspector’s findings the differences should be carefully documented in writing and discussed with Revenue as soon as possible.  Otherwise the audit may become protracted and Revenue may seek to impose higher settlement terms.

The options available to taxpayers in dispute with Revenue include an internal review and an appeal of assessments issued on foot of the audit.  However, unless there is a fundamental difference in the interpretation of tax law, the best outcome is usually secured by early negotiation with Revenue.

For more information on dealing with a revenue audit, contact George Skelton, CTA, ACA, MBA Senior Tax Manager on 053 9170507 or email gskelton@rda.ie