Revenue Audits

1. Revenue Audits • Returns processed in a “non-judgemental” manner • Revenue Audit of selected returns. • Objective is to promote voluntary tax compliance. • Audit normally concerned with reviewfor one year only. • Previous years may be opened up if significant issues are raised during the audit. Will not normally be exercised. • Inspector must only use re-opening of old years with the intention of including them in the final settlement and not to force agreement of a settlement figure for the year which is the subject of the review.

2. Types of Revenue Audit • Field Audit • A comprehensive audit involving a review of all tax heads i.e. VAT and PAYE as well as Income Tax, usually over an entire accounting period. • Desk Audit • Also known as a verification audit • Verification audit concerned with verifying particular items e.g. review of capital allowances computation. • It is possible that as a result of a verification audit, the investigation could evolve into a comprehensive audit involving all tax heads.

3. Selection of cases for audit • Random selection (makes up around 6% of all audits) • Mainly based on unusual features in accounts • Adequate explanations of unusual features should be submitted with the return. • Non-compliant taxpayers i.e. persons who file returns and pay liabilities late, are more likely to be selected for audit than complying taxpayers. • Audit can also arise from informant’s letters, information from third party returns. • Revenue will not normally disclose the reasons for selecting a case for audit.

4. Notification of Revenue Audit • 14 days notice given in a majority of cases. • In very exceptional cases, shorter or no notice is given. • The date, time and place of the audit, the Inspectors right to view or remove records, the taxpayer’s right to appeal and right to have his/her agent present is covered in the audit notification letter.

5. Preparing for Revenue Audit • Agent should discuss audit with client and cover the following points:- • Identify main problem areas and arguments supporting figures in tax return. • Deciding whether a qualifying disclosure is appropriate. • Identification of likely questions and preparing answers. • Deciding who will answer questions, who can provide information and documents and ensuring unauthorised personnel do not answer questions. • Provision of suitable accommodation for Inspector, ensuring it causes minimum disruption to the business and ensuring the Inspector is not accommodated in the Accounts Department if possible.

6. Opening meeting with Revenue Auditor • Attended by Inspector, taxpayer and agent (recommended but not obligatory) • Inspector will draw Charter of Rights to taxpayer’s attention and outline his/her authority to inspect records and documents. • Inspector will also address Revenue practice of charging interest and penalties and the effect a disclosure would have on the penalties and publication. • It is imperative that the agent is familiar with legislation on Revenue Audits, Revenue powers, taxpayer’s rights and Revenue practice on mitigation of penalties, otherwise client relationship could be damaged.

7. Opening meeting with Revenue Auditor (cont’d) • Inspector will point out that if irregularities are found in the audit, he/she will seek a final meeting with the taxpayer to outline the issues arising, the possible undercharge of tax and seek to agree a settlement with the taxpayer. • Inspector will seek to get a general idea of how business is run i.e. product range, stock levels, opening hours etc. • Inspector may also seek to get a general idea of the taxpayer’s personal obligations to ascertain whether drawings/salary disclosed in Accounts is sufficient.

8. While the Revenue Audit is in progress • Agent need not remain on premises but should be reasonably available to deal with queries or requests for information from the Inspector. • Inspector will carry out a detailed examination of books and records. • In the case of a desk audit, Inspector will request records and retain them for examination. Period of retention can only begin once the Inspector has received all the books and records requested. • Inspector may adopt a “business economics approach” • Accountant should be familiar with profit ratios for various industries and be fully informed of the reasons why they may/may not apply to the client.

9. Closing meeting with Revenue Auditor • Inspector will request further meeting at which time he/she will:- • Present the findings of the audit. • Inform taxpayer and agent that the audit has been satisfactory and no further action is proposed or that certain aspects of the audit were unsatisfactory and request a response. • If tax is understated, the Inspector will work toward agreeing a settlement. • Taxpayer will be notified in writing whether the offer has been accepted. • If publication arises (due to settlement amount prescribed limits) the taxpayer and agent will be advised in writing. • Publication will not take place where:- • Penalties in the settlement figure is less than 15% of tax underpaid. • A qualifying disclosure was made prior to the investigation or inquiry.

10. Review Procedures • Taxpayer may request a second opinion on the conduct of the audit in relation to various aspects of the audit. • Request should be submitted in writing to the Internal Review Unit in the Office of the Chief Inspector of Taxes. • Request should state the reasons why a review is requested and should state whether they wish for the review to be internal or external. • Right to a review is separate from right to appeal through the courts.