Revenue Commissioners refines targeting of tax audits
Experts warn that businesses must expect and have procedures todeal with a Revenue tax investigation, writes Áine Flynn
Notification that the Revenue Commissioners has targeted your company for auditing is enough to send shock waves through even the most compliant taxpayer. Yet it is a prospect that most business will have to face over time.
In 2001, 16,356 audits were carried out by Revenue. Of these, 740 cases were selected at random. These figures compare to a significantly higher number of audits in 1996, when 21,357 were completed.
Mr Paul McDonnell, spokesman for the Revenue Commissioners, says this decrease is due to "better targeting of cases". In this five-year period, he confirms that there has been "a deflection from the general audit" but that the process has become more efficient and focused securing an "increased yield from many individual cases".
Mr McDonnell highlights also that staff have been otherwise engaged in more high-profile and high-yield audits, including DIRT enquiries, bogus non-resident accounts enquiry and to a lesser extent, Ansbacher.
Despite the decreased number of audits, Mr David Fennell, a senior tax consultant with Ernst and Young, says every business should know the best procedure and be prepared for an audit. "It is very important that you react to it promptly," he adds.
From the date you receive notification of an audit, you are given 15 days to contact the Revenue in writing to request an extension, which, Mr Fennell says, should be used wisely - whether or not you believe that there are any outstanding tax issues.
"You should contact your accountants immediately and do a review of accounts before the revenue auditors come in," he adds.
Mr Fennell stresses that you can never be "too careful" and advises companies to consider all the implications if something inauspicious is uncovered - the possible tax and interest payments, penalties, publication or prosecution.
Where penalties occur, they can range from 3 per cent to 100 per cent of the tax. If the taxpayer makes an unprompted and voluntary disclosure of a problem that arose through insufficient care on their part and fully co-operates with the investigation, they will be subjected to a penalty at the lower end of the scale. If, however, extreme negligence and understatement of tax has occurred - with little co-operation by the taxpayer - the highest penalty could be imposed.
Revenue can carry out a full or partial enquiry into your tax affairs. A full investigation entails trawling through your entire financial system, while a partial or "aspect" inquiry targets a particular issue in the tax return.
In October the Revenue Commissioners signed a contract with Bull Information Systems for the installation of a computerised risk-analysis system in early 2003 to assist with selecting higher-risk cases for investigation.
According to Mr McDonnell of the Revenue Commissioners, it will eventually be able to identify all tax returns electronically by devising and applying certain criteria. The use of such a screening device suggests that Revenue will be able to use time and resources more efficiently in investigating suspected tax evaders.
Mr Mark Fielding, chief executive of Irish Small and Medium Enterprises Association (ISME), recommends that a professional advisor be in attendance on the day or duration of the audit.
"Before an examiner arrives, they will have built up a picture and expect you to fill in the blanks," he says. "There will be a lot of what seems like innocuous questioning".
Director of the Small Firms Association Mr Pat Delaney says that revenue should be informed as tax payment problems arise.
"Companies look at them [Revenue Commissioners] with great trepidation," he says. "It is not their policy to set out to wind-up a company, but they have an absolute duty to uphold the law. If taxes are due, they have to be paid."
Problems most often occur when an issue is ignored. Therefore it is advised that if there are any outstanding issues it is best to remember that preparation is paramount, co-operation is key and disclosure essential.
After you receive notification from revenue, you should:
Postpone the audit by writing to the Revenue, giving you more preparation time.
Consult accountants and carry out a pre-audit review.
Decide if you are going to make a disclosure, and whether it will be verbal or in writing.
Have all documentation ready.
Request confirmation from Revenue that any evidence given by you won't be held against you in the future.
In some exceptional circumstances, the Revenue will proceed to prosecute the taxpayer for offences. If this occurs, seek legal advice.