Revenue Audits – Focus and Trends
In these Covid times formal Revenue audits have greatly reduced in number. However, aspect enquiries (where Revenue raise a specific enquiry) usually through the ROS (Revenue on line) system have increased in number.
Revenue Audits during Covid
The Revenue have indicated that generally Revenue audits will be conducted remotely while the Covid threat is with us and that the following approach will generally be taken:
- A letter of audit will issue to the taxpayer and his agent
- Any qualifying disclosure by the taxpayer needs to be made in writing before the audit commences and any tax and interest should also be paid over, at that time
- The initial interview will be conducted through Zoom
- The books and records required by Revenue should be forwarded to the local tax office. Notwithstanding that most Revenue Officials are working remotely, the records will not be removed from the tax office. If the records are held on computer arrangements can be made to transfer same digitally
- The Revenue will then examine the records and raise any queries or seek clarifications, as required, generally directly with the agent, unless the taxpayer prefers otherwise
- When the Revenue have concluded their examination of the records, they will return same and will discuss their findings with the tax agent
- That is when the real negotiations begin. If there is no agreement, the Revenue may go ahead and raise assessments and the matter may end up before the Appeal Commissioners with a view to resolving disputed issues
Revenue Audit – Focus Areas
Income Tax / Corporation Tax
- Unusually large expenses claims
- Low margins compared with industry average
- Late and incorrect filings
- Entertainment expenses
- Exceptional items of expenditure
- BIK – particularly cars
- Expenses Claims – proper records to back up claim
- Company Credit Cards – private expenses
- Directors Loans – loans from corporates
- Casual Labour/Part-Timers/Contractors – not subjected to PAYE where they are employees
- Staff overtime/Bonus/Expenses – not treated correctly under PAYE rules
- Redundancy Payments not managed correctly
- Applying S1 rate rather than higher A1 rate
Revenue Audit – Focus Areas (continued)
- Application of correct VAT rates to transactions
- VAT on property/leases can be very complex
- Intra-Group transactions and charges
- Imports and Exports
- Group VAT registrations
- Annual Return of Trading (RTD) not filed or incorrectly filed
- VIES/ Interstat Returns not filed
RCT applies far wider than to sub-contractors in the building industry. Construction activities are very widely defined and includes installing, altering or repairing security systems, lighting systems, heating systems, air conditioning systems and soundproofing systems.
RCT also extends to Forestry, Meat Processing and certain Haulage activities.
Revenue sometimes ask to review personal bank statements and credit cards. Here they seek to identify large and unusual movements with a view to seeing how same ties in with the directors income as declared on tax returns.
There is a strong argument that personal bank accounts (which do not contain any trading, investment or rental transactions) are clearly not business records and that in the absence of a Court Order, the Revenue have no right to inspect same.
The Revenue will also seek to compare directors declared income with their outgoings and lifestyle to see if declared income is adequate.
Movements in corporate directors loan accounts are also carefully monitored to see if overdrawn amounts are correctly accounted for under BIK and Income Tax rules.
Revenue Audits are a time consuming and stressful experience for any taxpayer regardless of the size of their business. Revenue have invested heavily in training staff, updating their IT systems and using advanced predictive analytics to focus in on tax risk areas both to help carry out audits and also to predict who should be picked for audit. As a result of this investment, Revenue Audits have become far more onerous.
How can we help?
We can carry out tax health checks prior to any audit, which can give peace of mind.
When the dreaded letter of audit arrives from the Revenue, we can review areas under audit in advance of the audit commencing, we can liaise with Revenue on your behalf and negotiate to get the best settlement possible