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:
Revenue Audit – Focus Areas
Income Tax / Corporation Tax
Revenue Audit – Focus Areas (continued)
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
From the 1st January 2019 the Revenue Commissioners introduced PAYE Modernisation, the objective of which was to improve the accuracy of the payroll information available to the Revenue, Employers and Employees, so that the right amounts of Income Tax, Pay-Related Social Insurance (PRSI), Universal Social Charge (USC) and Local Property Tax (LPT) were deducted at the right time for the right employees.
Under the new system a Revenue Payroll Notification (RPN) is issued to the employer for each employee (previously known as a P2C) which states the Income tax Cut off and Tax Credits, the USC rates and any LPT that is to be deducted. This web service now permits employers to obtain the RPN for employees who were not yet registered as employees and will set up a new employment for the employee.
The employer must then report the payroll information to the Revenue on or before the date the payments are made to the employees. The reports can be made from the payroll software or completed on Revenue Online System (ROS).
However, if you are exempt from having to pay and file electronically then customised stationery would be provided to allow you to file submissions and make returns.
The payroll submission must at least include the;
If using payroll software to make the payroll submission, upon receipt of the information the web service will either acknowledge the submission or reject the submission and provide the details of the errors.
The Revenue may apply penalties of up to €4,000 per episode of non-compliance under the new PAYE Modernisation system and subsequent revisions of submissions to Revenue as a result of errors or late adjustments may result in increased Revenue scrutiny and or formal inspection by them.
The UK left the European Union as of 31st January 2020 but transitionary provisions continue in place up until 31st December 2020. Over the course of this year, the UK’s trading relationship with the EU has remained the same. The UK has continued to follow EU rules, has remained under the jurisdiction of the European Court of Justice and has stayed within the single market and the customs union.
However, if no agreement is in place by the end of the transition period, UK resident directors of Irish companies will be required to comply with section 137 Companies Act 2014.
Non – EEA Director
Section 137 Companies Act 2014 relates to the requirement for Irish companies to have an EEA-resident director serving on the board. The EEA (European Economic Area) is defined as comprising all EU member states plus Norway, Lichtenstein and Iceland. In the absence of an agreement in advance of 31st December 2020, UK resident directors will fall outside the scope of that definition.
The consequences of non-compliance with this requirement will give rise to a Category 4 offence carrying a maximum fine of €5,000. This situation may also present difficulties in filing an Annual Return in the Companies Registration Office (CRO) which must be filed in good time each year to avoid late filing penalties arising and importantly to avoid loss of audit exemption for preparation of financial statements in situations where the company was previously eligible to claim this.
Irish companies in this position need to consider their options to ensure compliance with the legal requirements. A director resident in another EEA country could possibly replace a UK resident director or alternatively an additional EEA resident director could be appointed to the board. However, in the event where these options are not possible, there are two other options that may be available to a company.
The decision to grant the certificate rests solely with the Revenue Commissioners. Once the certificate is obtained, it must be filed with the CRO together with a Form B67 signed by a director and the company secretary. The exemption from the requirement to have an EEA resident director under Section 137 would then apply from the date of issue of the certificate by Revenue.
Should you require any assistance in dealing with these requirements please contact Mary Flanagan or Louise Edwards of our Business Services Department.