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 

PAYE 

  • 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 

PRSI 

  • Applying S1 rate rather than higher A1 rate 

Revenue Audit – Focus Areas (continued) 

VAT  

  • 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 

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. 

Directors 

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. 

Bottom Line 

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 

Share This Post:
  • email
  • Facebook
  • LinkedIn
  • Twitter
    Posted on November 27, 2020 by Gerry Higgins

    PAYE Modernisation

    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; 

    1. Amount of pay 
    1. Payment date 
    1. Amount of Income Tax, PRSI, USC and LPT deducted 

    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. 

    Share This Post:
    • email
    • Facebook
    • LinkedIn
    • Twitter
      Posted on November 25, 2020 by Louise Edwards

      BREXIT – EEA Resident Directors Requirements

      The UK left the European Union as of31st January 2020but transitionary provisions continue in place up until 31st December 2020Over 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. 

      Possible options 

      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. 

      1. Insurance Bond – A company can acquire a bond to the value of €25,000 valid for a minimum of two years which must be obtained from a bank, building society, insurance company or credit union. The purpose of the bond is that in the event of a company’s failure to pay a fine or penalty imposed on it in respect of any offence under either the Companies Act 2014 or under the Taxes Consolidation Act 1997, the bond will be used to meet any amount outstanding in respect of that fine or penalty. The bond must take effect from the date on which the EEA resident director requirements lapses and it must be publicly filed in the CRO as should all subsequent renewals of the bond. 
      1. Real and Continuous Link – A company may obtain a certificate from the Revenue Commissioners under Section 140 of the Companies Act 2014 that it has a real and continuous link with economic activity being carried out in the State subject to meeting one or more of the following conditions:- 
      1. The affairs of the company are managed by one or more persons from a place of business established in the State and that person or those persons is or are authorised by the company to act on its behalf; 
      1. The company carries on a trade in the State; 
      1. The company is a subsidiary or a holding company of a company or other body corporate, that satisfies either or both of the conditions specified in (a) and (b) above; 
      1. The company is a subsidiary of a company, another subsidiary of which satisfies either or both of the conditions specified in paragraphs (a) and (b). 

      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. 

      Share This Post:
      • email
      • Facebook
      • LinkedIn
      • Twitter
        Posted on November 23, 2020 by Mary Flanagan

        ← Older Posts