How to: Avoid being selected for a Revenue Audit
Nobody wants the Revenue to come knocking on their door. In the last number of years though, the number of calls and letters Revenue have sent out has increased dramatically. While the number of full Revenue Audits dropped from 14,000 in 2010 to under 9,000 in 2013, the number of letters sent out looking for proofs or explanations has shot up from 190,000 in 2006 to over 600,000 in 2013 and the trend has continued upwards since then. There was a drop off in Revenue interventions during Covid, but since May 2022 Revenue have returned to making a much higher level of compliance interventions.
Most of these contacts are based on risk management reviews. Revenue profile the tax returns based on risk factors. The higher the risk the greater the chance Revenue will be contacting you.
The best way to avoid being selected for an audit or review is to get yourself off the Revenue’s risk radar.
- Look to avoid being selected in the first place. It sounds obvious, but how do you avoid being selected? You do this by lowering your risk profile with Revenue. Revenue operates a risk based approach to selecting taxpayers for review. The lower your risk profile, the smaller the chance you will be selected for Revenue audit
- File and pay on time. This is the first best step you can take. Revenue red-flags late filing or underpayment of taxes as major risk factors requiring intervention.
- Good quality accounts preparation. Good accounts software, a high standard of accounts preparation, proper accounting standards applied consistently. Make sure your margins are in line with industry standards and are being correctly presented in the accounts. Revenue red-flag’s unusual gross profit margins and out of line motor / travel or expenses costs.
- Borrowing from your company: If you are operating through a company, avoid borrowing personally from the company. Director loans owing to owner-managed companies are a red-flag risk factor. You may be complying with company law, but are you paying the 13.5% BIK interest you are liable to?
- High cash introduced / low personal drawings: If you operate as an unincorporated sole-trader or partnership don’t have unexplained cash introduced or very low unexplained personal drawings. Revenue will zone in on drawings levels below that expected for your type of business / lifestyle. The way the tax office does business has changed completely in the last twenty years. What was acceptable then is no longer tolerated. Your best defence is preparation. Do the planning now so that you won’t get that Revenue inquiry letter.
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