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.

  1. 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
  2. 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.
  3. 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.
  4. 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?
  5. 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.

Don’t wait, get up to date now!

By |September 7th, 2022|How to: Series|Comments Off on How to: Avoid being selected for a Revenue Audit|

How to: Prepare for a Revenue Audit

The best way to avoid being selected for an audit or review is to get yourself off the Revenue’s risk radar. If you are selected for a review, there are still things you can do to reduce the time, cost and tax exposure.

  • Plan ahead: The time to start planning for a Revenue Audit is well before the letter arrives. You wouldn’t wait until the day you get your holidays to book your hotel. Don’t wait for the Revenue letter to arrive to start plan for a possible Revenue audit.
  • What if you are selected for Revenue audit? Once the letter arrives there is one thing you can’t do – ignore it. Be proactive. Start dealing with it straightaway.
  • Narrow your focus: Check the tax year or period selected. Concentrate on that. Revenue reviews tend to relate to a specific time period and even to a specific tax type in that time period.
  • Should you ask to defer the audit? Definitely – if it clashes with your busy work period, pre-booked holidays or would put an undue strain on you and your staff pulling the information together in the timeframe given.
  • Get a pre-visit review done: No matter how organised you are there will be things you may have overlooked when filing your tax returns, both good and bad. Get your accountant or tax advisor to go over your books. The good will help offset the bad.
  • Summarise: All the work you will do in the weeks before the Revenue Auditor arrives is very useful and not just for them. You will find out a lot about your business and how well the books are being kept. Uncertainty is removed. You will know where you stand and can face the tax inspection meeting with confidence.
  • Write your speech: Now you can direct the meeting and set the tone. You are ready to argue your case and defend yourself if necessary.
  • Stay in control: By planning ahead, you will have been well prepared long before the letter arrives. Preparation removes uncertainty. You will know before the Revenue Auditor turns up exactly how to deal with them, and that is half the battle!

Don’t wait, get up to date now.

By |August 1st, 2018|How to: Series|Comments Off on How to: Prepare for a Revenue Audit|