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Revenue collect all the tax they know is owed, but they also look at businesses and individuals to make sure they do not owe more tax because they are under declaring their income. Investigations are very profitable for the government, so they are not likely to stop them at any time in the future. In fact, in recent years they have put more resources into this area, finding the people that are trying to beat the system. It’s only right they do so, because in theory if everyone paid the correct amount of tax without these investigations, we could all pay a slightly lower rate and the government would still have the same income.
How Do They Choose Which Company To Look At?
The digital era has made it a lot easier for Revenue to gather information, and they do so from more than 50 sources. They are very quickly able to get information from other countries that Ireland has double taxation and information exchange treaties with. They have increased the disclosure requirements, as well as being able to get data from other government bodies.
Then there is social media. People may not be honest with the information on their tax return, but then tell the world what sort of life they are living on Facebook, Twitter and LinkedIn. There are many people that have been caught this way after boasting about their new car or foreign holiday when their tax return shows their profits are barely enough for them to live.
There is also the possibility there is something on your tax return they are not happy about, and that can be the start of a taxation investigation as well. A small number of people will be chosen at random, so everyone knows they have the chance of being looked at. Finally, there are the whistle blowers. There will always be people that will pass information to Revenue, and in such cases they are not allowed to ignore what they have been told.
How To Handle A Revenue Investigation
The most important thing is not to ignore them when you get the letter saying they are going to carry out a taxation audit. Whether they are just asking about one particular item in your expenses, or want to look at absolutely everything, it needs dealing with sooner rather than later.
Don’t try and answer them yourself. It’s too easy to misunderstand what they are asking and give them the wrong information. It can be hard to prove afterwards you have made a mistake. You want professionals on your side. A company that will understand exactly what they are after, and will know how to present it to them in the right way.
This is even more important if you’re a limited company and it’s your audit and assurance they are querying. They may well speak to you in accounting and taxation jargon, which is something that generally only qualified people will understand.
Once their original letter has had a response, then it’s time to start gathering the information they are requesting.
What Type Of Taxation Audit Has Been Instigated?
There are several types of audit or investigation the Revenue can instigate. It could be that one particular item on your tax return has them concerned. If an expense is much higher than they expect, or your gross profit is not in line with similar businesses, they can query just that one item.
Situations like this can arise for different reasons, such as illness or bereavement. If they are happy with the explanation for the anomaly, the investigation can be closed.
Full investigations involve them looking at every aspect of your company or self-employment, and there are some instances where they are not allowed to close the audit until they have done this. This can be a time consuming exercise for everyone involved, although usually initially they will only look at one year. If nothing significant is found, they will charge what extra tax you owe, if any, usually add a penalty and interest and then close the investigation.
However, if they find what they consider to be a significant problem, such as purposeful tax evasion, they can go back up to seven years. If they find more things wrong in any time period, they can go back as far as they like. As you legally only have to keep records for seven years, if they assess you for amounts older than this it can be very hard to prove them wrong.
Employees Can Be Investigated Too
It does not matter if you are a company director, a partner in a business, self-employed or employed, everyone in Ireland has the same legal duty to declare their income from anywhere their taxation is not dealt with through the PAYE system.
For employees, it could be that they own a second property, which provides them with a rental income, or they could have a caravan or apartment they hire out for holidays. It may be that they have investments that are profitable or they have sold a taxable asset. Employees are just as likely to be the subject of a taxation audit as someone who is in business on their own.
Getting It Right From The Start
Professional accountants will know if there is something about your business likely to attract an investigation. They can carry out a pre audit check, and look into things the way the Revenue would.
At Cronin & Company, we have more than 40 years experience in dealing with all government agencies, and we can provide you with effective audit and assurance services. If the Revenue comes knocking on the door of any of our clients, we will be ready and able to deal with whatever investigation they want to carry out.
The secret has to be to keep your accounts in order, and then you have the right tax accounting advice so there is nothing for you to worry about when you get a taxation audit notification.
We are here to help, so why not give us a call on 01 969 6375.