We are continuing our series of posts about what you need to know when it comes to your taxes. These posts are based on real world questions that we’ve been asked by clients. So, if you need help with anything specific, send us an email and let us know!
This week’s focuses on a question we have been asked on many occasions especially after a client has received the letter from Revenue stating that they have been selected for an audit.
How many enquiries and what cash is being collected?
Per the Annual Revenue report for 2017 there were 649,419 Revenue interventions last year that yielded €575.8 million. Interventions would include enquiries, audits and disclosures. Tax collected in 2017 came to €50.737 billion which was up from €47.864 billion the previous year.
Types of Interventions
Perhaps best just to list these so they would include the following
- Aspect Queries/Assurance checks
- Unannounced Visits
- Sectoral review letters
- Letters/phone calls requesting back-up documentation
What is a Revenue Audit?
Without giving a particular definition we think the best way to explain it is that it is a review of a tax return or a particular tax head for taxpayers for a particular year or for a number of years. For example it could be an audit of a Corporation Tax return for 2016 or an audit of PAYE for 2016 and 2017 or Vat for a tax year or a number of years.
It will involve an examination of all books and records for that year so that the Revenue auditor is satisfied that the taxes returned are correct and in accordance with the returns submitted.
What would trigger a Revenue Audit?
Some of the most common triggers would include the following;
- Targeting specific sectors like construction or cash businesses
- Third party information
- Analysis of tax return information
- Poor tax compliance history
- Large cases or second tier clients
- Specific issues
Most audits are now targeted by Revenue as the return for Revenue is much higher than for a random audit. Construction and cash businesses will always be on the Revenue radar because of the perceived risk in these areas. In construction the main tax areas of risk are PAYE, RCT, Vat and Income Tax or Corporation tax. How would this be the case in construction?
Employer has employees and paying them cash so no PAYE being operated
Cash income not being recorded so there is no Vat and no Income Tax being accounted for on the receipt
Payment in cash to a subcontractor and no RCT being deducted and subcontractor not paying tax on the receipt
In the above examples there could also be Social welfare fraud as a person who is working full-time wouldn’t be entitled to claim state benefits. It would be common for Revenue and the Department of Social Protection to work together to visit building sites to interview builders and others working on that site to ensure tax compliance.
At a recent event on Revenue audits the speaker gave a very interesting example of how Revenue had accessed the till information for a business and they were able to see that the till had been opened a few thousand times more than the number of sales transactions. Revenue calculated that the average transaction was €5 and they were looking to collect tax on the difference. Eg Till was opened 5,000 times in a year but there were only 3,000 sales transactions so they looked for tax on 2,000 unrecorded sales multiplied by €5 which is €10,000 and they were looking for that over a period of 4 years!
Review of Tax returns
Do the sales figures in your accounts tie in with the sales figures in your Vat returns as returned on your Vat return of trading details?
Revenue receives a list of share options granted to all the employees of a multinational company in a tax year. This puts a legal obligation on the employee to file an Income Tax return. Have all employees that got the share options paid the tax on them, within 30 days of exercising the options and have they filed income tax returns. You’ve guessed the answer. No and no again!
On your Income Tax return or Corporation Tax return you include your account details and have a figure in for tax creditors at the year-end of, say €10,000 but you only pay €5,000 in taxes in the first few month of the following year.
There are hundreds of examples like the ones above and the main message we want to get across is that Revenue have huge access to information via the tax returns that business owners are legally required to submit
Third Party information
Have you registered your rental property with the Residential tenancies board [RTB]? If so, Revenue has access to this information. This means that you have told the RTB that you are renting a property to named tenants. Have you included the rental income in your tax return? Have you ticked the box on the tax return to confirm that the property is registered with the RTB so you will get a tax deduction for the mortgage interest you paid? If you ticked it but haven’t registered with the RTB then this is an easy win for Revenue
Have you included your State pension on your Income Tax return? Revenue has access to Department of Social Protection payments, so much so that this information will already be pre-populated into your Income Tax return on ROS.
Do your Single farm payment entitlements or forestry premiums tie in with the amounts included in your accounts and on your tax return?
The objective here is not to frighten but to make you aware that Revenue have so much access to other information from other government departments or state bodies, from banks, employers and from foreign tax authorities that if your tax affairs are not in order this is a shooting fish in a barrel scenario for them.
We have only given you a small flavour of why you may be audited and there is so much that we haven’t touched on but it’s not our objective to ruin your weekend! The key message from us is that there is a huge value to having your accounts and tax returns done correctly. This will give you the peace of mind so that you can sleep easy and if Revenue do come calling then there should be very little for you to worry about. You can get on with doing what you do best and that is growing your business.
If you’d like to know more about how we can help you or your business then please let us know!
You can email us firstname.lastname@example.org or call 051 396703!