Keeping Proper Books & Records

Tax man chasing a business woman

Keeping proper books & records is the law. It’s not something that is nice to do or something you’d like to do. It’s a must and is something that can give you very valuable commodities. Those commodities are money, time, and confidence.

When I say it’s the law, there are plenty of pages and sections in the Taxes Acts where you can find the rules. It’s Revenue’s duty to uphold the law and protect the public purse. It’s your duty, as a business owner, to keep proper books and records and ensure the numbers are right.

We’ll look at a case where a taxpayer took an appeal to the Appeals Commission. This was against Revenue Assessments for underpayment of VAT and Corporation Tax. We will go through

  • Background
  • Taxes under appeal
  • Case for the company
  • Case for Revenue
  • Appeal Commissioner Decision
  • Summary


Charles O’Dwyer owns Codfather Ltd [the company]. It trades as a restaurant with a sit-down and takeaway service. The company is registered for VAT, PAYE, and Corporation Tax [CT]

Revenue conducted a series of unannounced compliance visits to the business during 2017. As a result, the company was selected for a Revenue Audit. These compliance visits consisted of some sample purchases made by the Revenue official on different dates. The reasons for the sample purchases were twofold.

  1. To test that the purchase was properly recorded in the books and records and
  2. The resulting tax liabilities on the transactions were accurately recorded and paid by the taxpayer.

On the last visit, the Revenue official hand-delivered the Audit letter to Charles. You can imagine the conversation.

Oh thanks very much for the toasted sandwich. It was lovely. By the way here’s your Audit Letter. See you soon. Bye”

Scope of the Audit

  • 1st November 2014 to July/August 2017 VAT
  • 1st January 2014 to 31st December 2016 PAYE
  • 1st November 2014 to 31st October 2016 CT

The audit commenced on the 12th of December 2017. Due to the unavailability of certain records and discrepancies, the audit continued into 2018. Given the discrepancies, Revenue extended the period of the audit for CT to the 31st of October 2017.

Revenue Records

In January 2018 Revenue got a record of all credit and debit card sales. They tried to reconcile that data to the information contained in the restaurant’s EPOS [electronic till] system.

Unfortunately for Charles and his company, the reconciliation was not consistent. Large sums shown in the credit/debit card data didn’t match the EPOS readings. The card payment sequence showed significant gaps. This indicated some sales were removed from the EPOS. The result would be an under-declaration of sales. Arising from that would be an under-declaration of CT and VAT on the missing sales.

VAT Rates

Revenue also analysed the different VAT rates used by the company. Their view was that the company was 

  • Under returning VAT at the standard rate of 21% and
  • Over returning VAT at the reduced rate of 13.5%

Hot food (consumed on or off the premises) is usually liable at the reduced rate. Minerals and alcohol sales and generally liable at the standard rate. The result of this is less VAT payable by the company.

Taxes Under Appeal

Owing to the incomplete information Revenue prepared estimates for the taxes owing. These are the taxes under appeal. Revenue issued assessments for the taxes and these came to

Period Tax Amount €
1/11/2015–31/10/2016 CT 8,210
1/11/2016- 31/10/2017 CT 21,739
Nov/Dec 14 – Nov/Dec 15 VAT 35,369
Jan/Feb 16 – Nov/Dec 16 VAT 31,274
Jan/Feb 17 – May/June 17 VAT 15,483
Total   112,075

The company didn’t agree with the assessments and lodged appeals with the Commission.

Case for the company

The agent or accountant for the company presented some Excel spreadsheets “2015 – 2017”.

One spreadsheet contained a revised calculation of VAT on sales originally returned by the company. These sales were split for VAT purposes on a revised percentage split of

  • 73% at the 13.5% rate
  • 26% at the 21% rate and
  • 1% at the 0% rate

The company made this split based on work done by Revenue on the EPOS analysis. This is what Revenue believed was the correct reclassification of sales of hot food, minerals and alcohol, and gift vouchers.

The agent produced another spreadsheet called “voluntary disclosure workings”. This recorded additional VAT payable by the company as follows.

Reclassification of sales €8,980
Unrecorded sales €14,095
Total €23,075

The company provided a bank draft for this amount, plus a further amount of €5,000 for interest.

Included in this spreadsheet was a tab called additional purchases which came to €40,094. The agent produced financial statements for two years. They showed a gross profit percentage of 61% for one year and 63% for the other.

Also produced was the Corporation Tax return. Included in the return were CT losses carried forward to future accounting periods.

Submissions Made

  • The restaurant had a lower-than-average profit margin owing to competition in the locality. It had to make promotional offers to attract business.
  • There was a change in the EPOS system to a more modern one in 2014. As a result, some discrepancies arose. These weren’t clear until Revenue commenced the audit.
  • Some of the discrepancies were because of customers splitting bills or paying cash. Other customers were not charged for food due to complaints such as orders not arriving on time. As a result, it led to inaccurate Z reads [daily total produced by the till system]
  • Revenue did an exercise that showed the restaurant had lodged all the card payments to the bank. This was testament to the integrity of the company’s accounting system.

Case for Revenue

Revenue furnished three lever arch folders of documentation to the Commission. These folders had the workings that explained how they calculated the additional VAT and CT for the assessments raised. Among the information provided to the Commissioner was 

  1. A summary of the test purchases and the trace of those through the EPOS
  2. Details of the gaps in the restaurant’s EPOS
  3. Notes of a meeting with Charles about “cash back transactions”. The note confirmed the business doesn’t offer them which contradicts previous information given.
  4. An overview of the company’s VAT split. It was using 82% for food and 18% for drinks. This was inconsistent with the information produced by the till system. That recorded 73% for food, 26% for drink, and 1% for vouchers. For clarity, vouchers are at 0% VAT and the appropriate VAT is then calculated on the redemption of the voucher.
  5. Detailed working for all periods under appeal to back up the calculations for the assessments raised.

Submissions from Revenue

Revenue submitted that large sums in the card information didn’t match the till system. As an example, a card payment of €400 didn’t show in the till system as a sale for that amount on the same day. The monthly card sales report was a lot higher than the sales recorded on the till system.

One of the Revenue official’s test purchases didn’t appear on the till system.

The restaurant returned lesser sums on their VAT returns compared to the lodgements in their bank account.

Counsel for Revenue confirmed the burden of proof in an appeal case is on the taxpayer. The taxpayer must prove that they don’t owe the liability. And that the explanations given by the taxpayer were not supported by any or sufficient evidence. As a result, the explanations were “simply not credible”.

Counsel also confirmed that the taxpayer was uncooperative or selective in providing information. An example was a refusal to hand over a laptop on the first day of the audit. This was on the grounds of it being a personal computer of a staff member. Yet, this laptop was made available at a later stage in the audit.

Revenue calculated the average value of card transactions not included in the EPOS. This enabled them to calculate the value of suppressed sales. These suppressed sales formed the basis of the CT and VAT assessments for the periods in question.

Also, Revenue was able to calculate the correct VAT split between the hot food, alcohol, and vouchers. It applied these splits to the VAT on the supressed sales and to the existing sales in the review periods.

Appeal Commissioner Decision

In the material facts section of the case, the Appeal Commissioner noted that 

  • The taxpayer when computing its tax liabilities ignored the electronic information. Instead, it used computerised spreadsheets which were manually
  • Those spreadsheets are capable of manipulation by how they are computed. And as such they are

“an unreliable source for ascertaining the Apellant’s sales”

The Appeal Commissioner went on to cite the case of Menolly Homes v Appeal Commissioner & another 2010.

“the burden of proof in this appeal process is, as in all taxation appeals, on the taxpayer”

He referred to the legislation that taxpayers must maintain proper records. These are records that correctly record and explain the transactions of the business.

He confirmed that the taxpayer didn’t keep the records required. As a consequence, the assessments raised by Revenue are valid and should stand. However, he determined that the values in the assessments should be correct.

He noted that the taxpayer’s agent made a submission disclosing revised VAT liabilities.

“Without any reference to the Revenue workings or providing documentation on how it arrived at its figures. In these circumstances, it is difficult for the Commissioner to attach any weight to those submissions”.

Value of Assessments

There was some good news for Charles and his company. The Commissioner had an issue with the way Revenue calculated the taxes owing. He picked up that Revenue solely focused on the sales numbers but ignored purchases and bank transactions. The result of this would be to assess the company on “unrealistic profit margins”.

Plus, he noted that a business of this type wouldn’t be paid 100% for its customer orders. Therefore, the Commissioner discounted the value of the VAT assessments by 30%. That resulted in the VAT liabilities going from €82,126 to €57,488. Added to that was €1,885 disclosed by the company at the start of the audit. This increased the final VAT liability to €59,373.

Also, the Commissioner reduced down the extra profits liable to CT by 39% in one year and 37% in another year. This is to reflect the cost of sales to produce the profits. A bonus for the company was that it had CT losses coming forward. Using the losses, the CT liabilities were reduced to Nil.

Revenue imposed a surcharge on the CT liabilities at 10% for incorrect CT returns. As the liabilities would be nil, owing to the losses, the surcharge would be nil.


Revenue looked for €112,075 and they got €59,373.

The company’s records were poor. Surprisingly, the sales numbers didn’t reflect the lodgements into the accounts. A €60,000 hit for Charles and his company is a huge blow. The EPOS system wasn’t fit for purpose. It was easy for Revenue to see the mismatch between the card sales and till receipts. Plus, the VAT split of the sales was wrong. Another easy Revenue win.

Revenue went for the jugular and why wouldn’t they? They were well prepared and provided volumes of documentation to support their numbers.

Think of the time and cost spent on this audit by Charles and his accountant. The audit went on throughout 2018. Time, money, and stress wasted that resulted in a significant bill. That’s why investing in your finance function will save you time and money. Not only that, but it will also give you the confidence to grow your business and help you make more money.

Keeping proper books and records is an investment in your business and you. Having a quality bookkeeping process embedded in your business is the foundation for growth. It will keep Revenue from the door and add value to your business.

Keep the Revenue Audits away. Invest in your bookkeeping today. Start here