Revenue Risk Reviews

Revenue Risk Reviews. Oh no, I must be in trouble! A Revenue risk review letter hits the ROS inbox on a Friday morning. OMG, that’s the last thing I need, as I am heading off to the match in Galway for the weekend, thinks Mary Boone. But in the back of her mind, she knew this was coming. Sure, I have been talking to yer man in Revenue about this since January. And what’s worse, they owe us €60k in VAT and won’t give it back to us over this. This week we’ll look at a recent Revenue risk review case we had, and the focus points will be

  • Background
  • Letter
  • Our Approach
  • Outcome
  • Lessons Learned

Background

Pat and Mary Boone own Mary Boone Ltd. It’s a niche-building company that works in the area of heritage and conservation. Mary is the numbers lady. She sorts the payroll and makes sure all the team are well looked after when it comes to travel and expenses. Plus, she makes all the VAT and payroll submissions to Revenue. She loves Kilkenny hurling and goes to all the matches. So much so, that she called her youngest son TJ. And not forgetting her dog Cody.

Revenue owes the company €60k in VAT for the November/December 2023 and Jan/Feb 24 VAT periods. They are usually quick enough to make the repayments but, oddly, they didn’t get the money back for 2023 yet. She calls Revenue to find out what’s going on and talks to a nice man there called Derek. Derek explains that they have an issue with postponed accounting. Revenue information and numbers show a large UK import of goods from the UK by Mary Boone Ltd. But the VAT returns for the company don’t match with the Revenue information.

Derek and Mary dig a bit deeper and find out the value of the goods is close to €800,000. Revenue have it that the company bought these goods from the UK. Mary confirms that they never bought the goods. They relate to faulty tanks on a job they worked on a few years ago. The UK supplier agreed to replace the tanks free of charge to make that job good. So, we have an impasse. And then that letter hits the ROS inbox.

The Letter

Let’s put it this way. It’s not a love letter. More of a letter with spite, venom, and a touch of spice added in. This is what we are looking at. This is when we are looking at it. Plus, give us all the information listed in Appendix 1. And, by the way, it’s a risk review now but we can extend this to a full Revenue Audit if we don’t like what we see. On page 2 of the letter, it states that

Issues may arise during the Risk Review that will require the caseworker to escalate the intervention to a wider audit of your affairs. If this arises you will be notified in writing”

Dee, our eagle-eyed office manager, spots the letter coming into our ROS inbox too, and sends me a note about it. On first reading my initial sarcastic thought is

Oh, they are not looking for much information are they”

The Tax under review is VAT the years are 2022 and 2023, plus the VAT period Jan/Feb 2024.

I see that it is a Level 2 Risk review, so more serious than Level 1. The penalties are higher under Level 2 compared to Level 1. You’ll see at the end of the letter Revenue give the option of making a qualifying disclosure. By making a disclosure you can reduce the penalty applied and avoid publication as a tax defaulter.

Our Approach

Our Approach to Revenue reviews is twofold. First, it is to understand what the issues are. Is there an issue that will result in a tax liability for our client or not? Second, it is to actively engage with Revenue. More or less saying to Revenue that we will deal with this for our client, and we’ll get whatever information you need within the timelines agreed.

Cathy, the client manager, calls Mary to understand the issues and let her know that we are available to help. Pat and Mary want us to deal with the review for them given the level of complexity involved and the amount of information requested.

First Decision

The first decision for us and Mary is whether to go for a prompted qualifying disclosure or not. I had a call with Mary to better understand the facts of the case. From that call, I was happy that while VAT returns were not 100% right there was no VAT owing to Revenue. The goods in question came into Ireland but Mary Boone Ltd didn’t pay for the goods. So, in my mind, the value of the goods shouldn’t appear on the VAT 3 return.

As some background, there are 3 sections on a VAT return. The first section is the normal VAT on Sales and VAT on Purchases. The second section relates to trading with other EU countries. Goods and services to and from EU Countries. It is the third section that is relevant to this review. That third section is for non-EU trade.

Non-EU now includes the UK. If you buy €1,000 worth of goods from the UK that €1,000 goes into the third section box PA1 or Postponed Accounting. Revenue expect to see €800,000 in the PA1 section of the VAT return of Mary Boone Ltd, but it isn’t there.

If you are opting for a disclosure, you must do this before the review or audit commences. Otherwise, the option is off the table. The risk of not going down the disclosure route is a higher penalty and possible publication. Before we make the decision, we should talk to Revenue.

Contacting Revenue

My view of Revenue review or audit cases is that we make direct contact with the Revenue official. That person’s name and contact details are on the review letter. The idea is to strike up a relationship with them so we can understand where they are coming from. In some cases, they will open up a bit and give you information about the case. What year or VAT return are their main focus and the main concerns they have.

This relationship building is good provided you get a reasonable individual. It helps to show cooperation during the review which keeps any penalties lower. Also, you can request extra time and even highlight certain documentation that you can’t provide. This could be due to circumstances outside anyone’s control. For example, a key staff member is out sick or on holiday.

Cathy gets stuck in

There’s no better lady than Cathy to get stuck in. She’s a roll-up-her-sleeves type of person who will do everything she can to help her clients. For the two years and two-month VAT periods there was a lot of paperwork to put together. This included

  • A breakdown of debtors for 2022
  • Reconciliations of VAT trading details to CT1 sales for 2022
  • Reviewing and correcting all the 13 VAT returns to ensure correct recording of postponed accounting and EU purchases
  • Copies of the 10 largest purchases and sales invoices for each VAT period
  • VAT summaries for each VAT period to include a breakdown of all the numbers

And more on top of that. Cathy and Mary worked hard to get all this information together for Revenue. But not only that. They went through all the VAT returns to see if there were any corrections needed and we identified some UK invoices. These weren’t correctly returned in two VAT periods, and we amended those returns to get them right. While they weren’t correctly recorded in the PA1 box there was no VAT owing to Revenue because of the error.

After super work by Cathy, we got a cover letter with the vast supporting documentation to Revenue on the 10th of May.

Outcome

 The outcome was a successful one for Mary and Pat. The Revenue letter that issued on the 14th of June last stated

” I wish to advise you the Risk Review is now concluded and that no additional liability was identified

Please note that Revenue reviews tax risk on a continuous basis as you may be subject to further compliance interventions in the future.

I would like to thank you for your cooperation during the course of the risk review.”

In the end, it’s a brilliant outcome for the client. No liability, plus Revenue will now the VAT refund of €60k.

Lessons Learned

 I thought about the main lessons we learned from this case.

Mary called Revenue about the reasons for the delay with the VAT refunds. She mentioned the issue to them and tried to get it sorted out. This helped in that Revenue knew she actively engaged with them to sort out the issue. On top of that, our approach is always to deal with Revenue in a fair but business-like way to make sure we do what we promised to do.

We don’t over-commit but will always work to meet the deadlines. But we want to make Revenue’s job as easy for them as possible. As such, it’s important to present the information to them in a way that’s easy to follow and understand. Plus, if there’s something we can’t give then that’s flagged at an early stage.

Value of bookkeeping

The value of bookkeeping and having a quality bookkeeping system in place is so important. Mary kept good books and records. Not perfect, but still to a very high standard. If there’s a great system of bookkeeping in place then there should be a much higher standard of compliance with Revenue.

Your VAT and PAYE returns are right and on time every time. It makes it easier to complete year-end accounts on time. And those accounts tie in with VAT and PAYE returns so you’ll have the reconciliations you need. Plus, they should be easier to pull together if Revenue come calling.

Revenue Information

Revenue have access to all this information coming from the UK and all other EU countries. As we saw, in our case, that information isn’t always accurate. There is a focus on Postponed accounting at a Revenue level. I’d imagine many Revenue officials are tearing their hair out. Trying to reconcile their numbers with the numbers appearing on taxpayer’s VAT returns.

Word of Warning

While there was a successful outcome for Mary and Pat there are many other cases where there will be liabilities. I am dealing with an Inheritance Tax Level 2 Risk Review at the moment. This is an open-and-shut case where the taxpayer availed of a Group B class threshold and shouldn’t have. He claimed this before on a prior inheritance.

The problem arose due to a breakdown in communication between him and his solicitor who filed the return. He came to us to fix it. In his case, we will avail of a prompted qualifying disclosure to reduce the penalty. So, it will be a case of paying the extra tax, the penalty, and interest charge. Pay up and move on.

As for Mary Boone. Vampire Weekend wrote a song about her that’s a classic. She’s off to Croker tomorrow to watch the Cats beat Clare in the All-Ireland semi-final. But is thinking of booking a holiday on a remote desert island for the final! At least she’s not worried about Revenue Risk Reviews for now.

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