Diversity

56
Tax
Tax
The reality of the
Revenue audit
Revenue audits can be devastating. The key is to
give yourself ample time to prepare.
BY JIM KELLY
When you or a client receive a notice of a
Revenue audit, time becomes critical. It is
very important that an audit notification
receives your immediate attention, or that of your
client, as even innocent errors can give rise to
serious tax and interest exposures as well as severe
penalties, publication and potential prosecution.
In recent press reports, we have even seen prison
sentences for the more serious tax offenders.
It is possible that the taxpayer may
inadvertently have a tax exposure which will
come to light in the audit. Consequently, it is vitally
important to consider the benefits of making
a qualifying disclosure and the very serious
implications of not doing so. The taxpayer should
also consider a tax review before the Revenue visit
to identify any potential exposures in their system.
More and more, we are seeing audit notifications
giving barely the 21 days required under Revenue’s
Code of Practice for Revenue Audit and other
Compliance Interventions. This leaves little
time for completing any meaningful review to
identify issues that should be disclosed prior to
commencement of the audit.
Importantly, the code provides for an extended
period of two months for preparation of a
qualifying disclosure. Paragraph 3.13 of the code
states: “In the case of a ‘prompted qualifying
disclosure’, if an additional 60 days to prepare
the disclosure is required, the written notice of
intention to make a disclosure must be given within
14 days of the day of issue of the ‘Notification of a
Revenue Audit’.”
Revenue recently amended the code to specify
that: “A notice of intention to make a qualifying
disclosure will not be granted where the taxpayer
has already availed of a 60-day period in respect of
the same issue or period, i.e. only one 60-day period
will be allowed to prepare a qualifying disclosure
for the same issue or period.”
It is worth noting that tax interest and penalties
do not always have to be paid where a tax liability
is discovered. There are, for example, occasions
when failure to account for tax leads to the
Exchequer being in a tax-neutral position. These
are generally called “no loss of revenue” situations.
Where the taxpayer can demonstrate that this
applies, Revenue will generally not seek to collect
the tax. However, Revenue are still likely to seek a
penalty and possibly some amount of interest if the
Exchequer was out of funds at any stage as a result
of the error – even if only for a short period.
Preparing a qualifying disclosure
Given the significant benefits to the taxpayer in
making a qualifying disclosure in advance of the
commencement of a Revenue Audit, it is important
to note the following in relation to the disclosure:
• The burden placed on taxpayers selected
to comply with the timeframes for making
disclosures to Revenue;
• The requirement that a disclosure should be
up-front, with payment for back tax as well as
interest and in writing;
• The tax and interest must be calculated at the
outset and paid at the start of the audit; and
• The severe consequences of making an
incomplete disclosure or indeed, from not
making a disclosure at all. For this reason, it
is vital to review all the tax heads in advance.
Revenue considers incomplete disclosures for
publication in the Revenue list of tax defaulters
and for prosecution in very serious cases.
ACCOUNTANCY IRELAND
APRIL 2017