Farm Ireland

Monday 22 January 2018

Dealing with an auditor's on-farm visit

Michael Hough

Farmers are now being targeted by Revenue auditors. An audit is a stressful time for any business, but it is 10 times worse if you don't know what you are in for.

Last week we looked at what you need to do to prepare yourself if you are to be subjected to an audit. This week, we look at what happens when the auditor finally arrives on your farm.

You've two ways to approach the visit. You can openly show your resentment at being audited and play hardball. In short, you can try as much as you like to make life difficult for them.

The alternative is to roll over and accommodate the auditor. This may not do much for your ego, but you won't win by taking the other route. In fact, if you push it too far you may find yourself on the wrong side of the law, as obstructing a Revenue auditor is a criminal offence. The auditor will stay on the job until they are satisfied they have all the information needed. Making life difficult will only prolong the pain for both of you.

Revenue auditors are aware that audits are often a burden on businesses, but in the many years of dealing with the individuals involved I have yet to meet one who was discourteous or unprofessional.

So if the auditor asks to be shown the farm after your first introduction, try not to bristle. This is a normal request to help them get a feel for what to expect when the records are examined.

After this, the auditor will work their way through the records provided. This will include the auditor verifying the information available against the records you provide. If everything hangs together there is, of course, no problem.

The issues start if something is missing. Apart from looking for an explanation as to why an item is missing, the auditor will often begin to wonder what else could be missing. Often this leads them to investigate further. This might include a more vigorous examination of the records available, confirmation relating to all bank accounts in your local branch, or, worse still, opening other years to the audit.

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When the auditor completes the examination of the records, they will have queries. These will be routine clarification questions, especially regarding technical issues, which usually can be dealt with by the accountant.

All things going well, this part of the audit will be completed in around two days. The auditor will then indicate what they have found.

If no problems have arisen, that's it and you are home and dry. You will get a letter from the auditor confirming that the audit has concluded and no additional tax is due.

If, however, the auditor has an issue that they believe gives rise to additional tax liability, an indication of the amount involved will be provided. At this point you've got a choice: you can accept the auditor's figures or reject them and come up with your own calculations. In some cases the auditor's figures may be totally rejected on the basis that no additional tax liability arises. This type of situation is most likely to occur where the issue involved is of a technical nature.

In any event, the matter will usually be settled by negotiation. Once the taxes due are agreed, the interest and, sometimes, a penalty will follow. The rate of interest since July 1, 2009, is 8pc a year. The penalty will depend on the level of default and whether a disclosure was made. This can vary from 4-100pc of the liability.

In most cases where taxes are due, a payment will be made to the Revenue at the time or within a short time afterwards. Should the Revenue be satisfied that you have limited access to liquid funds, a phased payment arrangement can be made.

  • Review: Where no agreement is reached and the Revenue auditor seeks to impose a settlement, there are several review procedures available to you and your accountant.

The first is a local review, usually by the auditor's district manager. The second is an internal review, which is carried out by a unit within the Revenue that has no direct connection with the auditor's district.

If there is still no agreement, you have the right to appeal to an Appeal Commissioner, who is totally independent and has no connection with Revenue.

  • Publication: The last thing that most farmers want to face is seeing their name listed along with other tax-defaulters in the newspapers. But you can avoid publication even if you end up making a settlement if provided:
  • You disclose problems voluntarily prior to the audit beginning.
  • The settlement figure does not exceed €30,000.
  • The penalty involved does not exceed 15pc of the tax liability.
  • Cost: A Revenue audit will be dependent on the amount of work your accountant does before, during and after its completion.

If you have maintained good records, have no particular issues relating to the undisclosed income or overstated expenses and incorrect operation of PAYE and VAT, the cost will be less than €3,000. However, if there are problems with the audit and a lot of extra work is involved, the cost can be more than €10,000.

You can buy insurance to cover the cost of Revenue audits from as little as €25 per year. However you should check with your accountant exactly what you such policies cover for as some policies do not cover all the costs that can arise.

Michael Hough is a tax specialist with Owen Sweetman & Co in Balbriggan, Co Dublin

Irish Independent