The Revenue has upped its surveillance of tax compliance in the farming community. Farmers around Fingal have already experienced this in the form of random audits of large farming enterprises. It appears that this focus on agriculture is to spread nationwide over the coming months.
Five years ago the emphasis within the tax inspection unit was firmly on the booming construction sector, offshore assets and bogus non-resident bank accounts. However, with activity collapsing across huge swathes of the economy, farming and cash businesses are once again attracting the Revenue's attention.
Last week we referred to the stress of completing your Tax Return. Unfortunately, paying your tax on time is child's play compared to the stress of a Revenue Audit. Even worse, it is an ordeal regardless of whether you are 100pc compliant in your tax affairs or not. The best we can do if prepare you for what the Revenue wants and what the best approach is when dealing with it during an audit.
What is a Revenue Audit?
In the self-assessment system, the self-employed are given the benefit of the doubt. So the vast majority of tax returns lodged with the Revenue are processed without any question about the accuracy of the returns.
However, the flip side of this system is that targeted and random checks will be carried out on a certain percentage of returns each year.
To do this, the Revenue official will examine your records and if any inaccuracies pop up, you'll be liable for the relevant taxes and interest. Additional fines will apply is the situation is serious enough.
The only nicety that will apply is that you'll be advised of the Revenue's intention to carry out a revenue audit by letter at least three weeks before the proposed date of the audit. But believe us when we say you'll need it.
Inside the mind of the Revenue
While some audits are completely random, there is a cold logic that the Revenue uses to target the majority of their audits.
This logic is based on a risk-analysis system. This rates taxpayers according to risk across all the main taxes. Vast amounts of data are analysed by the system. Some of the main items involved are as follows:
What will the Revenue auditor know about you before he arrives?
Underestimating how much homework the Revenue official has done before he or she arrives is a schoolboy error. They will have a lot of information, far beyond what was contained in your tax returns on even quite personal details such as the following:
What should you do when notified of an Audit?
If you have an accountant, they will need to review your records for the year or years being audited. Remember, the Revenue is entitled to examine everything as far back as four years.
You are depending on the accountant to ensure that all of the income that you had for the relevant years has been correctly returned and that all the expenses claimed are properly claimable. They will also check the operation of PAYE and VAT if you were registered for either or both during the years in question.
But it's not all up to your accountant. You must also prepare for your initial meetings with the auditor. You'll need to be familiar with what was going on on your farm for the years being audited. Know the exact area of crops grown, livestock on hand and machinery in use during the period. If there are any unusually high items of expenses or low receipts, you will need to know the reason before the start of the audit.
When the Auditor arrives
The auditor will ask you to talk them through the following:
If there are any difficulties in your tax return or problems with what you paid or didn't pay in VAT, PAYE or any other tax, it is vital that you make a full disclosure to the auditor before the audit begins. Why? It will reduce the penalty imposed by the Revenue. But, perhaps more importantly for some, coming clean prohibits the Revenue from publishing your name in any list of tax defaulters.
However, confessing won't allow you to bypass the extra tax, interest and penalties due.
We'll have more on this crucial topic next week.
Michael Hough is a tax specialist in Balbriggan, Co Dublin, with Owen Sweetman & Co