A financial controller in a manufacturing company with 30 employees writes to The Sunday Business Post seeking advice on how to react when confronted with the prospects of a tax audit. He has noticed an over-claim on Vat and is wondering if he has to disclose this and also wonders if he is duty-bound to disclose commercially sensitive information.
Accountants, Roddy Comyn, advises that the first step should be to establish whether official audit proceedings have begun.
“The letter from the Revenue must contain the phrase: ‘Notification of a Revenue audit’,” he says. “If the letter does not contain this phrase, then a formal audit has not begun.”
Comyn says that if proceedings have begun, then the mistake over Vat should be notified as soon as possible to minimise penalties.
“First, you need to make what is known as a ‘qualifying disclosure’ to the Revenue auditor, detailing the error you mentioned. This disclosure should be made in writing and signed on behalf of the company and accompanied by:
- A declaration that, to the best of that person’s knowledge, information and belief, all matters contained in the disclosure are correct and complete; and
- Payment of any outstanding tax, together with interest on late payment of that tax.
Particular attention should be paid to the latter point as it will be “to your advantage when it comes to penalties”, Comyn advises.
Although the interest payment is unavoidable, with the agreement of the Revenue, it can be spread over time to mitigate any cash-flow difficulties that could arise. However, timing is crucial as a qualifying disclosure must be made prior to the audit starting or on the first day of the audit itself.
Comyn also advises the financial controller to request an additional 60 days notice from the Revenue, which will give more time to prepare the qualifying disclosure. The Revenue usually gives 21 days’ notice of an audit and to gain the extra time, the request must be made within 14 days of receiving the initial audit notification letter.
Full co-operation with the Revenue is the first step in reducing any penalties for underpayment of tax.
“You case will then be dealt with as a ‘prompted, qualifying disclosure’ and, in these cases, penalties can be reduced by up to 90%,” Comyn says.
In relation to the second question, the only information Revenue isn’t entitled to see is legally-privileged information, confidential medical information or professional advice of a confidential nature given to a client.
The last piece of advice to the financial controller: If you haven’t already done so, talk to your accountant!