I’m hoping the words “Revenue audit” do not put you off continuing to read this article…. I know it can be a very stressful (even thinking about it) and a costly process but our aim here is to help you understand how you are selected for an audit and by understanding this it should give you a better chance of possibly avoiding one.
There are 4 main ways of being selected for an audit.
Risk based Analysis
The first is on a risk based approach. Revenue screen all recent tax returns submitted and review the tax compliance history of the business. For instance filing returns late or ignoring Revenue enquiry letters will be highlighted. The figures are then analysed for trends and patterns and compared against similar types of businesses in a particular industry. If there are anomalies this will be highlighted and that business will be selected for an audit.
For example if one insurance company had travel costs of €15,000 in their accounts and another similar insurance company two doors down the road had travel costs of €50,000 then this difference would be highlighted and Revenue would most likely investigate why the second company’s expenses were so high.
When taking the risk based approach Revenue look at other sources for information rather than just tax submissions. For instance they look at Twitter and Facebook and other social network sites to see if unregistered persons are advertising their businesses on these sites. They also look at shopping centre notice boards for people providing services which they may not be declaring any income from.
Revenue have stated that the majority of audits result from this risk based analysis.
The second way a business could be selected for a Revenue audit is by way of a Revenue Project on a particular industry. Revenue will pick a sector where non-compliance is high or where there are particular sectors which are considered cash businesses.
Most recently Revenue has looked at self-employed contractors and landlords. In the past they have looked at industries such as Chinese restaurants and the pub trade.
This means even if you have a perfectly clean compliance record you can still be chosen to be subject to a Revenue audit. The amount of these types of audits has reduced massively in recent years as Revenue will get far more bang for their buck by using the risk based approach.
The final way of being selected for an audit is if someone you know calls Revenue and tells them that you are not being fully compliant. During the recession the amount of audits that resulted from this increased significantly. It usually happens if you have fallen out with an employee or a neighbour although it has also been known that competing businesses may make the call to Revenue, although I believe this to be rare in Ireland.