In 2017, Revenue yielded €196.31m from 5,220 Revenue Audits. While there has been a bigger focus on compliance interventions, Revenue Audits will continue to be a major feature of Revenue operations.

A taxpayer can be selected for a Revenue Audit under any of the following headings:

Risk
Where Revenue have noted the presence of particular risk factors. This is the most common reason for the issue of an Audit Notification.

Random
These audits are part of the compliance process. A random selection process is used to measure and track compliance against tax legislation. This process also provides for the possibility that anyone can be selected for a Revenue audit.

Re-Audit
This programme is used to measure the rate of re-offending and the impact a Revenue Audit can have in encouraging compliance.

From the date of issue of a ‘Notification of a Revenue Audit’, a taxpayer no longer has the opportunity to make an ‘unprompted qualifying disclosure’.

So what can you do to help matters if you receive a Notification of a Revenue Audit?

1. Review the records for the tax-head and period selected for audit.
2. Where there is an underpayment of tax, a prompted qualifying disclosure should be prepared for Revenue.

The benefits of making a qualifying disclosure include;

• the mitigation of tax geared penalties,
• non-publication on the list of tax defaulters and
• assurance that Revenue will not initiate a Revenue investigation with a view to prosecution.

A taxpayer can request an additional 60 days in order to prepare a ‘prompted qualifying disclosure’.

A ‘qualifying disclosure’ is a disclosure of complete information and particulars of all matters giving rise to a tax liability resulting in a penalty. The disclosure must be made in writing, must be signed by or on behalf of the taxpayer and must be accompanied by:

a)    A declaration, to the best of that person’s knowledge, information and belief, that all matters contained in the disclosure are correct and complete, and

b)    Payment of the tax or duty and interest on late payment of that tax or duty.

In addition:

• all qualifying disclosures (prompted and unprompted) in the deliberate behaviour category of tax default must state the amounts of all liabilities to tax, duty and interest, in respect of all taxes and periods, where liabilities arise, as a result of deliberate behaviour, that were previously undisclosed
• in the case of a prompted qualifying disclosure in the careless behaviour category of tax default, the qualifying disclosure must state the amounts of all liabilities to tax, duty and interest in respect of the relevant tax and periods within the scope of the proposed compliance intervention

3. Co-operate fully with Revenue.

The benefits of co-operating fully with Revenue include further mitigation of penalties. For example the penalty applicable for a prompted qualifying disclosure of a liability categorised as careless behaviour without significant consequences is 20%.

Full co-operation reduces this penalty to 10%, essentially halving the applicable penalty. This is a worthwhile effort.

Full co-operation includes the following;

• Having all of your books, records and linking papers, however held, available for Revenue at the commencement of the audit
• Having appropriate personnel available at the time of the audit
• Responding promptly to all requests for information and explanations
• Responding promptly to all correspondence
• Prompt payment of the audit settlement liability.

Behaviours

The category of behaviour as determined by Revenue or demonstrated by the taxpayer will dictate the tax geared penalties applicable. Awareness of the various behaviours is important in preparing a prompted qualifying disclosure to Revenue. It should also be noted that materiality is always a factor for Revenue in assessing the significance of an error or omission. The main categories of behaviour are as follows:

• Careless behaviour without significant consequences
• Careless behaviour with significant consequences and
• Deliberate default

‘Carelessly’ is defined in the Acts as meaning the “failure to take reasonable care”.

Careless behaviour with significant consequences is distinguished from careless behaviour without significant consequences by reference to the size of the shortfall relative to the correct tax liability concerned.

Significant consequences: is not defined in the Acts but is used to describe the statutory penalty applicable where the tax underpaid exceeds 15% of the tax correctly payable.

The 15% test is to be applied separately to each tax type and period in respect of which a return or statement of liability is required to be made by the taxpayer.

The following tables should illustrate further the importance of making a disclosure (whether prompted or unprompted) and co-operating fully with Revenue.

Penalties where no disclosure is made

Penalties where a prompted qualifying disclosure is made and full co-operation provided

If you have received a notification of a Revenue audit, or have become aware that tax may have be underpaid our Tax Controversy team is available to assist.

The Tax Controversy team are available to assist taxpayers, companies or individuals, that are dealing with historic tax issues, or who are seeking to ensure they are fully compliant with their tax obligations. The team can also help develop processes to ensure taxpayers meet their tax obligations going forward.