Inland Revenue’s compliance activity momentum keeps building

By Amy Sexton & Campbell Rose
 

Last year we signalled the Inland Revenue’s increasing compliance activity after their Budget 2024 funding boost, cautioning that it was timely for taxpayers to deal with any skeletons in their tax closet, and get their tax affairs tidied up. Inland Revenue have certainly put their funding to swift and effective use, with a noticeable ramp up in risk review and audit activity.

A media release from Tony Morris, Inland Revenue’s Segment Lead for Significant Enterprises (businesses with turnover of more than $30 million, or with 50 or more employees) in April 2025 put some actual figures against the anecdotal evidence of increased investigation activity we have been seeing. For the July – December 2024 period Inland Revenue has:

• Opened 3,600 audits – 50% more than in the same time the year prior
• Found $600m of additional tax through audits (half of which came from less than 10 audits)
• Reviewed 30,000 filed returns (from the more than 3 million filed) that resulted in audits or voluntary disclosures that added $859m in tax revenue
• Contacted over 200 business owners who own multiple properties and have tax debts of $14m
• Between September – December 2024, liquidated 164 companies (84% more than the same 2023 period) and declared 26 people bankrupt
• Completed seven prosecutions for tax evasion
• Identified 800 people who may be trying to avoid the 39% tax rate by keeping income in companies or trusts
• Began using payment service providers’ data to investigate businesses, including to monitor GST compliance issues
• Issued 160 reminder letters to crypto currency owners to declare estimated income of $2.7m from crypto transactions 
• Opened hidden economy audits in the construction sector for $2.3m of identified tax discrepancies and made unannounced visits to 320 independent liquor stores and 450 vape stores
• 50 ongoing investigations into the use of electronic sales suppression tools

This looks to be just the beginning of Inland Revenue’s increased compliance activity. We have seen its Customer Compliance Specialists (CCS) - previously known as investigators or auditors – using what appear to be increased first-instance decision-making protocols to move businesses into audit quickly. Their current focus seems to include FBT, GST, payroll taxes and general accounting system processes. CCS’s have also been very active with onsite visits to gain a deeper understanding of taxpayers’ businesses, as well as reviewing accounting systems and processes with finance staff, in person and virtually.  

As we discussed in our earlier article, it is a better outcome for everyone when taxpayers voluntarily comply with tax laws, but errors and disputes will always arise. So, as a reminder, here are a few essential steps to help get your house in order before Inland Revenue knocks at your door:

• Make sure your business records are up to date. Filing and administration can be a drag, but it is essential to have well maintained tax records, including Inland Revenue minimum standard financial statements where you do not already prepare audited financial statements.
• Check your facts. If you’ve been relying on historical tax advice or rulings, it’s important to dust these off periodically and confirm your facts (or the law) and assumptions/conditions have not changed, and that you are still complying with the rules. Frequent law changes mean you can’t assume a position taken years ago is still applicable today.
• Review any contentious positions. How comfortable are you that your position is reasonable and fully documented? Would obtaining more certainty via a binding ruling be a valuable and worthwhile investment?
• Have an independent review/tax health check undertaken. Engaging external tax experts to do this is a good way to get comfort that you’re doing the right thing (FBT, GST, payroll, and tax governance reviews are popular choices), or identify issues (and potential opportunities if you’ve been overpaying tax) that can be voluntarily disclosed to Inland Revenue before you’re faced with an audit or other compliance activity. Inland Revenue has launched a Participating Advisor Programme initiative which will increase the levels of assurance that can be received from qualifying independent reviews of tax systems and processes. Deloitte will be participating in the programme.
• Tax governance is a focus for Inland Revenue, and although there are no penalties imposed for poor tax governance itself, it is a factor that is taken into consideration by Inland Revenue when determining the frequency and/or nature of audits and other interventions the level of shortfall penalties on any tax reassessments. 

For more advice on any of these topics, or guidance on what to do if you’ve received an audit notification letter, please get in touch with your usual Deloitte tax advisor.
 

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