Each year Revenue profiles various professions and trades and decides whether they wish to target their efforts towards a particular profession or industry.

The current industries or sectors that Revenue have informed us through the TALC process that they are concentrating on are:

1. Construction sector and RCT. Revenue wrote recently to over 200 Principals with a history of repeated unreported payments.
2. Medical locum companies and directors with approximately 250 cases escalated to an Audit Intervention
3. Cash businesses
4. Shadow economy
5. Non-Filers of returns (Revenue issued approximately 90,000 letters to Income Tax non-filers at the end of January 2019)
6. VIES and INTRASTAT information.

Revenue also dedicated a large number of resources in 2019 to PAYE modernisation and are conducting on-site visits and telephone calls to employers to ensure that they are operating the new PAYE system correctly. It is understood that Revenue will start to apply more rigorous penalties for non-compliance with the new PAYE system once the new system is bedded down particularly where Revenue feel that the employer is not making a genuine effort to correctly operate the new system.

Revenue have also issued a number of letters regarding inactive VAT numbers in an attempt to tidy up the number of VAT registrations.

A new organisational structure was established within Revenue at the end of 2018 with 5 new National Divisions allocated by tax payer type with a greater allocation of resources towards larger cases. The Large Corporate Division (LCD) and High Net Worth Division combined with Medium Enterprise Division (MED) now have approximately 25% of the total Revenue resources allocated to them.

Consequences of a Revenue Intervention

It is important to understand the consequences of any proposed intervention by Revenue. Where Revenue discover an underpayment of tax, the taxpayer will be liable to interest which is calculated on a daily basis and they will apply a penalty of up to 100% of the tax bill depending on what category of default the underpayment falls under such as deliberate behaviour or gross carelessness.

If the settlement is greater than €35,000, or penalties are greater than 15% and no qualifying disclosure is made to Revenue in advance of a revenue audit, the details of the settlement will be published by Revenue.

Revenue Audit Code of Practice

Practitioners should familiarise themselves with the Revenue audit Code of Practice which provides a framework for the conduct and settlement of audits and other interventions.

It also demonstrates and explains various practices regarding no loss of revenue cases when it applies and examples of technical adjustments and self-correction of returns and the conditions for no penalty to apply.

Revenue have confirmed recently at TALC that as RCT is dealt with separately in terms of penalties and its obligations, no loss of revenue does not apply to cases of incorrect RCT.

Changes in relation to the timelines for self-correction of PAYE returns without penalty will also be amended to cater for the new PAYE real-time system along the following lines:

• for the PAYE/PRSI/USC annual return, relating to 2018 and preceding years, the self-correction must take place within twelve months of the due date for filing the annual return
• for PAYE (Income Tax/PRSI/USC) monthly returns in 2019, the self-correction must take place by the due date for filing the annual IT/CT return within which the relevant PAYE period ends.

A practitioner must also be alert to key differences between Revenue Audits, non-audit type interventions and Revenue Investigations.

Revenue Audit

A Revenue Audit is a review of tax returns, books and records for accuracy and validity and normally covers a particular tax and a particular period of time.

Revenue Investigations

A Revenue investigation is an examination of taxpayer’s affairs where Revenue has concerns of serious tax offences occurring. Normally the taxpayer is advised that an investigation is underway at the commencement of the intervention.

A Revenue Investigation is generally a very serious matter and in certain circumstances can be taken with a view to criminal prosecution and this should be established with Revenue in advance of their review.

There are no provisions for making a qualifying disclosure or avoiding publication where a taxpayer is under investigation.

Other non-audit type enquires

Revenue undertake many types of enquires outside of the Revenue audit process. Examples of these types of interventions include:

1. Assurance Checks.
2. Letters requesting back up information to a return.
3. Unannounced visits.

These types of interventions are outside of the Revenue audit process and allow the taxpayer to make an unprompted qualifying disclosure if a tax irregularity exists. An unprompted qualifying disclosure is one where the taxpayer discloses an underpayment of taxes to Revenue before any Revenue notice of an audit issues. An unprompted disclosure differs from a prompted disclosure in that there is a greater mitigation of penalties and the disclosure is made outside the audit process.

Most tax practitioners will be familiar with aspect enquiries etc. particularly surrounding VAT and the new PAYE modernisation system as outlined earlier. There appears to be significant more activity by Revenue in this area over the last 12 months.

Qualifying Disclosure

A qualifying disclosure is where a tax payer goes voluntarily to Revenue after receiving notification of the audit but in advance of an examination of books and records, and discloses the underpayment of tax. This disclosure can in practice be made at the opening meeting of the audit where the Revenue Official usually asks the taxpayer if they wish to make a disclosure.

To be a qualifying disclosure, Revenue has to be satisfied that the disclosure is complete in relation to all matters giving rise to the tax liability.

The disclosure needs to be in writing and contain a calculation of tax and interest together with a payment.

Revenue determines the tax-geared penalty based on the category of tax default. Penalties range from 3% to 100% of the tax. The level of penalties vary also depending on whether there were previous disclosures within a 5 year period. There are various types of disclosure that can be made depending on the type of tax default.

Tax default are categorised as follows:

1. Deliberate Behaviour
2. Careless Behaviour
3. Other Careless Behaviour

I. Deliberate Behaviour & Qualifying Disclosures

Deliberate behaviour is more akin to fraud and it is the most serious category of tax default.

If the disclosure falls under the deliberate behaviour category, the taxpayer must state amounts of all tax liability in respect of all tax-heads and all periods that were previously undisclosed.

II. Prompted Disclosure & careless Behaviour

Most disclosures and tax settlements fall within this category which relates to the underpayment of tax greater than 15% of total tax due.

In the case of a prompted Qualifying Disclosure in the ‘careless behaviour’ category tax default, the disclosure must state the amounts of all liabilities to tax and interest in respect of the relevant tax-head and periods within the scope of the audit.

III. Other Careless Behaviour

These are other defaults where the underpayment of the tax is less than 15% of the total liability.

Advantages of Making a Prompted Qualifying Disclosure

The main advantages of making a prompted qualifying disclosure are as follows:

1. Avoidance of publication regardless of the size of the settlement.
2. Mitigation of PenaltiesThere is a significant mitigation in penalties. For example, penalties are reduced from 100% to 50% for a first qualifying disclosure in the deliberate behaviour category and penalties are reduced from 40% to 20% for careless behaviour with significant consequences.
3. Revenue will not initiate an investigation with a view to prosecution of the taxpayer in relation to the matter disclosed

Summary

It is essential that the practitioner/agent understands the implications of various revenue interventions and are familiar with the Revenue code of practice.

Paul Dillon is a Tax Partner with Duignan Carthy O’Neill in Dublin and chair of the CCAB-I Tax Committee and a member of TALC (The tax liaison committee between Revenue and practitioners).