The changing shape of Revenue powers

With Exchequer funds shrinking, Revenue inspectors have focused on their powers for tax collection and are moving much quicker on late tax payments especially VAT.

Assessments

After traders submit a VAT return, Revenue can issue an assessment for any tax underpaid or refund overpaid within the next four year period. Traders can either pay the additional tax due or write to Revenue within 21 days to appeal the assessment.

Estimates

Where a trader fails to submit a VAT return, Revenue can issue an Estimate within a four year period. A trader can appeal the Estimate in certain cases within a 14 day period or else pay the tax owning.

Sheriff Notice

Revenue has always had the power to hand over responsibility for the collection of tax to Sheriffs. Once appointed, a Sheriff will issue a Sheriff Notice. This is a legal demand for the taxes owing and is often raised where a VAT return is not filed following an assessment or estimate. As sheriffs are very keen to receive full payment, failure to pay the VAT requested could lead to a seizure of assets. There could also be the issue of the Sheriff’s costs to settle.

Power of Attachment

Where Revenue is aware that a trader with overdue taxes has a commercial debtor, it has the power to instruct the debtor to pay any money owing to the trader directly to Revenue. Such payments are offset against the trader’s overdue taxes.

VAT Audits

Revenue can issue any trader with a VAT audit notice. While a certain amount of audit notices are random, many are a direct result of a Revenue query or the filing of an unusual VAT return. In most cases the audit period will be a calendar year and will be a detailed review of each VAT return together with back up sales and purchases invoices. Revenue will also wish to learn how the business operates in terms of manufacturing processes, types of services supplied, target markets, etc, as this will lead to discussions around VAT recovery on capital expenditure, VAT rating of supplies, future VAT payments or repayments.

Audit Settlements

Revenue have a Code of Practice for revenue audits. This Code of Practice sets out procedures for negotiations, categories of fault by the trader and associated penalties. Traders who fully advise Revenue of any known tax liability not yet filed or paid at any time before Revenue start their detailed review of the books and records will be viewed more favourably by Revenue and will have a lesser penalty applied.

VAT Errors

Revenue has the power to enforce penalties of €4,000 for each VAT error relating to incorrect VAT invoices, incorrect VAT rating of goods or services and the completion of incorrect VAT returns. It is very easy for penalties to accumulate in respect of repeated errors.

Payment Plans

Often traders are aware they have various tax liabilities outstanding but do not have the cash to pay them. The best approach would be to come forward and discuss a payment plan with Revenue. While interest on overdue tax will still arise, instalment payments are likely to be acceptable up to a 12 month period.

Interest

It’s not all doom and gloom as the Department of Finance is planning to reduce interest rates on late payments of tax by 20 per cent from July 1 2009.

Conclusion

Revenue is being more proactive in following up late or non payments of VAT. They are also making more enquiries into the background or intentions of traders in order to assess whether future VAT reclaims are valid.

In many cases, it is more appropriate to come forward to discuss with your tax advisor or Revenue any uncertainties in relation to the VAT treatment of supplies, VAT recovery on costs and ability to pay tax liabilities due rather than to wait and be mesmerised by the powers of Revenue!

Dorothy Gallagher is VAT manager in KPMG Galway and has extensive experience in all areas of VAT, including cross border matters and property VAT. She can be contacted by email on [email protected] or by telephone on 091 534600.

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