A tax assessment: what to do, and by when

A letter from the Revenue Department does not mean the business has done something wrong. Most are requests for further documents. But what is said at this stage is recorded and relied on later, so explaining without having the documents ready draws the matter out unnecessarily.

What draws most scrutiny is not unfiled returns. It is expenses recorded with incomplete documentation. When those are disallowed, taxable profit rises immediately, with penalties and surcharges calculated retrospectively.

The critical point is the appeal deadline. Once an assessment notice is issued, the time to appeal is limited, and once it passes the amount can no longer be challenged, however good the argument.

What should you do when the letter arrives?

• Establish whether it is a request for information or a formal summons for examination — the procedure and your rights differ.
• Identify which accounting periods and which taxes are covered; the scope sets how much has to be prepared.
• Assemble every document listed before the appointment. An incomplete response means another appointment and reads as uncooperative.
• Bring the accountant and adviser, since most questions concern where figures in the statements came from.
• Take a copy of every statement given, and read it in full before signing.

What does the Revenue Department look at most?

• Expenses with no tax invoice, or invoices missing required particulars: name, address, tax ID and a description of the goods or services.
• Expenses personal to a director: travel, entertainment, fuel and vehicle costs.
• Money taken out by a director without being recorded as a loan, salary or dividend — each taxed differently.
• Cash income never recorded, which shows up when banking and inventory are reconciled.
• Pricing between affiliated companies, which must be comparable to what is charged to outsiders.
• Use of carried-forward losses, which is time-limited.

Which expenses will stand up?

• A tax invoice with every particular the law requires.
• Verifiable proof of payment, ideally through the company bank account.
• A contract or purchase order for items of significant value.
• Evidence the expense related to the business — trip reports, attendee lists, the deliverable received.

How long do you have to appeal an assessment?

A taxpayer may appeal to the appeal commission within the period allowed and, if still dissatisfied, to the Tax Court. Both stages have strict deadlines, and being a single day late forfeits the right to challenge at all.

The assessed liability stands while an appeal is pending, so security and suspension of collection should be considered alongside it.

What to have in place beforehand

• Keep the company bank account strictly separate from personal accounts.
• Record money taken out by a director under the right heading on the day it happens.
• File supporting documents in order and retrievable, for at least the five years the law requires.
• Document every related-party transaction.
• Review undocumented expenses monthly, not at the year end.

This page is general information, not tax advice for your business. Rates and deadlines change. If you have received a letter, contact the firm before the appointment.