Tax audit

What it means

A tax audit is the procedure by which the tax administrator establishes whether the figures in a return are correct. It starts with a notice or a minuted visit and ends with a protocol you may respond to.

It can cover one tax and one period or several periods at once. VAT is the usual subject - typically after a mismatch in the control statement or after a large refund claim.

A tax audit is not the same as a local investigation or the procedure to remove doubts. Those are shorter and verify individual facts, such as whether the company really operates at its registered address or whether a claimed VAT refund is backed by documents, whereas an audit examines a whole period and can end with additional tax assessed.

How it works in practice

The administrator asks for accounting documents, contracts, VAT records, bank statements and an explanation of what happened. Documents are handed over to the extent requested, against a handover record and within the deadline; an extension can be requested with reasons.

Under a power of attorney we deal with the authority and prepare the file so the answer stands up without verbal patching. Being represented is not an admission of error - it is ordinary practice.

Before the first meeting with the tax office we go through the audited period ourselves: we compare returns with the books and contracts with invoices, and check that every document is in place. A mistake found is better corrected by an amended return before the audit starts, because once it has begun this is no longer possible for the audited tax and period.

What to watch out for

Silence and delay are the worst strategy: failing to answer a request for explanation leads to tax assessed on estimates. Documents cannot be produced retrospectively, and a document that cannot be found counts as one that never existed.

The protocol needs a response within the deadline, on the substance and with evidence, because new facts are harder to argue later on appeal. Anyone who does not respond effectively accepts the findings, and the tax assessment decision then follows the protocol directly, with interest and a penalty.