For most organizations, ‘audit’ is a dirty word.
Even when all accounting practices are above board, most companies are dismayed upon receiving an audit notice. Audits require spending a substantial amount of time and resources convincing the tax authorities that the correct amount of taxes were paid, and paid properly. Should your business be selected for tax review, here are some tips to help you survive (mostly) unscathed:
Maintain pristine records
Audits often target returns filed the previous year. If the tax authorities ask for clarification on a specific number, your chances of an in-depth audit will be greatly reduced if you have clear records to explain any initial inquiry. If the auditor feels that you can’t get the basics right, you will invite a more thorough examination of your finances. It is good practice to keep copies of filed returns and supporting documentation for at least three years from the date of filing or the return’s due date, whichever is later.
Stay within scope
While it is important to be straightforward and respond as thoroughly as possible, resist the urge to volunteer additional information that is not specifically relevant to the audit. When responding to an auditor’s questions, be as brief as possible. Do not furnish documents that do not pertain to the year under audit or were not specifically requested by the audit notice. Opening yourself up to additional questions may lead to an expanded audit scope.
Pay your penalties
If the authorities determine that your taxes were not paid properly and impose penalties on your business, don’t neglect to pay. Tax agencies have the ability to garnish wages and put liens against assets to collect the tax, interest and penalty.
Know your rights
Familiarize yourself with the applicable tax laws prior to the audit. You can research specific legal issues via commercial tax guides. If you are uncertain about the tax law or how to best present your case to an auditor, consult a tax professional before the audit.
It should be common sense, but being 100 percent honest on your tax return is critical to surviving an audit. Audits are often triggered when your figures do not match up against those reported by other sources. Erroneous data entry is one of the most common red flags for auditors, and also one of the most preventable. Be up front if an error is discovered, and take immediate steps to rectify it.
Take steps to minimize your risk
An external organization, such as VATBox, can offer an objective view of your audit risk by performing an internal audit, as well as a VAT analysis, before the need arises. An internal audit is an independent, objective activity, where an internal auditor works with management to identify and mitigate risks that could negatively impact your company. An internal audit may focus on accurate tax reporting, ensuring appropriate policies and procedures are in place, implementing safeguards against risks, and other system controls.
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VATBox is a cloud-based financial technology company that has successfully streamlined the VAT recovery process, providing businesses with unrivaled visibility, compliance and data integrity. Leveraging the cloud and utilizing full automation, VATBox exhibits complete control of a company’s VAT spend, while making the recovery process more productive and yielding higher returns. Find out more here.
Since 2012, VATBox has been revolutionizing the automated VAT recovery marketplace with its cloud-based solution, leading the worldwide foreign VAT recovery arena. With offices in London, Paris, Munich, New York and Tel Aviv, VATBox operates globally to give businesses full control over their tax spend and recovery.