So, when the taxman wants to visit you, he first sends you a letter or calls you to find out when you will be available. After that, he sends you a list of things that you have to prepare for the visit. In most instances, the taxman will focus on a particular taxhead such as VAT or Income Tax but in certain circumstances, he may cover all taxheads. Well, that will be a real tax audit and chances that you will be found wanting are high. As most taxpayers believe that they don’t need a tax expert to walk with them in their business, they are likely to make many tax errors.
So, what should you do when you receive a letter notifying of an audit? First of all, don’t panic or lose direction. This is the time to get a practising tax expert. You must be able to differentiate between a practising tax expert from someone who sometimes deals with tax matters. That distinction should not be ignored, otherwise you may sink with penalties and interest.
Be honest with the taxman as much as possible. If the dates he proposes are not realistic, then propose alternative ones. Do it professionally in such a way that he does not feel you are buying time unnecessarily. Remember that the taxman is trained not to trust anyone! Or maybe that’s how I was trained. In fact, any taxman is trained to treat every taxpayer as if they are trying to hide something, otherwise he wouldn’t collect anything. Trust me, I used to be an enthusiastic taxman.
You should then make sure that you prepare all documents that would have been requested and nothing more. Never volunteer any information that is not requested to any auditor. That does not mean you are hiding anything but what do you benefit from volunteering unsolicited information? You may as well be exposing yourself to more scrutiny. Be very cooperative and respond on time. Do not be tempted to manufacture documents that do not exist. It’s better to be frank and tell him you don’t have what he is asking for. If the taxman discovers that you created something, you would have seriously soured the relationship.
You will have to answer a couple of questions and again, answer what you are asked and nothing more. Don’t go around the world telling him about how much money you make, how well-connected you are, etc. This may make the taxman interested in things that he never wanted to check. You don’t get a trophy for bragging to the taxman about how well you doing.
Keep your promises and avoid unnecessary delays. The more you delay, the more you make the taxman impatient. He would certainly become irritated and at times emotional if you have an excuse for everything thrown into your face.
Ideally, give the taxman a separate room to work from. The room should be neat and well-ventilated etc, to make him feel you are treating him professionally. If you give him a filthy room with very old furniture, that automatically affects his perception of you and your business. You may say, well, he is supposed to be professional and these issues should not affect his judgement or conclusion. Agreed, but he is just as human as you are. How would you feel if you were given a filthy room the first time you visited your friend’s parents?
Well, that’s the bit for this week. We will continue next week with more tips on how to handle the taxman when he is on site. As I say goodbye, remember to pay to Caesar what belongs to him. Cheers!
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Disclaimer: Jonathan Hore is a Senior Tax Advisor at one of the country’s leading accounting and business advisory firms. The views expressed herein are purely his and do not represent that of his employer. The information contained in this article is of a general nature and is not meant to address particular circumstances of any person.