First, we must understand tax compliance. Inland Revenue relies on voluntary compliance to collect the correct amount of tax. People are encouraged to know about their tax obligations and file and pay the correct amount of tax, with the help of accountant’s if needed.
What is an audit?
A tax audit is the examination of your financial records to see if you have complied with tax laws and paid the correct amount of tax. A tax audit can focus on a specific part of your business or one business unit or the whole operation.
How are you selected for an audit?
Below are some of the reasons why you might be selected for an audit.
- Inland Revenue is checking the compliance of the industry you operate in.
- they have received information that suggests that the tax returns filed are incorrect
- the tax returns you have filed shows an unusual pattern or does not match with industry norms
- you have been selected randomly
Often tax audits are preceded by a risk review. Through the risk review process the IRD can evaluate the risk of non-compliance. A risk review will normally look at a part of your operation or a limited period for example 2 GST returns filed every year for last 3 years.
If the risk review identifies non-compliance, then the IRD will commence an audit.
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