Audit next week - minor issues

I'm a PAYE worker for last 10 years (previously self employed for 5).
I have one rental property and therefore have been doing self-assessment for years. I have been selected for a Revenue Audit for year 2010, the auditor is coming to my home next week.

It is quite a basic situation as I see it (I'm no Sean Quinn) and don't want to pay an accountant for advice. There are minor Return issues. What happens with minor issues/discrepancies ? do they invest lots of time asking for information on all your financial affairs, bank accounts going back many years? Can I declare to the auditor on the day and just ask to be billed for this couple of hundred euro owed (with penalty/ Interest ?) without a major deep dive into my affairs and history ?

The minor issues are as follows (don't laugh):
A paid a small sum to the tenant of 120 Euro cash for items he purchased on my behalf for the apartment but I don't have a receipt.
I overstated my bin charges in the Return by 90 Euro as I estimated them (20% relief)

I have all the what I would call important items ready that made up 98% of the Tax Return:

• P60 from my employer (is correct as per Return)
• Mortgage interest statement from the Bank (against the Rental)
• Current account statement for 2010 that I run the property related transactions through, showing the 12 months Rent correctly
• The same current account statement showing the 4 quarterly property management fees direct debit for the property
• The same current account statement shows the mortgage going out
• My Med2 statement matches the Return for my health expenses

I'm hoping the ever helpful askaboutmoney can assist and put my mind at ease for what seems like trivial amounts.

Hi Stylus, hopefully we can get you through this!

A couple of questions to start the ball rolling...
In relation to the mortgage interest, have you claimed all of it or just 75%?
And have your tenancies all been registered with the PRTB?

thanks for reply.

I underdtand you put the full amount on the tax return and then Revenue calculate the 75% of that and send you a tax bill which I paid, this is not a problem, its all fine in the Return and I have the documentation.

My concern in this thread was the couple of small unaccounted for/discrepancy items on the Return, whether such small issues can balloon into big investigative issues.

Good question on the PRTB, I need to call them now re:2010. I believe I registered the Tenant. Will they request this information ??

I have printed off the Paid NPPR (non principal private residence) for 2010. There was no Household Charge in 2010.

thanks for any help out there.

Stylus said:

I underdtand you put the full amount on the tax return and then Revenue
calculate the 75% of that and send you a tax bill .

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Sorry, this isn't correct. You must put the allowable interest only (75% for 2010) figure on the return.

Stylus said:

thanks for reply.

I underdtand you put the full amount on the tax return and then Revenue calculate the 75% of that and send you a tax bill which I paid, this is not a problem, its all fine in the Return and I have the documentation.

My concern in this thread was the couple of small unaccounted for/discrepancy items on the Return, whether such small issues can balloon into big investigative issues.

Good question on the PRTB, I need to call them now re:2010. I believe I registered the Tenant. Will they request this information ??

I have printed off the Paid NPPR (non principal private residence) for 2010. There was no Household Charge in 2010.

thanks for any help out there.

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+1 to what TMcGibney said in relation to the interest, it's the allowable amount that goes on the form, so you could have a problem there.

As for the PRTB, the 75% interest expense is only allowed provided your tenancy is registered, so they will ask to see proof of registration in order to verify your entitlement to claim interest as a deduction.

In relation to the NPPR, this is not allowable as an expense either.

As for your first two queries, they won't be any big deal. You could get your tenant to write you a receipt for the €120 for X, Y and Z purchased on your behalf if you want to be a bit better covered.

Re the service charges you should just say straight up that you overestimated the cost.

If it transpires that you have made a booboo with the mortgage interest, it might be worth paying a few hundred quid to get a decent accountant familiar with such cases to negotiate your settlement with Revenue, as the issue will probably affect several years' assessments, particularly if you are a 41% taxpayer.

Thanks for your reply mandelbrot, I didn't think if my 2010 is a problem with the 75% rental mortgage interest allowable thing, that I would owe anything for the years before 2010 because I thought this 75% restriction only came into force around this time (or was it 2009). I seem to remember it was introduced after the financial crash started anyway.....

It came in on 7/5/09. (A daft, vindictive, ill-timed measure, if you ask me )

100% allowable before that.

T McGibney said:

It came in on 7/5/09. (A daft, vindictive, ill-timed measure, if you ask me )

100% allowable before that.

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Wow I thought the 75% rule was in longer than that, I knew it came in mid-year but would have guessed it was 2008!

Agree with your sentiment though, a typical hatchet job...

TMcGibney: Checked tonight, unfortunately yes your're right I claimed 100% of the mortgage interest instead of 75% for 2010 (although I never kept a copy of the Return, I distinctly remember being aware of this and may have written a note on the Return)

Anyway, I need to know the best approach to this at Audit: to disclose that I am aware of the mistake sounds like the best idea ?? I don't have a lot of Return records for the previous year 2009 except the mortgage interest statement so now I'm bothered about that (when the 75% rule was activated mid year.)

If I disclose this knowledge with the auditor for 2010, am I open to an investigation of the last 5 or 10 years, or even 2009 ?? Can I limit this to 2010 in your experience ?

thanks for help.

You will, at the very least, need a copy of your tax return(s) if you are intending to engage meaningfully with the audit. You will also need to read up on the Revenue Audit Code of Practice and if maybe consider getting professional advice prior to the audit.

ok thanks I've read the code of practice. Maybe I should do a "prompted qualifying disclosure" on the morning of the audit.

No I didn't keep a copy of the Return I sent in but the Auditor herself gave me the basic figures over the phone when I was trying to rearrange the meeting, she didn't mind. I have all the paperwork (bank account, mortgage interest certificate, property management invoice, Med2) - all except that 120 euro cash payment to the tenant and overstating the bin charges allowance for my Home by 90 Euro.
And then the 75% vs 100% mortgage allowable interest mistake.

I hope to get a one hour briefing from an accountant but I would prefer even more advice from this excellent forum.

Fyi, Outcome:

I decided to do a "prompted qualifying disclosure" letter with bits and pieces of very small issues on it (<100 Euro) and the main allowable rental interest underpayment (I claimed 100% rather than the new 75% rule from 2009), I discussed everything for 2/3 hours, quite intense, and made a settlement on the spot for less than 3,000. The auditor was reasonable.

The worst part of that amount that wasn't even a tax (half the amount) was the seemingly unnecessary and avoidable penalties/interest I got (especially as a PAYE person) just for not submitting Preliminary tax for 3 years. The way I did it is I religously got my Return in on time before 31st October every year, waited for a tax bill and then when it came I paid it mid-November without fail on time in that sense. They are trying to change me to a Form 12, redicolous that I have to do the Form 11 long form and get involved in things I don't even understand like preliminary tax and makes me sound like I'm running a business here.

thanks, I'm happy to get through it.

not trying to be smart but do you think it woudl have been a good idea to hire an accountant which may have avoided the Revenue audit and the payment that you had to make?

viztopia said:

not trying to be smart but do you think it woudl have been a good idea to hire an accountant which may have avoided the Revenue audit and the payment that you had to make?

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...or argue the case for reduced penalties?

Well, I have been doing the return for 17 years and this is the first hiccup.
So I saved say a nominal amount of say 3 or 4 hundred euro per year x 17 years in fees possibly.

Anyway, I did hire an accountant on Monday for a few hours for 400 Euro plus VAT to help me with the disclosure letter.

I believe I'm on the wrong system apparently for the last 10 years since moving to PAYE from self-employed, the Auditor has just called me to say she is deregistering me for income tax.

I should not be Form 11, my profits on rental property aren't large enough. You have a threshold (above the main P60 income apparently) of €3,176. So therefore, Smeharg, maybe you are right, maybe they should remove the preliminary tax penalties, because I should always have been Form 12.

The Auditor said I'm free to email him, I could say with words to the effect "wondering why was I not informed that my profits arent large enough for Form 11 and preliminary tax", I wonder will this help me reverse half of the settlement I've already paid ?

thanks for responses to all.

Stylus said:

Well, I have been doing the return for 17 years and this is the first hiccup.
So I saved say a nominal amount of say 3 or 4 hundred euro per year x 17 years in fees possibly.

Anyway, I did hire an accountant on Monday for a few hours for 400 Euro plus VAT to help me with the disclosure letter.

I believe I'm on the wrong system apparently for the last 10 years since moving to PAYE from self-employed, the Auditor has just called me to say she is deregistering me for income tax.

I should not be Form 11, my profits on rental property aren't large enough. You have a threshold (above the main P60 income apparently) of €3,176. So therefore, Smeharg, maybe you are right, maybe they should remove the preliminary tax penalties, because I should always have been Form 12.

The Auditor said I'm free to email him, I could say with words to the effect "wondering why was I not informed that my profits arent large enough for Form 11 and preliminary tax", I wonder will this help me reverse half of the settlement I've already paid ?

thanks for responses to all.

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OK, say it was 400 p.a. for 17 years, that's 6,800 in total.

First off the 6,800 would be tax deductible, so that reduces the cost by between 20 - 50%. Call it a net cost of 5 grand. Any accountant worth their salt will manage to have saved you money along the way, possibly even more than the cost of their services.

People never seem to realise this - a good accountant will pay for themselves...

I imagine they would reply its a self assessment system and did you inform us that your income was below the threshold and that you wanted the income coded in against your PAYE Income.

I don't think there is a penalty for not paying preliminary tax. A penalty is applied for under declaring tax I presume given your figures it's 30%.

Interest is charged because you did not pay the tax on time the 09 tax was due 34 months ago.

I think either form 11 or form 12 you would have the same liability because you did not pay the tax when it was due.

The issue with preliminary tax is that according to the OP they filed their return around the deadline every year, then waited until getting an assessment and paying it in full in mid-November.

The auditor appears to be imposing the interest that arises when you apply the preliminary tax rules, the due date being the previous 31st October... so that's about 11-12% interest on the 2009 & 2010 tax liabilities.

I'd be surprised if the penalty is 30%, OP might clarify. But certainly, if OP had any accountant worth their salt in this case, I would say you'd be talking about getting off the hook for the interest, and a penalty more like 10% .

You are correct Mandelbrot and thank you. It was interest not penalties the auditor said for preliminary tax. I am awaiting a report which the auditors write and send to me. In there, the auditor will clarify a few things. The general reason for not using an accountant was that the figures involved over the years didn't seem to warrant it from my point of view; i think it has worked out equal whether I used an accountant or not (and I did use an accountant for this half day)

I will leave it now and accept the on the spot settlement we agreed as THE settlement without further negotiating because to be fair I didn't get penalties or interest for the main Return mistake of submitting 100% rather than the correct 75% interest allowable, so probably should be happy with that.

thx.

Just came across this thread now.

I think you only have to keep receipts for 7 years so does this mean that they can only go back 7 years in an audit or how far can they go back.