A few weeks back, the annual Revenue Commissioner/Institute of Taxation in Ireland joint conference took place in Limerick. Attendees included Revenue personnel, tax practitioners and industry representatives. One of the presentations was a summary by Revenue on the number and additional tax collected from Revenue Compliance Interventions. This included cases opened under the updated “Compliance Intervention Framework” from 1 May 2022 which were closed by 30 April 2023.
The number of interventions was reported at 79,351, with these yielding additional receipts for Revenue of approx. €75m. While no “per tax head” analysis was provided, the VAT related share is understood to have been sizable. The clear message is that interventions or reviews on VAT have generated significant additional monetary returns for Revenue and the Exchequer.
Two points stand out from this:
- It is difficult to see how VAT related reviews will not remain a focus of Revenue attention, at least in the short term.
- The additional VAT collected indicates a high volume or value of VAT related items not being dealt with correctly and requiring attention.
In simple English, VAT compliance interventions are money-spinners for Revenue and are likely to continue as an area of Revenue focus.
Going back to basics, a VAT underpayment will be triggered by one or a combination of a failure to charge VAT correctly or making an over claim of VAT incurred.
In our experience, these typically involve:
- an error in the treatment of unusual or once-off sale transactions or
- a weakness or incorrect process for dealing with ongoing (usually purchase) transactions.
In the case of businesses with restricted VAT recovery, the process for dealing with partial VAT recovery, in particular, relating to incorrect actions or failure to take any action on “self-accounting” for VAT on purchases, will quickly result in a VAT underpayment.
While the incidence of an incorrect VAT rate being applied to ongoing sales tends to be less, a recurring error calculated on a component of turnover which goes unchecked for any duration, is likely to convert to a sizable “VAT on sales” shortfall in a relatively short period.
In addition to the financial cost of settling any liability with Revenue, the scope to collect from customers, amounts of VAT which should have been charged to those customers – even those who can reclaim such VAT, is likely to diminish the longer the delay in this coming to light. In addition there can be commercial considerations of having to try and “collect” from customers – this can be easier said than done.
It is worth noting that Revenue’s code recognises situations where any VAT charged would be recovered by the counterparty. Such scenarios may be eligible to avail of “no-loss of revenue” claims. However, obtaining this relief (which would result in a lower net tax settlement) requires a number of conditions to be met.
The clear message from Revenue is that as the pandemic is over, expect to see a lot more compliance interventions by Revenue. Given the information shared by Revenue and the return to pre-covid levels of compliance interventions, taxpayers would be well advised to consider the following;
- If you are involved in an Irish VAT return filing of any scale and if you have not had any interaction with Revenue on VAT for some time, it would be worthwhile to assess the accuracy of the treatment of transactions feeding into that return, how the return is prepared and the review process carried out. This will enable the veracity of the return to be assessed, and if appropriate, corrective action to be taken in an unprompted manner.
- Where your VAT return is for an activity with less than full VAT recovery, any partial VAT recovery position is required to be reviewed annually. It is possible for any adjustment to be made without penalty where this is dealt with within six months of the related financial year end.
For example, where you have a business with a 31 December 2022 year end with restricted VAT recovery, any recovery calculation and related adjustment for calendar year 2022 should be included as part of the VAT return filing due on 23 July 2023.
- For businesses involved in property transactions, the history of certain expenditure on a property continues to be relevant for working out the correct VAT treatment of a sale. This is in addition to identifying any actions required on recovery of VAT incurred on the purchase or development of the property, namely, the “Capital Good” position.
Separate from the VAT charging or cost impact on any property sale, closure of a transaction can be delayed where VAT relevant documents are not to hand or up to date. Complexity is added where either party has restricted VAT recovery.
There’s a clear message from the information shared by Revenue which aligns to what we are seeing in our dealings with Revenue. Additional taxes collected from VAT related interventions are sizable, with this indicating that the quality and accuracy of VAT return filings and related processes warrant regular review.
We have found the completion of VAT related review work delivers real value in terms of validating treatments applied or enabling corrective actions to be taken in an unprompted manner. The completion of any review is also likely to provide comfort to Revenue in relation to the manner in which VAT is being dealt with by a business. Such actions also enable a business to be “deal completion ready” should such an opportunity or requirement arise.
At RBK, we have a team with extensive experience and who can assist with all aspects of review and support of your VAT and related processes and who would be happy to help. If you would like us to assist you and your business on this or any other VAT related matter, please get in touch with a member of our VAT team or your usual contact at RBK.