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Taxation

What to do if you get audited

No business owner looks forward to a letter from the taxman requesting a closer look at their books.

Each year at Account(able) we offer Audit Insurance to our clients. If you receive a taxation audit from the ATO you will be covered for any work carried out buy your accountant to prepare for it.

This may involve going back some years and working through your data file or records to provide them answers. It can be a very time consuming process which could end up costing you a lot of money.

The audit may start with a letter or email followed by phone calls requesting more information. If a conclusion is not met an onsite visit by the ATO may also be requested.  This can be a very daunting for you and costly if you need to pay your accountant to complete the audit for you.

By taking our Audit Insurance for a small fee per year which is based on your annual turnover you will have peace of mind that you are covered in case of an audit.

If you’ve received an audit letter – an official request by the tax office to review your accounts and confirm your taxes have been paid to date – don’t panic. Prepare.

If you don’t have insurance these four steps will help you get through the process with minimal stress and the best possible outcome.

Respond promptly

If you file your taxes reliably and pay on time, there’s a good chance the government tax office contacted you for a spot check.

In this case, all that may be asked is that you provide receipts and answer a few questions. Give the tax office the information they’ve requested promptly so they can close the file quickly, and you can move on.

If an on-site audit is required, you can’t avoid the inevitable. Call to confirm the date and request any information the auditor will need to help you prepare.

Responding promptly and cooperatively every step of the way is the best strategy for getting through an audit. Reacting defensively or unprofessionally can invite more probing questions.

Seek professional help

Get in touch with your accountant as soon as an audit has been scheduled for advice and support. And if you’ve been handling the books on your own, now is the time to consider hiring a tax accountant.

A tax accountant can explain the audit process, help you get your books in order, and offer personalized advice to help you prepare.

For instance, if you have not lodged your returns, under-reported income, understated tax liabilities, or if you can’t validate all of your expenses for the tax year in question.

Your Accountants can provide peace of mind by explaining your obligations and rights, and ensuring those rights are protected.

Get organized

An auditor will ask you to provide receipts that prove you qualify for any write offs you’ve claimed. On the day of the audit, be ready with your paperwork and be prepared to answer any questions.

Being organized and prepared shows you’ve done your best to report your taxes accurately. If your paperwork is in good order, and you don’t raise any red flags, it’s much more likely the auditor will wrap up once the audit’s basic requirements are met.

As a word of caution, only provide the auditor with the information they’ve asked for – no more, no less. Offering more explanation or “proof” in the hope of avoiding further questions may backfire, raising new ones. Stick to specifics.

Pay quickly

In the best possible scenario – your records are in order and you’ve been conscientious about paying your taxes – an audit won’t lead to any unpleasant surprises.

If, however, an auditor finds that you do owe unpaid taxes, unless you have a solid reason to challenge the auditor’s findings, pay what you owe immediately.

You’ll avoid accruing additional penalties, interest, fees and payments. Perhaps more importantly, you’ll be able to put the audit behind you so you can get back to focusing on your business.

Final thoughts

A final word to the wise: if you do try to fight the taxman, before pursuing legal action weigh the cost and benefit. Legal fees can add up quickly, so be sure the amount requested by the auditor – including interest and penalties – is worth what you’ll end up paying in legal fees.