IRD are shutting off access to their system for 5 days from today 12 April, to “improve” their system.

This NZ Herald article (click link) is a reminder to us that, should IRD investigate one’s business or financial affairs, we need the right to ask them on what basis.

Case Study

Several years ago, one of our clients was investigated on the basis of what proved to be a wrong assumption by the Revenue. Based on the type of business these clients were in, the Revenue expected a certain percentage of their earnings to be received in cash, rather than by electronic payments. Because this business banked lower amounts of cash, Inland Revenue audited them on the assumption that they were hiding some $50,000 per annum, a not insignificant amount for a family run business.

What Inland Revenue did not factor in was that this business was on a busy highway, in a small town, approximately 50km from a bank in either direction. What this meant was that locals and businesses alike effectively used the business as a bank, they would make an electronic transaction and receive cash from the tills. There was no hidden income, and being in a reasonably remote location, it was also beneficial for the business to have less cash on the premises.

Inland Revenue did not disclose their assumption to the clients until well through the investigation, which at times was quite unpleasant for the clients, particularly considering that they were honest business people. Disclosure of this assumption at the outset of the audit would have very readily and quickly solved the whole matter and saved everybody a lot of time, cost, energy and pain.

If Inland Revenue are going to use AI algorithms to establish who should be audited, then it is our opinion that the tax payer must have the right to be told on what basis this investigation is being undertaken. Inland Revenue audits and investigations are extremely stressful for everybody, and once you have been through an audit, it is an experience you will ever forget.

Miller Johnson always take approaches from Inland Revenue very seriously. We recommend our clients consider the use of an Audit Insurance, particularly if they are in risky industries such as building and, of course, cash businesses. Approaches of this nature by Inland Revenue do generally require professional input, and we find that our clients are satisfied with the conclusion of an audit, even if they did not particularly enjoy the experience!