What happens if you under-declare your tax liability?
The Irish tax system is based on a self-assessment system. Businesses calculate their own tax bill and report their tax liability to Revenue. Occasionally, Revenue will check that businesses are filing their taxes correctly and this is called an audit.
Sometimes, businesses can miscalculate the amount of tax due and therefore, pay an incorrect amount to Revenue. If this happens to you, you’ll likely need to pay interest to Revenue and be put on their “defaulters list”.
If you’re unsure about your tax liability and you need a professional to help you file a tax return, get in touch with our professional Client Services Team who are always happy to talk you through the services you need.
In this guide, we talk you through 4 tips on how to avoid under-declaring on your tax bill.
Revenue's tax defaulters list
The Irish Revenue Commissioners regularly publishes its defaulters lists that showcase business and individuals who are listed as having imposed a penalty, fine, imprisonment or other penalties in respect of a tax or duty offence.
When the Revenue Commissioners publish a case, it means that the individual or business’ liability is over the ‘publication limit’.
The publication limit is a limit set in legislation and if you are assessed as owing Revenue amounts over this limit, then your name and details will be published on the list of defaulters.
The types of offences listed on this list include:
- Under-declaring or not declaring any tax
- Failure to lodge tax return(s)
- Failure to lodge Corporation Tax return(s)
- Failure to lodge VAT return(s)
- Failure to lodge p35 returns
- Failure to remit VAT
- Failure to produce books and records
- Delivery of incorrect Income tax return(s)
- Producing incorrect invoices
- Misuse of marked minerial oil
- Failure to hold a current liquor licence
- Alcohol and tobacco smuggling
- Illegal selling of cigarettes
So who is under-declaring Tax and VAT?
Not declaring or under-declaring taxes can happen to anyone – especially if you don’t know how to file a tax return or you’re not aware of the legislation around filing your taxes (check out our post on how to register for tax for more information). The important thing to remember is that there is a lot of resources and professionals that can help you file correct returns with Revenue.
Here are some examples of individuals and businesses that undeclared tax so you can see the monetary consequence of miscalculating your tax liability in Ireland.
If you’re concerned about your tax bill, contact our Client Services team today.
A private investigator from Dublin 6 who paid a total of €215,000 to the Revenue Collectors-General. This included €98,000 in tax, €44,000 in interest and €73,000 in penalties – all as a result of under-declaring both Income Tax and VAT.
A barber from Co Cork who paid €484,000 settlement that included €235,000 in tax, €76,000 in interest and €172,000 in penalties.
Tips on how to avoid under-declaring your tax bill
1. Make sure you have evidence to back up your calculations
Make sure all your books and records are kept up to date and organised. Revenue has the right to view any books and records for the last 6 years. So you need to make sure they’re kept safe and easy to find. This applies to both Sole Traders and Limited Companies. We recommend businesses using online accounting software to make sure they can keep track of records on the cloud.
Having proof of your calculations will make it very difficult for Revenue to dispute your tax bill. Start by understanding what books and records you need to keep and then make sure you are using them when preparing your tax returns at the end of the year. Records you need to keep include invoices, bank statements and receipts (check out our bookkeeping guide for small businesses for more information).
If you need help with accounting and compliance for your business, our Client Services Team are always happy to discuss our services for annual compliance, tax returns and bookkeeping.
2. Don't forget about preliminary tax
Paying preliminary tax is a big pain point for Sole Traders and Limited Companies in Ireland. In most cases, businesses either don’t know they need to pay it, or they forget to include it in their tax bill when calculating their own tax returns.
We have a guide on paying preliminary tax in Ireland. In short, preliminary tax is an advance payment on your tax bill due for next year. This means you need to pay this year’s tax liability and also next year’s tax liability. There are certain rules around calculating your preliminary tax bill and you can see these rules on our quick guide to preliminary tax in Ireland.
If you don’t know you need to pay this tax, then you are not going to be prepared to pay it. Many of our clients save for their preliminary tax bill all throughout the year. This could be saving 10-20% of their income each month, or ensuring they keep a lump sum of money for their tax bill at the end of the year.
3. Know the VAT rules and guidelines in Ireland
As consumers, Value Added Tax (VAT) is charged on almost all the goods and services we buy. You may not realise this when you are starting your own business (check out our guide on how to start a small business in Ireland as well). If you’re unaware that you need to register for VAT, it can easily slip through the net.
There are certain rules around registering for VAT and therefore, it can be tricky to understand when you should register. Here are the main rules around VAT registration:
- You don’t need to register for VAT straight away. You can wait until you reach the threshold or you can elect to register early
- The main VAT thresholds are; €37,500 for the sale of services and €75,000 for the sale of goods. This means that if you sell the threshold amount or above, over the course of 12 months (not calendar year), your business is required to register for VAT.
- You may elect to register for VAT if they deal with a lot of other business that charge VAT. However, you will need to prepare VAT returns bi-monthly which can be time-consuming and another area that will be penalised if calculated incorrectly.
Then registering for VAT means you need to start charging your clients VAT. This can get tricky depending on who your are selling to and where.
4. Use good online accounting software
Another way to help you correctly calculate your tax bill is to use good online accounting software. We understand that many business owners and Directors don’t have time to carefully sort their receipts and bank statements into cabinets or folders. Online accounting software allows you to store all your documentation in one place on the cloud. You can easily sort, find and share your documents with other members in your business or your accountant.
Clients of Accountant Online are given a free subscription to Xero Premium Package which is very helpful for Startups who are bootstrapping and can’t afford an accountant and a subscription to online accounting software.
Having this software helps you calculate your taxes because it means that all your data is stored in a cental location. There is no need to estimate invoice amounts, receipts paid or bank statements as they will all be available on your accounting software.
Talk to our Client Services Team today about our Startup Offer for new Limited Companies. We are always happy to talk you through the best services for your needs.
What do I need to do next?
If you want help from a professional Chartered Accountant, you can outsource your accounting to our trained team of accountants. Accountant Online is a firm of award-winning Chartered Accountants serving Ireland and the UK.
Larissa is a Fellow Chartered Accountant (FCA) and is the Founder and CEO of Accountant Online, which specialises in company formation, company secretarial, annual accounting services, bookkeeping, tax, and payroll services for micro and small companies in Ireland, Northern Ireland and the UK.
Larissa has been shortlisted for the Image ‘Businesswoman of the Year Award’ in 2017 and 2018 and awarded ‘Accountant of the Year’ in 2018. Larissa volunteers as a role model for LEO Donegal’s ‘Ambition’ programme and is a Lead Entrepreneur for ‘ACORNS’ and ‘Going For Growth’ which are development programmes designed to support ambitious female entrepreneurs, and for ‘Back For Business’, a development programme assisting returned emigrants or those planning to return to Ireland to start and develop a business. Accountant Online has won many awards, including ‘Best Small Practice’ in 2017, ‘Best Medium Practice’ in 2018, and in 2020, ‘Medium Practice of the Year’ and ‘Practice of the Year’.