What is a Revenue Audit? A Plain-English Guide for Irish Businesses
For many Irish business owners, receiving a letter from Revenue about an upcoming audit can be unsettling – especially if you’ve never experienced one before. But while the idea of a Revenue audit might sound daunting, it doesn’t have to be a crisis.
In this post, we’ll explain in plain English what a Revenue audit is, what to expect if you’re selected, and what you can do to prepare. We’ll also look at why good record keeping is one of the most important (and underrated) ways to stay compliant – and avoid unnecessary stress.
What is a Revenue Audit?
A Revenue audit is an official examination of your tax returns and financial records by the Revenue Commissioners. Its purpose is to check that you’ve paid the correct amount of tax and that your returns are accurate and complete.
Audits may focus on:
- A specific tax (such as VAT or income tax)
- A specific time period
- Or your overall compliance across multiple taxes and years
Revenue has broad powers to conduct these audits under Ireland’s self-assessment system. This means it’s your responsibility to calculate and file your taxes correctly – and Revenue steps in to verify if they suspect something may be wrong, or as part of their random checks.
Why Might a Business Be Audited?
There are a few common reasons why a business might be selected for audit:
- Late or missing returns
- Large discrepancies in reported income or expenses
- Unusual patterns compared to industry averages
- Third-party information (e.g. from customers, suppliers or banks)
- Random selection
It’s also increasingly common for Revenue to use real-time data and electronic profiling systems like REAP to flag anomalies.
Being audited doesn’t automatically mean you’ve done something wrong – but it does mean Revenue has questions that require answers.
Understanding Level 1, Level 2 and Level 3 Compliance Interventions
Level 1 Compliance Intervention
A Level 1 compliance intervention is generally low-risk and non-confrontational. It’s designed to encourage voluntary compliance and might include:
- A reminder to file an outstanding return
- A request to carry out a self-review
- A profile interview (an informal meeting to understand your business)
You can still make an unprompted qualifying disclosure at this stage, which can significantly reduce penalties if errors are found.
Level 2 Compliance Intervention
A Level 2 compliance intervention is more serious and indicates that Revenue has identified a specific risk. These interventions include:
- Risk Reviews (a review of a specific issue, often desk-based)
- Revenue Audits (a more in-depth review that can involve a visit to your premises)
Level 3 Compliance Intervention
A Level 3 intervention is a full Revenue Investigation. This means Revenue believes that serious tax evasion may have occurred. These investigations can lead to:
- Criminal prosecution
- Public listing as a tax defaulter
- Severe penalties
Once a Level 3 letter is issued – or an investigation begins – you cannot make a qualifying disclosure in relation to the matter under investigation.
The Audit Process: What to Expect
If you’re selected for a Revenue audit, you’ll usually receive written notice at least 28 days in advance. This letter will outline:
- The type of audit (often a Level 2 compliance intervention)
- The taxes and periods being reviewed
- The start date of the audit
- Your option to make a prompted disclosure
The audit itself typically includes:
- A pre-audit meeting (sometimes)
- A visit to your premises or a desk-based review
- An opening interview
- A review of your books, records and tax returns
- A closing meeting and a potential settlement discussion
In some cases, Revenue may decide to expand the audit to include more years or other taxes if they find issues during the initial review.
Disclosures and Penalties
If you discover a mistake in your tax returns even before an audit you may be able to correct it through a qualifying disclosure. This can significantly reduce penalties, prevent your name being published on the list of tax defaulters, and avoid criminal prosecution.
There are two types:
- Unprompted Disclosure – made before any audit or Level 2/3 intervention is notified
- Prompted Disclosure – made after you’ve been notified but before the intervention starts
The earlier you act, the better the outcome usually is
The Importance of Good Record Keeping
One of the best ways to stay audit-ready and avoid problems in the first place is by keeping proper business records. This is something every business is legally obliged to do, even if they’re small or new.
Good records help you:
- Accurately calculate tax liabilities
- Claim the deductions you're entitled to
- Respond quickly and confidently to Revenue queries
Revenue expects that businesses retain documents such as:
- Sales invoices and receipts
- Purchase and expense records
- Payroll and VAT records
- Bank statements and reconciliations
These should be kept for at least six years. Digital records are acceptable, provided they are accessible and legible.
If your records are incomplete or disorganised, it increases the risk of penalties – even if your tax was more or less correct.
What Happens After the Audit?
Once the audit concludes, Revenue will issue their findings. This may lead to:
- No further action – if everything is in order
- A settlement – if underpayments are found
- Further investigation – in more serious cases
Where tax is underpaid, interest and penalties may apply. However, cooperating fully throughout the process and making a disclosure can significantly reduce the penalties imposed.
Final Thoughts
Revenue audits are a normal part of the tax system in Ireland – but they can feel overwhelming if you’re unprepared. The good news is that with clear records and the right professional support, most audits can be resolved efficiently.
If you’ve received a letter from Revenue or are concerned about a possible audit, don’t panic, but don’t ignore it either. Getting advice early can make all the difference.
Need Help Navigating a Revenue Audit?
I provide confidential, expert support for businesses facing Revenue audits or compliance issues. If you’d like help reviewing your situation or making a disclosure, get in touch today to book a consultation.
This article is intended for informational purposes only and should not be considered a replacement for professional advice. The author(s) disclaim any liability for actions taken or not taken based on the content of this document. It is recommended to seek tailored advice before making any decisions related to the topics discussed in this article.
