Investigation Matters

Selection

Approximately 10% of all investigations carried out by the Inland Revenue will be selected at random by Head Office but these random selections will be targeted at trade sectors where tax is thought to be at risk. The hairdressing trade is a trade sector where it is generally considered that tax is at risk. Additionally, local Tax Districts may have their own program of investigations targeted at this sector because of local knowledge, often the result of information obtained in the course of successful investigations into the same or a related type of business in the area.

When a business is selected for investigation other than at random, the most common reasons are:

• information provided to the Revenue by a third party
• low and/or fluctuating ratio of purchases to takings, or some other inconsistency in the accounts
• low and/or fluctuating Drawings
• unexplained introductions of cash into the business
• technical offences, including failure or late notification of liability

Since the Revenue is allowed only one enquiry into a return, added to the above reasons for selection for investigation will be an enquiry into a technical matter (eg. the capital/revenue argument). Such an enquiry will have to be expanded to a full scale investigation or the opportunity to enquire into that particular return will be lost.

The Practitioner should consider all these matters with his client and ensure as far as possible that full explanations are provided with the accounts to avoid the need for the inspector to issue a notice of enquiry in respect of the return to resolve any doubts he might have about apparent anomalies or inconsistencies.