8 Easy Ways to Get Yourself an IRD Enquiry
Over the 30 years I’ve spent in tax I’ve seen some pretty daft – and downright stupid – ways that business owners have invited the IRD to punish them for tax evasion. They just don’t think things through, taking the hugest risks by assuming the IRD are asleep or not interested. Well, having been involved in many tax investigations, let me tell you that they are no fun at all if you’re on the receiving end!
- Living on thin air
As we allknow, living from day-to-day is expensive, so if your drawings are consistently low and you have no other sources of income, it’s like a red rag to a bull.
- Paying undeclared takings into the bank
It matters not whether the accounts are in your name, that of your other-half, your kids or your mum, if you can’t explain where the cash came from it’s like an own goal.
- Involving others
Many business owners pay employees undeclared takings or tell others they’re doing cash jobs. Guess what happens when the employees get the push or they fall out with friends or their partner? Yes, the IRD Confidential Anonymous information line rings hot, as happened with a restaurant owner client of mine in London.
- Using diverted cash in substitution
In pre-Eftpos days a client of mine in the UK drew no cash from any of his bank accounts for five years and the IRD was thrilled to see that he hadn’t paid for any petrol or shopping via cheque or credit card. This was a strategy he lived to regret!
- Using credit cards in locations where you’re not supposed to be
Another client of mine went skiing every year in Switzerland, paying in diverted cash. All went well until one year, he ran out of Swiss francs and popped into the duty free to buy his mum a present, and without thinking used his credit card! The IRD noted that no flights or hotel bills appeared on bank or credit cards and it turned out to be a very expensive slip!
- Buying assets
A bit like the trip to Switzerland, a further client had used diverted cash to buy flash cars and a boat. Seeing as these stand out a bit, it didn’t take the IRD long to cotton on that there was low hanging fruit going begging!
- Paying for materials via credit where the job is for cash
Why would you pay for materials legitimately and then use these in a cash job? All the IRD have to do is trace through a test selection of materials to sales invoices which doesn’t take them very long at all. Builders, in particulars, even those that have in business for 25 years, just don’t seem to realise how easy this is for the IRD.
- Low gross profit margin
If you take out that much cash out of the till it’s going to significantly reduce your gross profit margin. What that means is that you are going to stick out like a sore thumb when the IRD run your figures through their new benchmarking system. Getting noticed at the IRD is not good for your finances or your stress level!