A tax audit of your books: what to expect and what keeps it short

A books examination is always announced in advance, which means you have time to prepare. What decides whether it stays short is not luck but five reconciliations. Here is what the tax administration checks, what you are obliged to hand over, and what an unexplained difference costs you.

Three kinds of visit, and they are not the same

The tax administration comes by in three ways, and knowing which of the three you have on the line saves a lot of anxiety.

• A business visit: information is gathered about how you operate and about your administration. You almost always receive advance notice, and a report of the visit is made.
• An on-site observation: the daily running of the business is looked at, who works there and whether your staff's identities check out. Here too you almost always receive advance notice, without the exact moment being fixed.
• A books examination: a check of your returns and your administration over a given period, or of specific parts of it. A books examination is always announced in advance.

That last one is the most important sentence in this article. A books examination never arrives unannounced, so anyone turning up unannounced for one is not conducting one.

What exactly gets checked

A books examination is a check of what you declared, tested against what your administration says. That can cover the whole period or one part of it, for instance only VAT or only payroll taxes. The announcement states which period and which parts are in scope, and that decides what you put ready.

The duty to provide information

You are obliged to make your books, documents and other data carriers available on request, within the term set for it. That is not an optional request: withholding information you are required to provide is punishable and can lead further to a formal information decision, to a deduction not being accepted, or to proceedings.

The practical side of this: make sure your administration can be delivered. An export you can hand over within a few days is the difference between an examination that moves along and one that expands.

What keeps an examination short

There is no trick to it, only an administration that reconciles on five points.

• Your bank balance reconciles to your general ledger per month.
• The invoice behind every entry can be found, and that invoice meets the invoice requirements.
• Private and business are separated, and whatever did run through is recorded in the current account.
• Revenue in your books reconciles to the sum of your VAT returns over the same period.
• Your payroll administration is complete, including the contracts and the identity details.

What makes an examination long is not a mistake but a difference nobody can explain. Every unexplained difference produces a question, and every question produces another sample.

What can come out of it

A report of the examination is made. If everything checks out, that is the end of it. If too little tax turns out to have been paid, a correction follows with an additional assessment, and where there is culpability a penalty can come with it.

If you disagree with the outcome, that is a tax law discussion. It calls for someone who does that for a living, and that is not your bookkeeper.

What we do when an examination comes

We are the point of contact for the data request. We deliver the exports from your administration, prepare the reconciliations that are asked for, and make sure the documents behind an entry can be found. If something does not add up, we say so before the inspector asks.

What we do not do is represent you in a discussion about the outcome or about a penalty. That is advice and litigation, and for that we refer you to a specialist.

In short

• A books examination is always announced in advance; a business visit and an on-site observation almost always.
• The announcement states the period and the part in scope, and that decides what you put ready.
• You have to make your administration available; not doing so is punishable and can cost you a deduction.
• Five reconciliations decide whether it stays short, and unexplained differences make it long.
• We deliver the data and the reconciliations; a discussion about the outcome belongs with a specialist.