Tax Inspections: The Seven Wonders of Self-Audit
In our previous article we told you which companies could be the most probable targets for tax inspections. Today, we are talking about getting ready for a visit from the tax office.
In order to prepare for a tax inspection, we at Accountor Ukraine recommend that your company fconduct an internal "self-audit" of your accounting and tax records. You can have an outsourcing company do that for you, or you can ask your Accountants to tackle this. So, what are we waiting for? Where do we start? Let's get down to business!
1. Review Your Company's Financial Statements
Make sure that your financial statements are correct and comply with all the requirements. Do not hope that the tax authorities might overlook possible mistakes or discrepancies. According to Murphy's laws, things may go wrong, and even the smallest details may come under scrutiny. Therefore, if there are any questionable points in the reports, you should think in advance how you are going to explain them and you shuould also prepare the supporting documents if necessary.
2. Verify the Accuracy of Your Accounting Records
What does it mean to verify the accuracy of your accounting records? Make sure that all the profits and expenses are correct, and check the recorded exchange rate differences, as they may have affected the amounts of profits and losses. Do not forget to check payroll accruals and accruals of social contributions (as well as other payments to employees), as all of them must comply with the respective regulations.
3. Analyze Your Tax Accounting
Make sure that all taxes and fees that are due have been paid on time. Keep track of tax payment deadlines and cross check the dates in the corresponding documentation. Check if you have all the required documents related to your tax obligations, and if you are getting all the tax rebates your company is eligible for.
4. Check the Availability of Original Documents
Although Ukraine is moving towards digitalization, many companies have not fully transitioned to electronic document management yet. Therefore, here is a quick reminder to check if you have all the source documents. Apart from the invoices and goods delivery notes, talk to your Accountants and Lawyers, and have them make a list of other documentation that the tax inspectors may demand (based on your company's industry and other peculiarities).
5. Learn About Your Rights and Obligations
Every cloud has a silver lining, as they say, and, believe it or not, so does a tax inspection. You do have certain obligations towards the inspectors, but you also have certain rights protected by the law. To ensure that the inspection goes smoothly, read all about your rights and obligations (and the rights and obligations of the tax authorities during an audit!) beforehand.
By the way, if the authorities fail to provide the taxpayer (or the taxpayer's officials, or the individuals in charge of their accounting) with the required documents in cases defined by the Tax Code, or if the documents they provide do not comply with the requirements, the taxpayer has the right to not let he supervisory authorities conduct an on-site audit or a factual audit. So, there are cases when you can actually say "no" to an inspection. (Of course, you may still let them conduct the audit - the decision is yours).
6. Draw Up / Update Your Accounting Policy
Check whether your company's Accounting Policy aligns with the approaches and assessments your Accountants are using. Unfortunately, you will not get a 100% guaranteel that you pass the audit if you do that. And yet, in many cases an adequate Accounting Policy document can be used to prove the legitimacy of the accounting approaches used by taxpayers.
7. Opt for Outsourced Audit Support Services
If the day of the tax inspection is approaching, and you are not sure you have the time to prepare, think about calling some external experts: e.g., a tax consultant, an accountant and/or a lawyer with relevant experience. This way, you will enable your in-house Accountants to focus on the company's daily routine while the outsourcing experts address the shortcomings in your paperwork.
So, how do you get ready for a tax inspection? Make a plan, check the compliance of your accounting with the respective regulations, and prepare all the supporting documents and data the inspectors may require. Probably, the best advice for business owners and CEOs is to stay one step ahead and to conduct a "self-audit" just in case, in order to be prepare for a potential inspection.
The Accountor Ukraine experts can check the compliance of your accounting records, documentation, taxes etc. with the applicable laws and regulations, identify the risks and find the ways to mitigate them. We will help you prepare for a tax inspection in the most professional and stress-free manner possible!