Some 100 pages of the C&AG’s extensive report for 2009 is devoted to Revenue matters, with a comprehensive analysis of tax receipts, Revenue activity metrics and trends. Overall, given the credit crunch and the severe decline in Exchequer receipts, compliance levels remained remarkably high in 2009.
Direct checks are perhaps the best indicator of compliance, and there were over 360,000 (excluding audits) of these on the taxpaying public last year. As the Institute has pointed out before, this number is excessive and places an inappropriate additional compliance burden on taxpayers. The vast majority are not raised because of perceived risk, and as a consequence only 6% of such interventions result in any additional yield for Revenue.
By comparison, up to 86% of targeted audits result in a yield. VAT accounts for most of the tax recovered, by quite some distance. The analysis of the amounts recovered suggests that the average penalty levied on tax default is in the order of 10% of the tax at issue. This shows that the emphasis in the legislation on Qualifying Voluntary Disclosure is clearly working as a mechanism for the recovery of underpaid tax in all but the most fragrant of cases. A new Code of Practice for Revenue Audits, expected in the next ten days or so, should further reinforce the notion of voluntary settlement.
Against this backdrop, the usefulness of the Revenue Random Audit programme has to be questioned. The argument for this random case selection is that it serves as a reference point for evaluating the success of the targeted audit programme. This argument is mistaken because compliance behaviour by the taxpaying public can only be determined over a period of years, and not simply by the random spot-checking of a subset of individual taxpayers at a point in time. As matters stand, the random audit programme is little more than an inconvenience for compliant taxpayers and skewed against the self employed.