Tax update

LPT returns

Revenue is to contact around 300,000 property owners to remind them to submit a local property tax (LPT) return for 2022. LPT returns for 2022 were due for submission by 10 November 2021 and, to date, have been filed for 1.7 million properties.

The returns overdue for 300,000 properties include 160,000 for which LPT has been paid or a payment arrangement is in place. Revenue has acknowledged that some property owners who have paid their LPT may not realise they have not fully met their LPT obligations.

Revenue’s letters will remind these property owners they have a legal requirement to submit an LPT return, which includes a valuation of their property as at 1 November 2021. A Revenue estimate of the LPT liability will become due for payment if the property owner fails to submit a LPT return.

Revenue compliance interventions

On 11 February, Revenue published its new code of practice for Revenue compliance interventions, reflecting substantial changes in its longstanding approach to audits and interventions, primarily due to the introduction of a new Revenue compliance intervention framework from 1 May. The new code, which also takes effect from 1 May, will replace the current code of practice for Revenue audit and other compliance interventions.

The new framework introduces a three-level classification system for compliance interventions. The level at which the intervention is initiated will be important as it will determine the type and scope of the qualifying disclosure a taxpayer can make to Revenue in response.

The option to make a qualifying disclosure about a tax default is important, given the protection it offers the taxpayer against publication in the list of tax defaulters and against potential prosecution. It also results in lower penalties for tax defaults.

Level 1

Level 1 interventions are intended to support voluntary compliance through Revenue reminding taxpayers of their obligations and providing the opportunity to correct errors before any Revenue inquiry begins. The interventions will be broad-based and occur only where Revenue has not already carried out a detailed examination or review of the matters under consideration.

Revenue has provided some examples. They include:

• reminder notices to taxpayers about overdue returns
• issuing letters to groups of taxpayers advising them to self-review their tax returns for a particular issue
• communicating compliance issues through the media.

A Level 1 compliance intervention will not constitute an inquiry (for the purposes of section 1077F the Taxes Consolidation Act 1997). Therefore, taxpayers can address the issues identified through the self-correction mechanism (as long as they are within the relevant time limits) or by making an unprompted qualifying disclosure. This will allow the taxpayer to correct a tax default at the lowest rate of penalty (should any apply).

Level 2

Level 2 interventions focus on confronting compliance risks. There are two separate types of Level 2 compliance interventions: risk reviews and Revenue audits.

Tax practitioners will be familiar with the Revenue audit process, which remains largely unchanged, but a ‘risk review’ is a new type of Revenue inquiry. It is intended to focus on a risk or a small number of risks on a tax return, and most risk reviews will be conducted via correspondence.

The notification issued by Revenue will confirm the focus of the risk review and give the taxpayer 28 days to provide the information sought. Once the 28-day period has expired, the intervention is considered to have begun.

Risk reviews are at the same level as Revenue audits. Therefore, from the date a risk review notification is issued, the taxpayer’s opportunity to make an unprompted qualifying disclosure ceases.

A prompted qualifying disclosure can be made up to the point when the intervention begins. However, the scope of the disclosure required in response to a risk review is broader than the specific issue outlined in Revenue’s notification letter. For example, in the case of a tax default in the ‘careless behaviour’ category, the prompted qualifying disclosure must cover tax defaults for the tax and the period specified in the notification (not solely the issue raised by Revenue).

If additional time to prepare the qualifying disclosure is required, the taxpayer/agent can submit a notice of an intention to make one and seek an additional 60 days to prepare that disclosure. The timeframe to notify Revenue of the taxpayer’s intention has increased from 14 to 21 days.

Level 3

Interventions at Level 3 constitute Revenue investigations. These are directed at cases that Revenue believes involve serious tax or duty evasion, or where a Revenue offence may have been committed and may lead to a criminal prosecution. As is currently the case, once an investigation is initiated, the taxpayer cannot make a qualifying disclosure of any kind in relation to the matters under investigation.

Taxpayers and practitioners should be aware there is a keener focus in the new code and framework on the importance of taxpayers being proactive to identify and correct errors and tax defaults in their tax returns.

Up to now, interventions classified as ‘aspect queries’ have been very widely used by Revenue. In response to an aspect query, a taxpayer could make an unprompted qualifying disclosure at a low level of penalty. If the taxpayer did not respond, and Revenue subsequently initiated an audit, the taxpayer had a second opportunity to make a qualifying disclosure (albeit a prompted qualifying disclosure at a higher rate of penalty).

Under the new framework, aspect queries will cease and there are likely to be fewer opportunities to make an unprompted qualifying disclosure in response to contact from Revenue. Furthermore, on receipt of a risk review notification, the taxpayer will have one opportunity to make a valid and complete qualifying disclosure (for the tax and period in question).

Revenue has confirmed that not all aspect queries will be reclassified as Level 2 risk reviews. A mixture of Level 1 and 2 compliance interventions will replace aspect queries. The expected number of intervention notifications and their categorisation will become clearer when the framework becomes established over the year ahead.

Practitioners and taxpayers who are dealing with interventions opened before 1 May 2022 should note that the 2019 code will continue to apply to these compliance interventions.

While every effort has been made to ensure the accuracy of this information, no responsibility for loss or distress occasioned to any person acting or refraining from acting as a result of the material contained herein can be accepted by the Irish Tax Institute, authors, contributors or publishers. Professional advice should always be sought for your particular circumstances before acting on any tax issue.