Jeremy Tauri: Audit insurance can pay off

By Jeremy Tauri

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Being audited can be an expensive and time-consuming process.

The IRD is stepping up its audit activity, so more businesses could find they come under its magnifying glass.

It is estimated that for every $1 the IRD spends on audits it gets a return of $6.

That's a pretty good recovery rate.

If you could spend a dollar and make $6 would you stop?

The IRD is sharing information with other departments and in some cases writing to accountants en masse, asking whether there are any businesses among their clients which may need to come clean about anything, or go back and check that everything has been done by the book.

As well as finding any tax that you should have paid -- and didn't -- if the IRD comes to check you out and finds something amiss it will add shortfall penalties, late payment penalties and interest.

A small bill can very quickly turn into a big one.The IRD audit activity doesn't indicate that naughty businesses and clever accountants are out to beat the tax system, or that there is widescale shirking of responsibility going on.

Tax legislation is still quite complex for the volume of SMEs in New Zealand and there are still a lot of businesses who are using DIY methods that leave something to be desired.

Have you considered insurance for accounting fees in the event of an audit? You pay a couple of hundred dollars a year to be covered for up to $10,000 in accounting fees. Like most insurance policies, it's an annoying payment. But the one year you do you'll be very glad to have it.

Jeremy Tauri is an associate at Plus Chartered Accountants.

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