Revenue's compliance framework makes the type of intervention, timing of disclosure and handling of tax errors critical considerations for Irish accountants.

What is Revenue's Code of Practice for Compliance Interventions?

Revenue's Code of Practice for Compliance Interventions, introduced in May 2022, establishes a three-level framework for addressing taxpayer compliance risks. It distinguishes between routine compliance support, risk reviews and audits, and more serious investigations.

For accountants, understanding these distinctions is essential. The intervention level can affect a client's disclosure options, potential penalties and the approach needed to resolve an issue.

In a webinar on dealing with Revenue, tax adviser James Bradley examines how the framework operates, drawing on practical examples from his experience advising clients.

His central message is straightforward: respond promptly, establish the nature of the intervention and assess disclosure options before taking action.

1. Understanding Revenue's Three Levels of Compliance Intervention

The May 2022 Code introduced a graduated approach to compliance interventions, reflecting the nature and seriousness of the perceived tax risk.

Level 1: Supporting voluntary compliance

Level 1 interventions generally focus on helping taxpayers correct errors or address compliance issues before more formal action becomes necessary.

Examples discussed during the webinar include Revenue contacting a taxpayer about an outstanding VAT return or requesting a review of information previously submitted.

A Level 1 intervention can provide an opportunity to correct an error or make an unprompted qualifying disclosure, subject to the relevant conditions.

Bradley's practical advice is to deal with these requests promptly rather than allowing matters to remain unresolved.

Level 2: Risk reviews and Revenue audits

Level 2 interventions involve more formal examination of identified tax risks.

They can take two forms:

• Risk review: An examination of a specific risk or a limited number of risks in a taxpayer's affairs.
• Revenue audit: A more extensive examination of the taxpayer's compliance with relevant tax obligations.

A risk review might involve Revenue questioning the valuation used in a Capital Gains Tax computation or requesting supporting documentation for a particular deduction.

An audit can involve broader examination of records, transactions and supporting information.

The distinction matters because the scope of the intervention affects how the accountant should prepare the response.

Level 3: Investigations

Level 3 interventions concern suspected serious non-compliance and may involve investigations into tax evasion or fraud.

The disclosure opportunities available at earlier levels are not generally available once a Level 3 investigation has commenced.

Importantly, Revenue's three levels are not sequential. Revenue can initiate an intervention at the level appropriate to the perceived risk.

An accountant should therefore never assume that every case begins with a Level 1 notification.

2. Why a Revenue Risk Review Should Never Be Ignored

A risk review is narrower than a Revenue audit, but it still requires careful attention.

Bradley explains that risk reviews are generally focused on specific issues and may be conducted through correspondence rather than an examination at the taxpayer's premises.

Consider a client whose Capital Gains Tax return includes a property valuation that Revenue questions.

Revenue may request documentation supporting the valuation or the original acquisition cost.

The accountant's immediate priorities should be to:

1. Identify precisely which transaction or tax treatment Revenue is questioning.
2. Review the original return and supporting documentation.
3. Establish whether an error has occurred.
4. Consider whether a qualifying disclosure is appropriate.
5. Respond within the applicable timeframe.

The webinar also highlights the possibility of escalation where a taxpayer fails to engage with a risk review.

The practical lesson is not simply to answer Revenue's correspondence. It is to investigate the underlying issue before deciding how to respond.

For a more detailed discussion of risk reviews and Revenue audits, see the full CPDStore webinar.

3. Prompted vs Unprompted Disclosures: Why Timing Matters

One of the most important distinctions in Revenue's compliance framework is between prompted and unprompted qualifying disclosures.

An unprompted qualifying disclosure is made before the relevant Revenue intervention reaches the point at which the disclosure would be treated as prompted.

A prompted qualifying disclosure is made following notification of a qualifying Level 2 intervention, subject to the Code's requirements.

Both can offer benefits, but the potential mitigation of penalties differs.

Bradley uses a rental income example to illustrate the importance of examining more than the year Revenue has queried.

Suppose Revenue identifies a problem with mortgage interest deducted against rental income.

The accountant should not automatically restrict the review to the period identified in Revenue's correspondence.

Instead, they should examine whether the same treatment was applied in earlier years and consider the appropriate disclosure position for each period.

This matters because a prompted disclosure relating to one period does not necessarily mean every other affected period must be treated in the same way.

4. How Revenue Determines Tax Penalties

Not every tax error attracts the same penalty.

Bradley explains that Revenue distinguishes between different categories of taxpayer behaviour when determining penalties.

These include:

• Deliberate behaviour: Where the tax default involves intentional wrongdoing.
• Careless behaviour with significant consequences: Where a failure to exercise reasonable care results in a significant tax shortfall.
• Careless behaviour without significant consequences: Where a careless error falls outside the significant-consequences category.

The classification is important because it influences the starting penalty and the potential reductions available.

Other relevant factors include whether the taxpayer cooperates with Revenue and whether a qualifying disclosure has been made.

For accountants, the practical challenge is establishing what actually caused the error.

Was the problem a misunderstanding of tax treatment, a failure to maintain adequate records or an intentional omission?

The answer can materially affect how the case is handled.

Bradley also stresses the importance of cooperation. Providing relevant information, responding to reasonable requests and avoiding unnecessary delays can all matter when dealing with a compliance intervention.

Accountants should not assume that a particular percentage reduction automatically applies. Penalties must be assessed against the relevant category and disclosure conditions.

5. Self-Correction: When Can a Taxpayer Correct an Error Without a Penalty?

Not every tax return error requires a qualifying disclosure.

Revenue's self-correction procedures can allow taxpayers to correct certain errors without a tax-geared penalty, provided the applicable conditions are satisfied.

However, self-correction does not necessarily remove the obligation to pay additional tax or statutory interest.

Bradley explains that the permitted timeframe can differ depending on the tax involved.

For example, the webinar distinguishes between corrections relating to income tax and corporation tax returns and those relating to VAT or payroll.

This is particularly relevant when reviewing a client's year-end accounts and identifying errors in returns submitted during an earlier accounting period.

Before recommending self-correction, accountants should establish:

• The tax type and accounting period affected.
• The original filing deadline and applicable correction window.
• Whether the error qualifies for self-correction.
• The additional tax and interest payable.
• Whether a qualifying disclosure is required instead.

Self-correction is also not available for deliberate default under the conditions discussed in the webinar.

The practical message is to review identified errors early. Delaying a correction can reduce the options available to the taxpayer.

6. What Accountants Should Do When Revenue Makes Contact

The webinar brings together several practical considerations for accountants handling Revenue correspondence.

First, identify the intervention level. A Level 1 compliance request is not the same as a Level 2 audit notification.

Second, establish the scope of the issue. Determine the tax periods, transactions and supporting records involved.

Third, review the client's wider tax position. An error in one period may indicate similar issues elsewhere.

Fourth, assess the available correction or disclosure options. Timing, taxpayer behaviour and the type of intervention can all influence the outcome.

Finally, maintain clear communication with Revenue. Prompt, organised responses can help prevent avoidable complications.

For accountants managing several client compliance matters simultaneously, having a consistent process for reviewing Revenue correspondence is particularly valuable.

Frequently Asked Questions About Revenue Compliance Interventions

1. What are the three levels of Revenue compliance intervention?

Revenue's May 2022 Code of Practice introduced three levels of compliance intervention. Level 1 supports voluntary compliance and correction of errors. Level 2 involves risk reviews and Revenue audits, where identified tax risks receive more formal examination. Level 3 involves investigations into suspected serious non-compliance.

The levels are not sequential. Revenue may begin an intervention at any level based on its assessment of the risk. Accountants should therefore identify the intervention type immediately upon receiving correspondence and establish the taxpayer's available response and disclosure options.

2. What is the difference between a Revenue risk review and a Revenue audit?

A Revenue risk review generally focuses on a particular tax risk or a limited number of issues. It may involve requests for documents, explanations or supporting calculations.

A Revenue audit can involve a broader examination of the taxpayer's tax affairs and underlying records.

Both are Level 2 compliance interventions under the May 2022 framework, but their scope and practical requirements can differ.

Accountants should read the notification carefully, confirm the periods and taxes under examination, and establish whether any qualifying disclosure should be considered before responding.

3. What is the difference between a prompted and an unprompted qualifying disclosure?

An unprompted qualifying disclosure is made before the relevant intervention reaches the stage that would make the disclosure prompted. A prompted qualifying disclosure is made following notification of a qualifying Level 2 intervention.

The distinction matters because the potential reduction in tax-geared penalties can be greater for an unprompted disclosure.

Both types must satisfy Revenue's qualifying disclosure conditions. The accountant must consider the nature of the default, the tax liabilities involved, the timing of Revenue's notification and the applicable disclosure requirements.

4. Can a taxpayer avoid penalties by correcting a tax return?

A taxpayer may be able to correct certain tax return errors without a tax-geared penalty through Revenue's self-correction procedures.

However, eligibility depends on the nature of the error, the tax involved and the applicable correction timeframe.

Additional tax and statutory interest may still be payable even where a penalty does not arise.

Self-correction is not an alternative to addressing deliberate tax default. Where the relevant conditions are not satisfied, an accountant may need to consider whether a qualifying disclosure is appropriate.

5. What happens if a taxpayer ignores a Revenue compliance intervention?

Ignoring Revenue correspondence can create additional compliance difficulties and may increase the risk of further intervention.

A Level 1 request can identify an issue that requires clarification or correction. A Level 2 risk review or audit carries more formal requirements.

The accountant should establish the response deadline, gather the necessary records and communicate with Revenue where additional time or information is needed.

A prompt response does not guarantee that an issue will be closed, but it provides an opportunity to address the matter before it becomes more difficult to resolve.

6. Can a qualifying disclosure prevent publication of a taxpayer's name?

A valid qualifying disclosure can provide protection from publication of the taxpayer's name, subject to the relevant statutory conditions and the circumstances of the case.

The Code also addresses penalty mitigation and prosecution-related benefits associated with qualifying disclosures.

However, these benefits should not be assumed where the disclosure fails to satisfy the applicable requirements or where the taxpayer is excluded from making a qualifying disclosure.

Accountants should establish eligibility before advising clients on the potential consequences of disclosure.

Final Thoughts: Preparation Matters When Dealing With Revenue

Revenue compliance interventions require more than a quick response to a letter.

Accountants need to understand the intervention framework, recognise when disclosure opportunities may be available and establish the correct treatment of identified errors.

The most useful starting point is a structured review of the facts, records and relevant tax periods.

Early action can help preserve available options and support a more informed discussion with Revenue.

Watch the webinar:Dealing With Revenue: Code of Practice for Revenue Compliance Interventions, featuring James Bradley, for practical examples of risk reviews, audits, qualifying disclosures, penalties and self-correction.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The authors accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.