How to get ready for tax audit

In a community group on WhatsApp, someone asked how he or she can get ready for a tax audit at a company he works for. The answer was provided by the group. Here, we will highlight and explain the process for you. So that you will understand how tax audit works, get ready for it, and avoid what can put your company in a big mess.

1. What's a tax audit?

It means the audit of an organization with respect to tax computation and filing. Here, the tax authority, in most cases, the federal inland revenue service (FIRS) calls for an audit of an entity on specific days of a week. Next, they come in and examine certain business documents to see if the information provided and the tax computed and paid are in compliance with the available tax acts in the country.

2. When do tax audits occur?

Tax audit is done every six years. When a company is six years, it management should know that a tax audit is eminent. However, there are times when an audit may occur in less than six years. This happens if the tax authority believe there is a tax evasion in the entity.

3. Who does tax audit?

The FIRS and the States’ internal revenue service such as the LIRS carries out this examination. Company income tax, VAT, Capital gains tax, and WHT are done by the Federal tax authority in Nigeria. While, personal income tax, PAYE, certain capital gains tax are done by the state authorities.

4. What are the documents required in a tax audit?

Document required in a tax audit includes the following:

Audited Financial Statements/reports
Trial Balance
Ledger entries (if requested)
Suppliers’ invoices
Sales invoices
Sales/Purchases Agreements
Loan Agreements (if any)
Certificate of Acceptance for the purchase of Fixed Asset
Chart of Accounts
Payroll and Form H1 (for state revenue authorities)
Evidence of VAT and WHT Remittances
VAT and WHT Schedules
Board Meeting Resolutions

The authority may not request for all these information if they are not available. However, the minimum are the annual report, source documents relating to VAT such as sales and purchases documents and trial balance. If it is your first time to be involved in a tax audit, it is advisable to have a pre tax meeting with the authorities.

5. Pitfalls to avoid during tax audits?

Paying taxes is a compulsory activity in a country. Failure to do so puts a business at risk. In SWOT analysis, a company must be careful with regards to its weaknesses and threats. And failing to pay the correct tax can put an entity into threat. Tax authorities have the power to close down an entity. They also have the right to charge penalties that can drain the business cash flows.

When the staff of the FIRS comes for a tax audit it is important that the company finance person provides all additional documents requested. Failing to do so means that the entity is depriving the FIRS the right to information of the entity during audit and may result in penalties that can lead to liquidation of the entity.

6. Conclusion

In final words, a tax audit is not done by the external auditor of a company but the tax auditor of the FIRS and other tax authorities in the country. More so, it is paramount to note that no one in the entity should prevent the staff of those authorities from documents requested. Make the staff happy so that you get good results from them.