Tax Audit Services: A Guide for New Zealand Businesses

Tax compliance is an important responsibility for every New Zealand business. Accurate tax records, correctly prepared returns and appropriate documentation can help businesses meet their obligations and respond confidently if Inland Revenue reviews their tax affairs.

Tax audit services can provide businesses with professional support before, during or after a tax audit. Depending on the circumstances, this may involve reviewing tax records, identifying potential issues, responding to information requests, assessing tax risks or helping management understand the implications of an Inland Revenue audit.

Inland Revenue describes an audit as a check of tax and business records to determine whether the correct amount of tax has been paid. Audits can cover areas including income tax, GST and employer returns.

What Are Tax Audit Services?

Tax audit services involve reviewing an organisation’s tax affairs and supporting records to identify potential errors, inconsistencies or areas of tax risk.

A tax audit service provided by an accounting or tax professional is different from an audit conducted by Inland Revenue. Inland Revenue carries out tax audits to check compliance with New Zealand tax laws, while a professional adviser may help a business prepare for, respond to or manage tax-related issues.

Depending on the engagement, tax audit support may include:

• Reviewing tax returns and supporting calculations
• Examining GST records
• Reviewing income tax treatment
• Checking deductible expenses
• Assessing payroll-related tax obligations
• Reviewing tax documentation
• Identifying potential tax risks
• Preparing information requested by Inland Revenue
• Supporting communication with Inland Revenue
• Reviewing findings following an audit

The scope should be tailored to the business and the specific tax issues involved.

What Is an Inland Revenue Tax Audit?

An Inland Revenue tax audit is an examination of a taxpayer’s financial affairs to check whether the correct amount of tax has been paid and whether tax obligations have been met.

Inland Revenue may audit different types of tax and business records, including income tax, GST and employer returns.

An audit can range from a review of a particular transaction or tax return to a broader examination of business records.

The outcome can vary. Following an audit, a taxpayer may be entitled to a refund, or may need to pay additional tax depending on what Inland Revenue finds.

Why Might a Business Be Selected for a Tax Audit?

Being selected for an audit does not automatically mean that a business has done something wrong.

Inland Revenue uses information and risk assessment processes when determining which tax affairs require closer attention.

Potential reasons for an audit or review can include unusual patterns in tax information, discrepancies between different records, specific transactions or areas of tax risk.

The reason for selection can vary depending on the taxpayer and the type of audit.

Businesses should therefore avoid assuming that an audit notice means wrongdoing has been established.

What Does a Tax Audit Examine?

The areas examined will depend on the scope of the audit.

Income Tax

Inland Revenue may examine whether business income has been correctly reported and whether expenses have been appropriately treated.

This can include reviewing revenue records, accounting reports, expense claims and supporting documentation.

GST

GST records may be examined to determine whether GST returns have been correctly prepared and whether transactions have been appropriately treated.

Employer Obligations

Businesses with employees may have records relating to PAYE and other employer obligations examined.

Business Expenses

An auditor may examine whether expenses claimed against business income are supported by appropriate records and meet the relevant tax requirements.

Inland Revenue notes that records are important for determining income, expenses and GST obligations, and taxpayers must generally retain relevant records for seven years.

Transactions and Accounting Records

Inland Revenue may also examine accounting system records, bank information, invoices, receipts and other documents relevant to the tax affairs being reviewed.

What Records Are Needed for a Tax Audit?

Good record keeping is one of the most important aspects of tax compliance.

Depending on the nature of the audit, a business may need to provide:

• Sales invoices
• Purchase invoices
• Receipts
• Bank statements
• Credit card records
• General ledger
• Accounting system reports
• GST records
• Payroll records
• PAYE information
• Expense documentation
• Asset records
• Contracts
• Business correspondence
• Tax returns and supporting calculations

Inland Revenue states that businesses must generally retain tax records for at least seven years. Records can be maintained in paper or electronic form, provided they meet the applicable requirements.

For businesses using accounting software, electronic records also need to remain retrievable and readable if they are required for an audit.

How Do Tax Audit Services Help Businesses?

Professional tax audit support can help businesses understand what is being reviewed and organise the information required.

Reviewing Records Before an Audit

A tax professional can review relevant records and identify potential inconsistencies before information is provided to Inland Revenue.

This may give management an opportunity to investigate issues and understand their position.

Responding to Information Requests

Tax audits can involve requests for financial records, explanations and supporting documentation.

Professional support can help businesses organise responses and ensure relevant information is addressed appropriately.

Identifying Tax Risks

A review may identify areas where the business’s tax treatment, documentation or processes require further attention.

Supporting Communication

Tax audit services can help management understand communications from Inland Revenue and coordinate responses.

Reviewing Audit Findings

After an audit, professional advice can help a business understand the findings and consider the appropriate next steps.

The Tax Audit Process

The exact process varies depending on the circumstances, but a tax audit generally involves several stages.

1. Audit Notification

Inland Revenue communicates that it intends to examine particular aspects of the taxpayer’s affairs.

The scope may relate to specific tax types, periods, transactions or broader business records.

2. Information Gathering

The taxpayer may be required to provide relevant records and information.

The records requested depend on the scope of the audit.

3. Examination

Inland Revenue examines the information provided and may ask additional questions or request further documentation.

4. Discussion of Findings

Where issues are identified, the taxpayer may have an opportunity to provide further information or explanations.

5. Finalisation

The audit is finalised based on Inland Revenue’s findings.

Depending on the outcome, there may be an adjustment to the taxpayer’s position, a refund or additional tax to pay.

Businesses should respond carefully to audit correspondence and seek professional advice where the issues are complex or potentially significant.

Tax Audit vs Financial Statement Audit

A tax audit and a financial statement audit have different purposes.

The two processes should not be confused.

A financial statement audit may consider tax balances and tax-related risks, but it is not a substitute for an Inland Revenue tax audit.

Tax Audit Services for GST

GST is an important area of tax compliance for many New Zealand businesses.

Errors can arise from incorrect GST treatment, missing documentation, incorrect calculations or differences between accounting records and GST returns.

A tax audit review can examine relevant GST records and identify potential inconsistencies.

Businesses should maintain appropriate taxable supply information and supporting records. Inland Revenue specifically identifies GST records among the business records that may be required during an audit.

Tax Audit Services for Payroll

Businesses with employees have additional tax-related responsibilities.

Payroll records can therefore be an important part of a tax audit.

A review may consider areas such as PAYE calculations, payroll records, employee payments and related employer obligations.

Businesses should maintain clear payroll documentation and ensure that payroll processes are appropriately reviewed.

Tax Audit Services and Tax Governance

Tax compliance should ideally be managed throughout the year rather than only when a tax audit occurs.

Larger or more complex businesses may benefit from a formal tax control framework.

Inland Revenue identifies three core elements of an effective tax control framework: evidence that the framework exists, design effectiveness and operational effectiveness. It also expects tax processes and controls to be documented and tested regularly.

A tax governance review can therefore help a business identify weaknesses before they develop into larger compliance problems.

How Businesses Can Prepare for a Tax Audit

Good preparation starts with maintaining accurate records throughout the year.

Businesses should:

Keep records organised: Maintain invoices, receipts, bank records and other supporting information systematically.

Reconcile accounts regularly: Differences between accounting records and tax returns can create unnecessary questions.

Review tax treatments: Significant or unusual transactions should be reviewed carefully.

Maintain documentation: Keep evidence supporting income, expenses, GST treatment and other tax positions.

Separate business and personal transactions: This can make business records clearer and easier to verify.

Respond promptly: If Inland Revenue requests information, businesses should pay attention to the requested timeframe.

Business.govt.nz also recommends maintaining accurate financial records and keeping them for seven years, including invoices, receipts, salary and wage records and banking information.

What Happens If Errors Are Found?

Finding an error does not necessarily mean that a business has deliberately breached tax law.

Errors can arise from incorrect calculations, incomplete records, misunderstandings or changes in circumstances.

The appropriate response depends on the nature and significance of the issue.

Businesses should avoid ignoring identified problems. Where necessary, professional tax advice can help determine the appropriate way to address an error and communicate with Inland Revenue.

How to Choose Tax Audit Services

Businesses considering professional tax audit support should look beyond price.

Relevant Tax Experience

Choose a provider familiar with New Zealand tax obligations and the type of tax issue involved.

Understanding of Inland Revenue Processes

Experience dealing with tax reviews and audits can help a professional understand how to organise information and respond appropriately.

Strong Analytical Skills

Tax audits can involve large volumes of accounting and transaction data. The ability to identify inconsistencies and potential risks is valuable.

Clear Communication

A good adviser should explain tax issues in straightforward language and communicate clearly with management.

Confidentiality

Tax audit work often involves sensitive financial and business information. Appropriate confidentiality and information-handling practices are essential.

Practical Advice

The goal should not simply be to identify problems. A useful tax audit service should help the business understand the issue and determine practical next steps.

How Aurora Financials Can Help

Aurora Financials can support New Zealand businesses with accounting and financial processes that help maintain accurate and organised tax records.

Good bookkeeping, reconciliations, financial reporting and documentation can make it easier for businesses to meet their tax obligations and respond to requests for information.

Where a business is facing an Inland Revenue audit, professional support can also help management organise relevant records, understand potential issues and coordinate the information required for the audit.

For businesses that want to strengthen their tax processes before an audit occurs, Aurora Financials can help improve accounting procedures and establish more consistent financial record keeping.

Final Thoughts

Tax audit services can provide valuable support to businesses dealing with an Inland Revenue audit or looking to identify tax compliance risks before they become larger issues.

An Inland Revenue audit is designed to check whether a taxpayer has paid the correct amount of tax and complied with tax laws. It can involve income tax, GST, employer obligations and other areas depending on the scope.

Maintaining accurate records throughout the year is one of the most effective ways to prepare. Businesses should generally retain relevant tax records for at least seven years and ensure that electronic records remain accessible and usable.

With appropriate record keeping, tax governance and professional support when needed, businesses can approach tax audits in a more organised and informed manner.

Frequently Asked Questions About Tax Audit Services

1. What are tax audit services?

Tax audit services involve professional support with reviewing tax records, identifying potential tax risks, preparing for an Inland Revenue audit, responding to information requests and addressing audit findings.

2. What does Inland Revenue check during a tax audit?

The scope varies, but Inland Revenue may examine income tax, GST, employer returns, financial records, transactions and supporting documentation.

3. How long should New Zealand businesses keep tax records?

Businesses generally need to keep relevant tax records for at least seven years. This includes both paper and electronic records.

4. Does receiving a tax audit notice mean a business has done something wrong?

No. Selection for an audit does not automatically establish that a business has made an error or breached its tax obligations. Inland Revenue uses different approaches to identify tax affairs that may require review.

5. Can an accountant help during an Inland Revenue audit?

Yes. A business can engage a tax adviser or other authorised representative to assist with its tax affairs. The adviser can help organise records, understand requests and communicate with Inland Revenue where appropriate.

6. What happens after a tax audit?

The outcome depends on Inland Revenue’s findings. A taxpayer may receive a refund, have no adjustment or be required to pay additional tax. Other consequences may apply depending on the circumstances.

7. How can a business prepare for a tax audit?

Businesses should maintain accurate records, reconcile their accounts regularly, retain supporting documentation and review significant or unusual transactions. Having organised records makes it easier to respond to information requests if an audit occurs.