What Is an IRD Audit?

An IRD audit is a review carried out by Inland Revenue to check tax and business records and make sure the correct amount of tax has been paid.

An audit may involve reviewing:

• Income
• Business expenses
• GST records
• PAYE records
• Tax returns
• Accounting records
• Bank information
• Invoices and receipts
• Other documents relevant to your tax obligations

IRD explains that an audit can cover income tax, GST and employer returns.

An audit does not automatically mean that IRD believes you have done something wrong. It is a compliance process used to check whether tax obligations have been met correctly.

Why Does Inland Revenue Audit a Business?

There can be different reasons why Inland Revenue selects a taxpayer or business for review.

An audit may examine areas where IRD needs to establish whether the tax treatment, information or records are correct.

For businesses, this can involve reviewing:

• GST calculations
• Income reported
• Business expenses
• PAYE
• Payroll records
• Tax deductions
• Financial records
• Significant transactions
• Tax governance and internal processes

IRD’s tax governance guidance explains that it looks at how enterprises manage tax risks, processes, controls and compliance.

What Can an IRD Audit Cover?

The scope of an audit depends on the circumstances and the tax matters being reviewed.

Income Tax

IRD may review whether income has been correctly reported and whether claimed deductions and expenses are supported by appropriate records.

GST

A GST audit may examine taxable supplies, GST calculations, invoices, taxable supply information and GST returns.

PAYE and Employer Returns

If you employ staff, IRD may review payroll information, PAYE calculations and employer returns.

Other Tax Obligations

Depending on the circumstances, an audit can involve other tax obligations or transactions relevant to the taxpayer.

What Happens During an IRD Audit?

The exact process depends on the circumstances and scope of the audit.

Generally, you may need to:

1. Respond to Inland Revenue’s communication.
2. Understand what period and tax types are being reviewed.
3. Provide the requested records.
4. Answer questions about your tax affairs.
5. Explain particular transactions where required.
6. Provide additional information if requested.
7. Review the audit findings once IRD completes its work.

IRD provides an official Inland Revenue Audits guide (IR297) explaining different types of audits and what taxpayers can expect when selected.

What Records Does IRD Check?

Good record keeping is one of the most important parts of being prepared for an IRD audit Wellington.

IRD states that businesses need to keep their records for at least seven tax years. This includes electronic records.

Depending on your circumstances, records may include:

• Sales invoices
• Purchase invoices
• Receipts
• Bank statements
• GST records
• PAYE records
• Payroll information
• Accounting records
• General ledger
• Journals
• Expense records
• Asset records
• Tax returns
• Supporting documents
• Business transaction records

IRD also states that computer-based records must be retrievable and readable and contain the information required by law.

How Long Should You Keep Tax Records?

Businesses generally need to keep tax records for at least seven tax years.

This applies to both paper and electronic records. Additional retention requirements can apply in certain audit or investigation circumstances.

This is particularly important if your accounting records are stored digitally or through cloud-based accounting software.

Your business should be able to retrieve historical information if IRD requests it.

What If Your Records Are Stored Online?

Using cloud accounting software does not remove your record-keeping responsibilities.

IRD says computer-based records must:

• Contain the required information
• Be in English or Māori unless approval has been given otherwise
• Be kept for at least seven years
• Be retrievable
• Remain readable
• Be appropriately backed up

If you use accounting software, make sure historical records can still be accessed even if your business changes systems or providers.

How to Prepare for an IRD Audit

If you receive an audit notice, start by organising your records.

Step 1: Read the IRD Correspondence Carefully

Identify:

• What tax type is being reviewed
• What period is covered
• What records IRD has requested
• Whether there is a deadline
• Who you need to communicate with

Step 2: Gather Your Records

Collect the relevant financial and tax documents before responding.

Step 3: Reconcile Your Accounting Records

Check that your accounting software, bank records and tax returns are consistent.

Step 4: Identify Unusual Transactions

Review significant or unusual transactions before submitting information.

Step 5: Check GST and PAYE Records

If the audit covers business tax obligations, make sure your GST and employer records are organised.

Step 6: Get Professional Advice if Needed

If the audit involves complicated transactions, significant tax amounts or potential disputes, consider speaking with a tax professional.

IRD Audit Wellington: Common Records Checklist

Use this checklist if your business has received an audit notice.

Not every audit will require every record. The documents you need to provide depend on the scope of the audit.

What If IRD Finds a Problem?

An audit can result in different outcomes.

Depending on what Inland Revenue finds, you could:

• Have no change to your tax position
• Receive a refund
• Be required to pay additional tax
• Need to correct information
• Need to address penalties or interest
• Need to provide further information

IRD states that after an audit you may be entitled to a refund or may have to pay more tax.

If you disagree with an assessment or decision, there are formal processes that may apply. The appropriate next step depends on the specific circumstances.

Can an Accountant Help With an IRD Audit?

Yes. A tax accountant can help you understand the audit request, organise relevant records, review tax calculations and communicate with IRD where appropriate.

Professional assistance can be particularly useful if:

• The audit covers several tax years.
• Large amounts of tax are involved.
• GST is being reviewed.
• PAYE is being reviewed.
• You have complex business transactions.
• Your records are incomplete.
• You are concerned about potential additional tax.
• You disagree with an IRD position.
• You have received extensive information requests.

An accountant can also help identify gaps in your records before information is submitted.

IRD Audit Help for Wellington Businesses

For Wellington businesses, preparing for an IRD audit Wellington does not need to start only after receiving an audit notice.

Good tax compliance processes should operate throughout the year.

This includes:

• Maintaining accurate accounting records
• Reconciling bank accounts
• Reviewing GST returns
• Keeping supporting documentation
• Maintaining payroll records
• Filing tax returns correctly
• Monitoring tax deadlines
• Documenting significant transactions
• Reviewing tax risks

IRD’s tax governance guidance says good tax governance is fundamental to tax compliance and discusses processes, responsibilities, governance, testing and assurance.

What Is a Tax Control Framework?

For larger or more complex businesses, tax governance can go beyond simply filing tax returns.

IRD’s guidance identifies six building blocks for a tax control framework:

1. Tax strategy
2. Comprehensive processes
3. Responsibility
4. Governance
5. Testing
6. Assurance

These elements can help enterprises identify and manage tax risks and establish reliable tax compliance processes.

This can be particularly relevant for businesses with complex structures, significant transactions or larger tax functions.

What Should You Do If You Receive an IRD Audit Notice?

If you receive an audit notice, don’t ignore it.

Instead:

1. Read the notice carefully.
2. Identify exactly what IRD wants.
3. Check the relevant tax periods.
4. Gather the requested records.
5. Review your accounting information.
6. Identify any potential discrepancies.
7. Consider getting professional advice.
8. Respond within the required timeframe.

Being organised can make the process easier and help ensure that IRD receives accurate information.

IRD Audit Wellington: When Should You Get Professional Help?

Professional tax advice may be particularly useful when an audit involves:

• Multiple years
• GST
• PAYE
• Complex business structures
• Significant transactions
• Large tax adjustments
• Missing records
• Potential penalties
• Disagreement with an assessment
• Tax disputes

If you are unsure how to respond to an IRD audit Wellington request, getting advice before submitting complex information may help you understand the implications of what you provide.

IRD Audit Wellington: Key Takeaways

An IRD audit Wellington search often starts because a taxpayer or business has received an audit notice and wants to understand what happens next.

The most important steps are:

• Read the IRD request carefully.
• Understand the scope of the audit.
• Gather the relevant records.
• Check your accounting information.
• Keep your supporting documents organised.
• Respond within the required timeframe.
• Seek professional advice if the audit is complex.
• Continue maintaining accurate tax records.

IRD’s guidance confirms that good record keeping is essential and that businesses should retain tax records for at least seven years.