How to get the tax auditor on side

The Taxation Office is hinting at a crackdown on small businesses this year by setting up a consultation group to educate book-keepers and deal with tax avoidance.

Michael Hudson, co-founder of the tax mediation group Effective Tax Services, says the secret to dealing with the tax office is to understand what the tax man needs. “There are two levels of need,” he says, “the operational needs and the more personal agendas, which are influential in the behavior of the official.”

Controlling the mood of an audit is as important as picking over the contents, Hudson says, because it can influence the auditor’s decisions. Businesses should establish control early, from the order of topics for discussion to when to take a break. A cooperative tone can also make the official look more favorably on a business.

Small-business people become so involved in the process that they fail to see themselves as negotiators, Hudson says. “The substance is so attached to their own pocket book that they find it harder to step back.”

Hudson advises people to be prepared to concede minor points while keeping sight of overall goals. Important points should be packaged together. Such tactics show a company is organised, which should be apparent throughout the audit.

Finally, Hudson says, tax auditors do not want to be thought of as policemen. Their priority is to make sure tax is paid and not to prosecute.