Tax audit of sole proprietors on the general system

An individual entrepreneur (IEO) on the general taxation system is one of the forms of doing business that involves paying income taxes and maintaining full accounting. Unlike IEOs on the simplified system, entrepreneurs on the general system are required to:

• Keep detailed records of income and expenses.
• Submit an income declaration quarterly.
• Pay income tax (18%) and a single social contribution (SES).
• If hired labor is used, pay personal income tax and military duty.
• Comply with the requirements for maintaining primary documentation and accounting.

An IEO on the general system has the opportunity to reduce the tax base at the expense of documented expenses, but this also complicates the administration process and increases the risks during tax audits.

Tax audits are one of the most unpleasant situations for entrepreneurs. This is especially true for individual entrepreneurs on the general taxation system, as they are required to keep detailed records of income and expenses, submit declarations and pay taxes on time.

Types of tax audits for individual entrepreneurs

Individual entrepreneurs on the general system may encounter the following types of audits:

1. On-site audit - conducted without involving the taxpayer, based on the submitted declaration.
2. Documentary audit - scheduled or unscheduled, can be on-site or off-site. Covers all financial accounting.
3. Actual audit - conducted without warning, checks cash settlements, availability of licenses, etc.

Grounds for conducting an audit

An audit of an individual entrepreneur may be initiated in the following cases:

• Inclusion in the audit plan-schedule.
• Detection of inconsistencies in tax declarations.
• Filing a complaint by a counterparty or client.
• Use of high-risk transactions.
• Lack of tax reporting or its untimely submission.

How to prepare for a tax audit?

Here are some important steps:

1. Check the documents. All primary documents (contracts, deeds, invoices, bank statements) must be available.
2. Analyze the tax reporting. Make sure that all declarations are filed on time and taxes are paid.
3. Ensure the availability of accounting. Using accounting programs will simplify the audit.
4. Prepare for possible questions. The tax office may ask about financial transactions, mutual settlements with counterparties and sources of income.
5. Check the registration of counterparties. If you cooperate with individual entrepreneurs or companies, make sure that they are registered and pay taxes.

Entrepreneur's actions during the audit

During the audit, it is necessary to make sure that the auditors have the appropriate referral and official ID cards. All inquiries and requirements of the auditors should be recorded, and documents should be transferred only if there is an official request. Oral explanations are not allowed without prior consultation with a lawyer. It is important to request copies of all drawn up acts and certificates, as well as to find out the reason for the inspection and the conditions under which it was initiated.

How to appeal the results of the inspection?

If the tax authority has additionally assessed taxes or imposed fines:

• Submit an objection to the State Tax Service within 10 days.
• Appeal the decision administratively (to the State Tax Service of a higher level).
• Go to court. Judicial practice often sides with entrepreneurs if there is evidence of the illegality of the tax authority's actions.
• Document all violations by inspectors - this can help when appealing decisions in court.

Typical mistakes of individual entrepreneurs during a tax inspection

To avoid negative consequences, pay attention to the following common mistakes:

• Incomplete package of documents - the absence of contracts or primary documents makes it difficult to defend the position of the individual entrepreneur.
• Incorrect registration of transactions - a discrepancy between the data in the reporting and the actual financial transactions can arouse suspicions of the tax authorities.
• Independent interaction with auditors without a lawyer - entrepreneurs often provide unnecessary information that can be used against them.
• Missing the deadlines for submitting objections - not all individual entrepreneurs know that they have the right to appeal the decision of the State Tax Service within the established deadlines.
• Lack of verification of counterparties - cooperation with risky companies can be grounds for fines.

Why should you contact a lawyer during a tax audit?

Legal support will help:

1. Prepare documents in accordance with the requirements of the law.
2. Communicate with tax authorities competently and within the legal framework.
3. Protect the interests of individual entrepreneurs in court if the tax authorities make an unlawful decision.
4. Develop a defense strategy if you have a complex case or high risks of additional assessments.

Advice from a lawyer specializing in tax disputes

• Regularly conduct an independent check of documents.
• Keep electronic records to simplify control.
• In the event of an inspection, contact a lawyer to avoid fines and unlawful tax decisions.
• Monitor your counterparties, as their problems may affect you.
• Adhere to the deadlines for submitting reports and paying taxes to avoid increased attention from the State Tax Service

Proper preparation is the key to successfully passing the inspection without negative consequences. If you have any questions or need legal support, seek professional help!