I Received a Letter from the Tax Authority — What Should I Do?

When a letter from the Tax Authority arrives at your door, the first feeling is anxiety. But before you panic, it's important to understand: exactly what are they asking for, what am I required to submit, and what are the critical deadlines?

A letter from the Tax Authority can serve entirely different purposes. It could be a request for document completion, a routine audit of a report you filed, or a demand for payment of taxes on income you failed to report properly. Each case requires a different response, and the details determine the outcome.

On this page, we will cover everything you need to know: how to read a letter correctly, how to prepare the required documents, what deadlines you must not miss, and what common mistakes accountants see repeatedly in the field.

If you are an exempt business owner, licensed business owner, company owner, or an employee dealing with a tax demand — this guide is for you.

What is a Tax Authority Letter and Who Does It Concern?

A tax authority letter is formal correspondence between the tax authority and a person or business that has some tax obligation. This is not necessarily a sign of a problem — sometimes it is a routine request, sometimes it is a firm demand.

The most common types of letters:

• Request for Document Completion — the tax authority requests missing documents for the report you submitted, such as invoices, receipts, or asset declarations.
• Request for Clarification — they ask why certain income was reported in a certain way or why there is a discrepancy between reports from different years.
• Payment Demand — the tax authority has determined that additional tax is owed for income that was not properly reported, or advance payments that were not made.
• Audit Notice — they notify you that they are opening an audit regarding certain years.

This letter can be sent to an exempt business that opened a business in a certain year, to an licensed business that reported VAT, to an employee who has additional income that was not properly reported, to a private company that needs to submit an annual report, or to any self-employed person who has any reporting issue.

How to Read a Letter from the Tax Authority — What You Need to Pay Attention To

The first step is to read the letter carefully. This may seem simple, but many people miss vital details.

In every letter from the Tax Authority, you will find:

1. Case Number — This is your identifier in all correspondence with the authority. Keep it handy.
2. Subject Matter — What exactly they are asking or demanding. Read it again and again until it is clear.
3. Exact Period — Which years or periods the letter refers to. This is critical because reporting may differ for each year.
4. Deadline for Response — This is the date you must not miss. If you miss it, it could lead to penalties.
5. What Exactly Must Be Submitted — A clear list of documents, reports, or explanations.
6. Where to Send the Response — Sometimes through the Tax Authority's online portal, sometimes by registered mail.

If you do not understand something in the wording of the letter, do not guess. This is exactly the place to call an accountant or submit a question through the authority's portal.

Practical Steps — How to Respond to a Tax Authority Letter

After you have read the letter and understood exactly what they want, it is time to take action.

1. Collect All Required Documents — Check the list of documents requested by the Tax Authority. If these are invoices, receipts, or capital statements, collect them in chronological order. If there are missing documents, update now, not at the last minute.
2. Check Your Reporting from the Relevant Years — If they ask about specific income, check how you reported it in your tax return or pay slip. Sometimes there is a simple typing error or classification mistake that can be easily corrected.
3. Prepare a Written Explanation if Required — If they ask why you reported something in a certain way, write a short and clear explanation. Do not write a full page — one or two lines are usually sufficient.
4. Check the Deadline Again and Again — This is not a mistake that repeats itself in the field. People respond late because they did not pay attention to the date. If the deadline is approaching, act now.
5. Send Your Response in the Required Manner — If they say to send through the portal, do not send by mail. If they say registered mail, do not send by email. Act exactly as they say.
6. Keep a Copy of Everything You Sent — A copy of the documents, your email, or the registered mail receipt. This will help you if there is a question in the future.

What You Need to Know About Taxes and Reporting — To Understand the Requirement

To respond correctly to a letter, you need to understand the background — why the tax authority sent you the letter in the first place.

For a exempt business operator, there is an obligation to file an annual report with the tax authority every year. The report presents your income and expenses. If you reported income that is too low or forgot expenses you had, the tax authority may ask why. Similarly, if there is a discrepancy between what you reported and what your bank shows, that is a red flag.

For a licensed business operator, you must report VAT each period (monthly or quarterly, depending on sales volume). If you reported VAT in error or forgot to report, the tax authority will send a letter requiring response.

For an employee who has additional income (such as freelance work, rental income, or foreign income), you must report it in an annual declaration or tax report. If you did not report it, or reported it in error, they will catch it.

For a private company (Ltd.), there is an obligation to file an annual report and audit (under certain conditions). If the filing deadline has passed or the report was not filed properly, the tax authority will send a demand.

What is important to remember: a letter from the tax authority does not necessarily mean you did something intentionally wrong. Sometimes it is a typing error, a misunderstanding of the rules, or a document that did not reach the authority. All of these can be corrected.

Common Mistakes — and How to Avoid Them

In the years we've worked with freelancers and business owners, we see the same mistakes over and over again. So you don't become the next one:

• Ignoring a letter — the biggest mistake. People receive a letter, get scared, and prefer to ignore it. Time passes, the deadline passes, and fines accumulate. If you receive a letter, tell your accountant within 48 hours.
• Sending a response without properly reading the letter — people send documents that weren't requested, or forget to submit something that's critical. Read the letter three times before you send a response.
• Sending documents without organization — if you send a pile of invoices in random order, the tax authority will struggle to understand. Organize the documents by date, and provide a clear list of what you're sending.
• Inconsistent reporting between years — if one year you reported income one way, and another year a different way, it raises a red flag. If there's a change, explain it.
• Not keeping copies — when you send a response, keep a copy. If they say they didn't receive it, you'll have proof.
• Delaying required tax payment — if the tax authority demands payment, don't wait. Pay on time. Every day of delay can add interest.
• Attempting to hide documents or fabricate explanations — it won't work. If there's an issue, usually it can be fixed honestly. If you try to hide something, it will lead to much bigger problems.

When Should You Contact an Accountant?

If you have received a letter from the tax authority, the natural question is: Do I need an accountant, or can I manage on my own?

Generally, if the letter is simple — a request to complete a document or a minor question — you can handle it yourself. However, there are situations where it is wise to seek professional assistance:

• If the letter is complex or unclear — If you do not understand what they are asking, or if there are several different questions, it is time to consult an accountant. They will be able to read the letter with professional eyes and translate it into language you understand.
• If the letter concerns complex tax reporting or VAT issues — If you are a licensed professional who has reported VAT, or a company that has reported profits, this is not the time to try to manage on your own. A small mistake could result in a heavy fine.
• If the deadline is very soon — If the letter states you must respond within a week and you are unsure what to do, call an accountant now. They will be able to help you at a fast pace.
• If this is not the first time you have received a letter from the tax authority — If this has happened more than once, it is a sign that there is a systematic issue with your reporting. An accountant will be able to identify the problem and help you avoid future letters.
• If you do not maintain good records — If you are unsure where your documents are, or if you are unsure how you reported in the previous year, it is time to seek assistance. An accountant will be able to help you recover the information.

In short: If you are in doubt, it is usually worth consulting an accountant. It is not as expensive as paying a fine, and it could save you a major headache.