Nothing to fear with audit

DUCKS IN A ROW: ENSURE YOU CAN PROVE INFO IN YOUR TAX RETURN Sars must work within the confines of law.

Information declared must be correct

We generally experience a certain level of fear when hearing the word “audit” or the name the South African Revenue Service (Sars), but finding these two words in one sentence related to your name or entity instantly spells double trouble.

However, that is not always the case.

An audit is a process used to verify the validity and accuracy of your tax information. As such, there is nothing to fear. It is comparable to being stopped by a traffic officer and having your vehicle and driver’s licence verified.

While Sars has enormous enforcement powers and is known for its fearless approach to executing its responsibilities, it is duty-bound to discharge its powers within the confines and prescripts of the law and South Africa’s constitution.

The Office of the Tax Ombud is also there to ensure taxpayer rights are upheld by the tax authority.

A taxpayer has a responsibility to declare their tax position in full and correctly. This includes declaring all income earned and deducting only valid expenses.

Sars, on the other hand, has a responsibility to collect all taxes due to the fiscus. As such, it must ensure information declared by a taxpayer is correct, valid and complete.

What does a Sars audit or verification entail?

A verification and an audit have similar objectives – to confirm that a declaration is correct – but differ in scope.

The verification is essentially a face-value examination of the submitted information, normally referred to as a desk audit, which Sars must complete within 21 business days.

An audit is more in depth and can take anything from 90 calendar days to 12 months or more.

Another distinguishing factor is that a verification is a tool used mostly to ensure tax compliance, whereas an audit is used mainly for enforcement purposes. They are housed in separate units within Sars.

A declaration, or the submission of a return, is usually what gives rise to an audit or verification.

Once a taxpayer makes a declaration, Sars performs its rigorous and robust risk assessment processes via the infamous “risk engine”, and may select a return for auditing or verification.

The process starts with Sars informing the taxpayer by letter that it has received the declaration and has selected the return for verification or audit.

The letter includes the scope and timelines.

It may request the taxpayer review the return and correct or amend it, should Sars find any errors, and submit relevant “supporting” material.

In the case of an individual, this information may include payslips, IRP5s, retirement annuity certificates, schedules of rental income, interest and capital gains certificates and medical aid certificates.

For a company, it will include annual financial statements and tax computation.

A VAT case will include the input and output tax schedules and invoices.

What to do when your return has been selected for an audit or verification

A taxpayer must make a declaration that they can corroborate with tangible evidence.

The taxpayer has an obligation to retain documentation that supports any tax position taken in a tax return. The onus of proof lies with the taxpayer.

The taxpayer has to submit the corroborative information to Sars in the manner prescribed.

It is important to submit the correct information as Sars can obtain it from third parties, such as banks.

After receiving notification of an audit or verification, note the time allowed for you to submit the supporting information.

Then start gathering the documents. If, for some reason you are unable to get a document and need more time, you may request an extension from Sars.

You should ideally submit documents to Sars via its e-filing platform, or upload it on the Sars main website. You can submit it at a Sars branch.

It is advisable to consult a trusted tax advisor when unsure about how to respond.

The outcome of an audit verification

Once Sars has reviewed all the relevant documentation, it will conclude whether the return is correct and accept it with no changes, or whether you need to make any adjustments, which a written notice will detail.

Sars may also issue a reduced or an additional assessment incorporating the changes.

Should a taxpayer feel dissatisfied with the outcome, they may object to the decision using the prescribed alternative dispute resolution processes provided for in the legislation.