Often businesses are targeted by the South African Revenue Services concerning VAT audits triggering unnecessary panic which can be avoided.
An audit is defined as an examination and verification of the financial and accounting records. This is simply a SARS method to make sure that all vendors contribute honestly, fairly and regularly towards their taxes. There are four types of audits that you could be selected for namely, desk audit, refund audit, field audit and integrated audit.
In order to avoid a VAT audit, we have compiled the following tips to assist our clients be the least targeted businesses in South Africa. These include:
Ensure the turnover amount on your financial statements matches the figure on your returns. These amounts should not conflict each other unless there is a very good explanation for the difference. For example credit notes.
Reflect all amounts for all your sales. Zero-rated sales should always be included as the omission will result in a very high input tax and hence it will attract an audit.
Never try to deduct penalties or interest paid to SARS. These are not deductible amounts and will only result in more penalties being charged.
Show all amounts of capital sales in block 1A of your VAT201 returns. If these amounts are not reflected there, the output or normal tax for the vendor will be very high and hence it raises red-flags about the entity.
Investigate unusual increases in turnover. As a vat vendor you should double check that you have not made any mistake because your turnover should not vary so much from the one of the previous year, SARS pays much attention to such mistakes.
If you claim a big refund, prepare yourself for a pop up letter in your eFiling inbox. This message is from SARS and they need the taxpayer to upload the entities required documents, failure to do so, the refund will be delayed and obviously raise a lot of questions.
Always ensure tax invoices are valid and correct. These invoices must give accurate details of the seller and your business as well and these are name, address and VAT registration number.
Do not claim input tax on exempt supplies. Vendors should show all exempt supplies as exempt in their vat return, failure to do so this triggers a vat audit.
Submit your VAT return, even if it is a nil return. Vendors who often pay their taxes late or don’t send in all their vat returns are regarded as high risk by SARS and will generally be earmarked for audits.
Never claim your input tax prematurely. One should claim input tax when they are entitled to it.
Declare output tax on fixed property immediately. If payment for a fixed property is being received in instalments, all output tax should be shown each of the payment received.
Claim VAT on all motor vehicle rental payments as and when you make them. If a vendor obtains a motor vehicle under rental agreement, claim vat on the full rental payments as they are made.
Never claim input tax on expenses such as client lunches, stuff teas, meals and parties or even car hire. SARS is always on the lookout for these.
All capital purchases should be reflected in Block 14 of your vat201return. If a purchase of fixed property has been omitted it automatically leads to the sudden rise of the vendor’s non-capital input tax and this raises a lot of questions.
What to do if you receive a pop-up letter? The response to this letter will be to send all information and applicable documents to SARS as soon as possible to justify all the variances they found.
The above points have helped several of our clients avoid and prepare for VAT audits by knowing what triggers VAT audits and keeping all required documentation in hand for submission to SARS. To learn more about how to handle VAT in your company contact BN Business Solutions via email email@example.com, telephone 010 140 2255 or visit our website www.bnsolutions.co.za
This article was written by Gugu Faith Mpala who is a final year student at The University of the Free State under the supervision of the BN Business Solutions’ director - Noordwyk Accountant Bakani Ngulani as part of her internship programme requirements.