Enlist the help of an expert to avoid prejudicing your position further, writes Brendan Peacock
You do not have to be a high-profile member of society to be audited by SARS.
Being flagged for audit - as I have been for the third time in four years - can be a frightening process.
Audits are declared when SARS suspects that a taxpayer has not been forthright or provided complete disclosure in declaring taxable income. Officially, SARS conducts audits on "individuals considered to be at high risk for tax purposes, using different methods."
As a freelance writer and ''sole proprietor" of a business, my provisional tax returns over the past five years have been subject to scrutiny as SARS sought to justify the expenses and business running costs I claimed I incurred, as well as the amount of tax I claimed I was due in a rebate.
It is tempting to think that SARS's computer systems will flag anybody due to receive a rebate, but Jonas Makwakwa, group executive: audit at SARS, said many factors came into play.
"SARS has different methods of identifying cases for audit, for example, when a return is submitted and processed, the risk engine in the system identifies cases that have risk; we receive tips from the public; we track media reports; we randomly select taxpayers using different sampling methods, etc."
Makwakwa said the level of risk determined what intervention should be taken.
"If the risk is low, verification is conducted, and if the risk is medium to high, an in-depth audit is conducted or a criminal investigation is conducted."
On average, 26916 taxpayers are selected for an in-depth audit each year and 102942 verifications are conducted. This equates to 2.25% of the current taxpayer pool. To date, there have been 38 successful prosecutions and many more cases are waiting on the court roll for prosecution.
So far, R6.1-billion has been recovered through the audit programme - of companies and individuals - which began in earnest in the late 1990s, and R1.6-billion of that has come from individuals.
The audit process
The taxpayer will receive a letter from SARS. "The taxpayer identified will receive a letter of engagement indicating that the person has been selected for audit and the letter will reflect the name(s) of the responsible auditor(s) and the information required to conduct the audit (if any).
"The taxpayer will need to have at the ready all supporting documentation that was used to compile the annual return to SARS," said Makwankwa.
"The process will vary, depending on the risk(s) identified. In some instances, it will only require a verification of a log book but in other instances, it might require an audit on all deductions claimed."
The audit can take up to a year. SARS has the power to interview friends and associates about businesses and income sources, and has been known to instruct them not to tell the taxpayer they have been interviewed. A lifestyle questionnaire can be used to obtain information about the lifestyle of an identified taxpayer and SARS can seek third-party data from institutions like banks, insurance companies and the deeds office.
In my case, SARS asked for supporting invoices and source documents: vehicle log book, mileage and trips made during the year, as well as IRP5 forms from clients. This was to check my expense claims for reasonableness, which meant presenting invoices for stationery, phone calls, motor vehicle repairs and maintenance.
If the taxpayer is found to have deliberately evaded tax, Makwankwa said, SARS could impose additional taxes where income received was not declared or where incorrect deductions were claimed.
"Each case is considered on its own merits and the relevant legislation is applied before a decision is taken on whether or not additional tax should be imposed." SARS can impose any percentage from 1% to 200%, depending on the facts of the case, as well as an additional mandatory 10% penalty. Taxpayers can provide reasons why additional tax should not be imposed. The taxpayer also has the right to object.
If SARS exceeds the time period within which the audit should be completed, the taxpayer can expect to be paid interest on any rebate due. I have found the manuals at the SARS e-filing site helpful and informative.
However, it will be beneficial to enlist the help of a tax expert when flagged for audit- it is best not to prejudice your position further by corresponding with SARS without the requisite expertise.
SARS has implemented a voluntary disclosure programme which runs from November 1 to October 31 next year.