What Triggers a SARS Verification or Audit?

When a return is filed, SARS may accept it, verify it, audit it or request supporting documents. A verification or audit does not automatically mean the taxpayer is guilty of anything. It means SARS wants to test whether the tax position declared is supported by the records.

1. SARS can select a taxpayer for verification or audit

The legal starting point is section 40 of the Tax Administration Act. In practical terms, SARS may select a taxpayer for inspection, verification or audit for purposes of administering a tax Act. Selection may be linked to risk, information on the taxpayer profile or other administrative considerations.

A selection by SARS should therefore be treated seriously, but calmly. The question is not “why is SARS attacking me?” The better question is “what documents prove the return?”

2. Poor record keeping is the first danger

Section 29 of the Tax Administration Act requires taxpayers to keep records, books of account and documents that enable a return to be prepared and the taxpayer’s tax position to be verified. SARS guidance also explains that taxpayers who submit returns generally need to keep records for five years from the date of submission.

If a taxpayer cannot produce records, a normal query can become a bigger problem. The file arrives at SARS wearing slippers.

3. SARS may ask for relevant material

Section 46 allows SARS to request relevant material required for the administration of a tax Act. In a business context, this may include bank statements, invoices, contracts, VAT reports, payroll records, reconciliations, financial statements and explanations of specific transactions.

When SARS asks for supporting documents, the response should be organised, complete and tied to the return. Uploading a heap of random files may make the problem worse.

4. Common matters that may lead to verification or audit

5. Estimated assessments

Where SARS does not have enough information, or where the taxpayer does not submit required information, section 95 may become relevant. An estimated assessment can create a tax debt that is difficult and expensive to fix later.

The safest approach is to respond before the matter reaches that stage. Once SARS estimates, the taxpayer may need to fight both the numbers and the process.

6. Burden of proof

Section 102 is one of the most important dispute provisions. In many disputes, the taxpayer carries the burden of proving that an amount, deduction, exemption, credit or tax position is correct.

This is why tax files must be built with evidence. A return without documents is only a story. SARS prefers documents.

7. Understatement penalties

If SARS finds that tax was understated, sections 222 and 223 may become relevant. These provisions deal with understatement penalties and the penalty percentage table, depending on the taxpayer behaviour and the facts.

Good records, reasonable care and a defensible tax position can make a major difference. Poor explanations turn a technical problem into a penalty problem.

8. What to do when SARS selects your business

1. Read the SARS letter carefully and note the deadline.
2. Identify the tax type, period and exact documents requested.
3. Download the filed return, assessment and statement of account.
4. Prepare a schedule that reconciles the return to supporting documents.
5. Label documents clearly before uploading them.
6. Keep proof of submission.
7. If SARS issues an adverse outcome, review objection or appeal rights immediately.

9. Documents to prepare

• Filed tax return and SARS assessment
• SARS verification or audit letter
• Financial statements or management accounts
• Trial balance and ledgers
• Bank statements and cashbook
• Sales invoices and supplier invoices
• VAT201, EMP201, EMP501 or ITR14 supporting schedules
• Asset register and purchase invoices
• Loan agreements, director loan account and finance statements
• Proof of SARS payments and correspondence

10. If you disagree with SARS

If SARS finalises the matter against the taxpayer, the next step may be a request for correction, objection or appeal, depending on the nature of the assessment or decision. Section 104 deals with objections, and section 107 deals with appeals.

The dispute should not be emotional. It should identify the assessment, explain the grounds, attach supporting documents and deal with deadlines. Tax disputes are won with papers, not volume.

This article provides general information and legal references. SARS notices, assessment dates and dispute deadlines must always be checked against the specific taxpayer’s facts and current law.