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income tax
Recent tax developments have revealed that taxpayers are likely to face stronger scrutiny from SARS in the upcoming tax year. SARS has moved to allocating funds to expand their specialist audit and investigation abilities and establish a second specialised audit unit for tax investigations of high net worth individuals. These changes pave the way for income tax compliance to be enforced through SARS verifications and audits.

Let’s take a closer look at what a SARS verification entails

A SARS verification requires a taxpayer to verify the information that was declared on their original return by providing relevant financial and accounting records and other supporting documents. It can be defined as a face-value assessment of the information that a taxpayer has declared.

What can you expect from this process?

  1. An official letter will be sent to notify the taxpayer of the commencement of the verification process.
  2. This letter requests the taxpayer to submit all necessary documents via the eFiling platform or directly to their nearest SARS branch within 21 business days. Alternatively, taxpayers may submit a Request for Correction (RFC).
  3. SARS will issue a second letter if a response is not received within this timeframe. If this second request is ignored, SARS will contact you telephonically to request the relevant information, to be furnished within five business days. Non-compliance will lead to SARS conducting an assessment on existing or third-party information.
  4. Should the initial information not be adequate, SARS may submit a request for further documentation to finalise their process.
  5. SARS will finalise their verification within 21 business days of receiving all relevant documents.
  6. If SARS evaluates your declared position to be incorrect, they will raise an assessment.
  7. In the case of no other risks uncovered, a notification will be sent to the taxpayer declaring the finalisation of the verification process.
  8. Your tax return/declaration will be referred for an official audit if additional risks are identified within an assessment. In this case, the taxpayer will receive a Referral for Audit Letter.

Where an assessment is being conducted, the taxpayer has 30 days to object should they wish to do so.

Let’s take a closer look at what a SARS audit entails

A SARS audit goes further than a verification to examine the taxpayer’s financial and accounting records and/or supporting documents to determine whether their tax position has been correctly declared to SARS. Where the taxpayer made no declaration or did not file a return, the audit is an investigation into the taxpayer’s compliance with the provisions of the relevant tax legislation.

By its nature, an audit is more intrusive, and the scope is more extensive.

What can you expect from this process?

  1. The taxpayer will be issued with a formal Notification of Audit from a specified auditor to indicate the audit’s scope.
  2. This notification will request further supporting documents. The documents requested will depend on the audit scope and should be submitted within 21 business days of receiving the notification.
  3. The requested information can be submitted through eFiling, collected or delivered. Taxpayers can also request a field audit or collection via an Electronic Forensic Specialist. In the case of a field audit, your SARS auditor will issue an Authorisation Letter.
  4. SARS reserves the right to request any further information throughout the auditing process. Should any requested information not be submitted, SARS may raise an assessment based on the existing information.
  5. The taxpayer will be issued with progress reports every 90 days from the Notification of the Audit.
  6. SARS strives to complete audits within 90 days of receiving all relevant information. However, this process can take anything from 30 business days to 12 months and longer to complete. The time of this process will depend on the complexity of the transactions being analysed and the taxpayer’s compliance.
  7. SARS will issue an Audit Findings Letter for any potential adjustments that are discovered, outlining the reasons for the proposed assessment. In this letter, taxpayers will be given a deadline to indicate their agreement to the assessment or disagreement with supporting evidence.
  8. If SARS believes a new assessment is still required, or if the taxpayer did not indicate their agreement or disagreement to the assessment, penalties are considered, and a revised assessment is issued.
  9. Should the taxpayer’s position be determined as incorrect, SARS will issue a Finalisation of Audit Letter. This letter will either detail the assessments’ grounds or conclude the audit if no findings were made.

Taxpayers may dispute assessments by lodging a formal objection.

What to remember during a SARS verification or audit
  • Be prepared: Any taxpayer can be selected for a verification or audit by SARS, as these processes are random.
  • Maintain accurate records: Obtaining assistance from a tax professional can help you or your company attain compliance with all legislative requirements. In addition, a professional can advise on which documents should be retained for verification or auditing purposes.
  • Do not delay: Should you receive any notification from SARS requesting a verification or audit, it is best to immediately inform your accountant. Contact with SARS should be made as soon as possible, within the initial 21-day deadline.
  • Stay informed: Keeping up to date throughout the verification or audit process, and providing all needed documents, can eliminate any possible misunderstandings and help avoid hefty and unnecessary penalties.
When receiving communication from SARS, the most crucial step to remember is to contact your trusted tax advisor. As industry leaders in tax consulting, the professionals at MMS Group can provide income tax assistance in navigating the SARS verification and audit process. Should you require the services of a tax consultant, please reach out to our team.

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