SARS has made significant improvements in administrating taxes through implementation of on-line systems such as SARS E-Filing and Easyfile. Their main stumbling block has always remained limited resources to knowledgeable individuals that can facilitate audits on its behalf and enforce such a large tax base.
For the last few years SARS has been engaging comparative testing and systematically shifting the burden of reconciling these comparatives on to taxpayers. For some years now SARS has had great success with regards to the EMP501 reconciliation through which IRP5 certificates are verified.
SARS introduced a new supplementary declaration – known as an IT14SD – in which the taxpayer is expected to reconcile its annual financial statements and tax return to other documentation previously filed with SARS with regards to, among others, VAT and Employees tax (PAYE). This may sound simple, but this is not an easy request for such a complex reconciliation.
The taxpayer is given notice to submit the required SARS IT14SD form within 21 days, followed by a final notice to submit within 21 days. Failure to do so has dire consequences for the taxpayer. An additional assessment in this instance will be raised for non-compliance which will effectively deny all deductions and allowances that was claimed against income tax. This will result in the taxpayer becoming liable for a hefty income tax bill.
When a taxpayer files the IT14SD form reflecting a difference greater than R100, an assessment is pursued. This assessment will be based on the higher of VAT or Income Tax.
The use of the IT14SD form casts the net far wider than was previously possible with limited audit and enforcement resources. Taxpayers will have to be more vigilant when it comes to the correct submission of their VAT returns and how the year to date figures compare to the final turnover figures are disclosed on the annual financial statements. If any discrepancies are found during this reconciliation process, it would be found as grounds to proceed with an additional assessment being raised and compounded by the fact that your gross turnover for that year would be fully taxable, as all previous deductions will be disallowed. Over the last few years, we have practiced “safe” VAT submissions by providing our Essential Accounting and Comprehensive Accounting customers with their VAT reconciliations on a monthly basis. This ensures that any changes or mistakes that might have a material impact on the year to date figures are immediately rectified on the following VAT return being submitted. Only one way in which we ease the taxpayer’s compliance burden.
At the moment there is quite a buzz around the implementation of the SARS IT14SD form and the legality of the additional assessments being raised by SARS, as we are of the opinion that these assessments are raised in contradiction to certain sections of the Income Tax Act. In the meantime however SARS applies the “pay now, argue later” principles and taxpayers might be pursued for the additional assessment amounts. Please bear in mind that this will result in the companies Tax Clearance Certificates being denied, having a significant impact on the companies’ operations.
Our advice at this stage is that if an additional assessment has been issued due to non-submission, it is important that the taxpayer lodges an objection and request to suspend payment pending outcome of the dispute without delay.
The notice to submit a SARS IT14SD form should not be ignored!