What happens if Sars audits your company – and how to be prepared

Understanding what triggers a Sars audit, what to expect during the process, and how to be audit-ready can make all the difference in ensuring a smooth experience.

What triggers a Sars audit?

Sars selects businesses for audits based on various risk factors, including:

• Inconsistencies in tax returns
  
• Late or non-filing of returns
  
• Significant VAT or PAYE refund claims
  
• Belonging to a higher-risk industry, such as construction
  
• Reports received from third parties, such as banks, suppliers, or customers

The Sars audit process: What to expect

A Sars audit follows a structured process, beginning with notification of the intended audit and concluding with an official assessment of the company’s tax compliance. Understanding each stage of the process can help businesses to prepare effectively and reduce the risks associated with an unfavourable outcome.

1. Notification and initial review

If your business is selected for an audit, Sars will send a written notice outlining the scope of the audit, the specific tax periods under review, and the type of information required. This notice serves as the official initiation of the audit process, and it is essential to respond promptly to avoid any complications or unnecessary delays.

At this stage, Sars may request basic documentation such as income tax returns, VAT submissions, and payroll records to begin their preliminary assessment. The accuracy and completeness of these initial documents often determine how in-depth the audit will become.

2. Document submission and verification

Following the initial review, Sars will typically request a more comprehensive set of financial documents. These may include:

• Detailed financial statements
  
• Bank account records
  
• Supplier and customer invoices
  
• Payroll records for PAYE compliance
  
• Supporting documents for VAT claims

Sars will meticulously examine these records to verify the accuracy of the tax returns submitted. Any inconsistencies or missing information may raise red flags and prompt further investigation.

3. Further investigations

If Sars identifies potential discrepancies during the document verification stage, they may require additional clarification from the business. This could involve follow-up requests for further documentation, written explanations of specific transactions, or adjustments to previously submitted tax returns.

In some cases, Sars may conduct an on-site visit to the business premises. During these visits, Sars auditors may interview key personnel, inspect physical records, and compare reported financial activity with operational reality. This stage of the audit is particularly thorough and may extend the overall duration of the process by quite some time.

4. Audit conclusion and outcome

Once Sars has completed its investigation, they will issue an official audit report detailing their findings. The report may conclude that:

• The business is fully compliant, and no further action is required.
  
• Minor adjustments need to be made to tax records, requiring additional submissions or explanations.
  
• Significant discrepancies exist, resulting in additional tax liabilities, penalties, or interest charges.

If the audit results in a tax liability, Sars will issue an assessment stating the amount owed and any applicable penalties. Businesses that disagree with the findings have the right to dispute the assessment through Sars’ objection and appeal processes.

How to be audit-ready

Preparing for a Sars audit is not something that should only begin after receiving a notification. Instead, businesses should take a proactive approach to maintaining tax compliance at all times. Implementing best practices in financial management and tax reporting can significantly reduce the risk of adverse audit findings.

1. Maintain accurate records

Accurate and well-organised financial records are the foundation of a smooth audit process. Businesses should ensure that all income, expenses, and VAT transactions are properly recorded, categorised, and supported by valid documentation. This includes:

• Retaining invoices and receipts for all transactions.
  
• Keeping payroll records that align with PAYE submissions.
  
• Storing bank statements that correspond with reported income and expenses.
  
• Ensuring that VAT claims are supported by proper tax invoices from registered vendors.

Failure to maintain proper records can result in Sars disallowing deductions or VAT claims, leading to additional tax liabilities and penalties.

2. File taxes on time

Late or incomplete tax filings are one of the most common triggers for a Sars audit. Submitting all tax returns – including VAT, PAYE, and corporate income tax – within the required deadlines demonstrates a commitment to compliance and reduces the likelihood of Sars conducting a deeper investigation into the business.

Additionally, businesses should ensure that all payments to Sars are made on time to avoid interest charges and administrative penalties, which can accumulate over time and become a significant financial burden.

3. Regularly reconcile financial data

One of the key areas Sars examines during an audit is whether the financial records presented by the business match what was submitted in tax returns. Regular reconciliation of financial data helps businesses to identify discrepancies before SARS does. Businesses should:

• Compare reported income with bank deposits to ensure they align.
  
• Cross-check VAT returns with invoices to confirm their accuracy.
  
• Verify payroll records against PAYE submissions to prevent miscalculations.
  
• Review tax submissions for consistency with financial statements.

Regular reconciliation allows businesses to correct errors proactively, reducing the risk of Sars imposing penalties for under-reporting or inaccurate filings.

4. Seek professional assistance

Given the complexities of South African tax regulations, consulting with tax professionals can provide businesses with the expertise needed to see to it they stay compliant. Tax specialists can:

• Review tax filings for accuracy and completeness.
  
• Identify potential red flags before SARS does.
  
• Assist in responding to SARS audit requests.
  
• Provide strategic advice on tax planning to minimise liabilities.

Having an experienced tax consultant on hand can help businesses navigate the audit process efficiently and reduce the risk of costly disputes with Sars.

Final thoughts

A Sars audit doesn’t have to be a nightmare – proper preparation and expert support can make the process go by much smoother.

At Tax Debt Compliance, we understand that tax issues can be overwhelming. Our goal is to provide expert solutions that protect your business, get you out of sticky situations, and give you peace of mind. Whether you’re facing an audit, tax compliance issues, or disputes, we’ll guide you through the whole ordeal. Contact us for expert advice and guidance.

Given the complexities of South African tax regulations, consulting with tax professionals can provide businesses with the expertise needed to see to it they stay compliant. Tax specialists can:

• Review tax filings for accuracy and completeness.
  
• Identify potential red flags before SARS does.
  
• Assist in responding to SARS audit requests.
  
• Provide strategic advice on tax planning to minimise liabilities.