You are Here > Home > Taxes > SARS ups tax collection through payroll audits

SARS ups tax collection through payroll audits

Nov 5, 2018

By Jean du Toit, attorney at Tax Consulting SA

SARS ups tax collection through payroll auditsDespite the promising initiatives implemented under the South African Revenue Service’s (SARS) acting Commissioner Mark Kingon, its tribulations in meeting its collection targets have not yet waned, with payroll audits falling under its enhanced collection efforts to make up the shortfall.

The simple reason behind SARS’s targeting of payroll when it needs extra taxes, is purely because of its tendency to contain errors. Not only are there many instances where mistakes can occur, but such mistakes are magnified by the size of a company’s payroll.

In the case of a large payroll with many employees, even the smallest errors can leave a company with a large tax exposure, as these errors are proliferated across the employee base. In other instances, inexperienced payroll administrators simply do not know the law, which results in glaring errors such as failing to tax fringe benefits or paying lump sums without getting tax directives.

The truth is that SARS will find something, and most employers only become fully compliant once they have gone through the ordeal of a payroll audit conducted by SARS.

Rising trend

As if the challenges of a payroll audit are not daunting enough, a new trend has become apparent that makes it increasingly difficult to get a clean bill of health from the SARS audit team. Rather than identifying specific items that were inaccurately treated on payroll, SARS has now turned its gaze to the financial statement aspect of payroll.

These statements are assessed by SARS for an understatement or short payment of employees’ tax purely on the basis that there is a discrepancy between the company’s payroll reconciliation and the cost of employment as reflected in the company’s annual financial statements. This is despite SARS’s awareness that not all amounts reflected in the annual financial statements under cost of employment should be processed to the payroll.

Nevertheless, the onus is placed on companies to dispute this and to explain why the amounts making up the difference are either exempt or not taxable. SARS is using this to get around the prescription periods to raise audits going back more than five years, maintaining that there is an element of fraud or misrepresentation when the taxpayer declared its employees’ tax to SARS.

Independent audit

Given the ease with which SARS can collect revenue by targeting payroll taxes, a head-in-the sand approach is ill-advised and will end in calamity. SARS will come knocking and the best defence is to ensure that your company’s payroll is unblemished and, if there are any issues, to submit a voluntary disclosure programme application before SARS institutes an audit.

There is no escaping an audit, so the best course of action would be to ensure that your company’s payroll is independently audited before SARS undertakes to do so.

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

Five ways to boost your income and financial knowledge

Angelique Ruzicka shares five ideas for how you can improve your financial knowledge and possibly boost your income. Boosting your income, especially during a pandemic, can feel nigh on impossible, especially when costs are going up and you’ve been told there’s no...

Financial tools to keep you on track in 2022

Advances in technology mean that it’s now so easy to keep track of your finances and achieve savings goals, using smartphone apps, websites, and other online financial tools, says Angelique Ruzicka. If you’re still using Excel or some other rudimentary means to keep...

What will the rand do in 2022?

Ryan Booysen, MD at DG Capital Forex, stares into his crystal ball to predict where the rand will go in 2022. The rand ended 2021 on the back foot, after the Omicron announcement and subsequent global kneejerk reaction of isolation and red-listing the country. And...

SARS gets serious over non-compliance

Jashwin Baijoo, Legal Manager, Africa Tax and Compliance at Tax Consulting SA, warns all non-compliant taxpayers that SARS could be coming for them sooner rather than later. In media statements in recent months, the South African Revenue Service (SARS) has made clear...

Should I use my retirement lump sum to settle my debt?

A question that I often receive is whether it's a good idea to use one's lump sum on retirement to pay off short-term debts, such as car debt or one's credit card. For example, Ntombise recently wrote to me: “I have just retired from work and expect a lump sum...

Reflecting on the year that was

Victoria Reuvers, Managing Director at Morningstar Investment Management South Africa, looks at how financial markets performed in 2021. As a runner, the change in seasons gives me time to reflect. Autumn is my favourite season, and always reminds me that change is...

Immediate access to retirement funds unlikely

Retirement reform paper calls for comment but no move on immediate access. Retirement fund members hoping to access their retirement funds for urgent financial relief will be disappointed by the retirement reform paper issued by National Treasury last month. In the...

The 2022 survival budget

As if the last two years were not tough enough, there is no silver lining awaiting us in 2022. In 2021 we absorbed further fuel-price increases, a 15% hike in electricity costs, and an interest-rate increase of 25 basis points – and this is only the start. It is...

Using critical illness insurance to supplement medical cover

Many financial advisers are using life products to supplement medical costs. While current legislation does not allow for cover like critical illness insurance to be marketed as a product to cover medical costs, for most policyholders, that is exactly what it is used...

Savvy ways to use your bonus

Many companies are cash strapped due to the impact of Covid-19, but if you are one of the lucky few who got a bonus or windfall this year, it will be tempting to spend it to celebrate surviving another tough year. However, money experts recommend being a bit cautious,...

Pin It on Pinterest

Share This