Selected for audit by SARS? Don’t panic

Last updated on 6th July, 2022 at 12:48 pm

Seeing the word ‘audit’ or ‘verification’ on your tax return might raise your blood pressure – but it doesn’t have to. Read on to find out what it means to be audited by SARS and what to expect during the process.

What is a SARS audit?

Firstly, let’s clarify what it means to be audited. In short, SARS uses this process to confirm that what you declare on your tax return checks out with your financial records. According to SARS, an audit is “an examination of the financial and accounting records and/or the supporting documents of the taxpayer to determine whether the taxpayer has correctly declared his/her tax position to SARS”. Simply, SARS wants to know that you are paying the correct amount of tax for your annual income amount.

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Audit vs verification: how they differ

While a tax audit aims to ensure you’re submitting your tax returns accurately, verification is much more focused on comparing the amounts on your income tax return (known as the ITR12 form) with the amounts on your supporting documents such as payslips, medical aid certificates, donations receipts and so on, to determine how much tax you need to pay or how much of a tax refund you are owed.

“What usually happens is SARS selects you first for a ‘verification’, which is a thorough check of documents. They have 21 working days to issue an outcome,” explains Nicci Courtney-Clarke, Head of Tax and COO of TaxTim, an online tax tool that makes filing your tax return a breeze. Reality Club, Core, Plus and Health members get to use TaxTim for free, valued at R629. Find out more here. “If they require additional work or ‘manual intervention’ or there are particular flags for SARS, the return status goes from ‘verification’ to ‘audit’, which means SARS can take up to 90 working days to complete their review and issue an outcome. The audit is therefore an advanced or more thorough verification exercise, which takes longer to complete.”

Who gets chosen for audit?

Historically, it was relatively predictable who would be chosen to be audited based on the kinds of income you earned. However, more recently, SARS appears to have increased its randomised auditing.

There are three basic groups or types of audits. First are the audits that are done at random. This is to ensure the greater tax population adheres to tax rules, and a way to keep tabs on taxpayers and ensure that at least most of us are doing things correctly.

The second audit type is for the population that earns additional income.

“Taxpayers that earn additional income, be it rental, freelance, foreign income etc, are likely to be audited every year by SARS,” says Courtney-Clarke.

The third audit type arises from improper tax filing, where your income doesn’t match or align with what is shown on your tax return. “If there are assets declared that seem disproportionate to the income in your return, this would flag to SARS that you as the taxpayer may not be declaring all of your income. For example, if the your assets are increasing year-on-year (eg new cars, increase in investments etc) without a corresponding increase in income, this could prompt a ‘lifestyle’ audit where SARS would look for undisclosed income,” says Courtney-Clarke.

In cases where you overclaimed, or failed to report an income, an audit would help SARS assess the extent of your tardiness. “SARS is constantly building their data exchange capabilities with third parties, and improving their technology and investigative procedures to identify undisclosed income,” says Courtney Clarke.

What are the consequences of an audit?

Failure to report an income can result in a hefty fine known as ‘understatement penalties’. “SARS will charge a taxpayer penalties and interest on the non-disclosure of any income,” Courtney-Clarke warns. “Depending on the circumstances, the penalty can range from 20% of the tax due, up to 200% if SARS has enough evidence to believe the taxpayer is evading tax. It could also result in criminal proceedings, depending on the circumstances of the case.

“In the past, SARS needed to prove that a taxpayer had committed a tax crime ‘willfully and without just cause’, but the legislation has just been changed. The court can now find you guilty of a tax crime even in cases of negligence or where you may have made a mistake.”

With TaxTim’s easy-to-use interface, you can tick all your tax boxes and keep yourself in the clear with SARS. “We guide you through the document submission process by clarifying which supporting documents you need to submit and then sending those documents to SARS for you,” explains Courtney-Clarke.

What to expect during an audit or verification process

Step #1

SARS will let you know you’ve been selected for an audit soon after you’ve submitted your tax return by sending you a formal Notification of Audit letter. The letter will detail the supporting documents you need to submit.

Step #2

In the letter, you will be assigned a SARS official who you can contact with questions. Be sure to contact them early on and keep them in the loop if you face any challenges with obtaining various documents.

Step #3

A further notification may be issued to you if SARS requires more material from you.

Step #4

Being under audit also means that SARS can request supporting documents from people and companies you have done business with. SARS is legally allowed to go as far back as five years into your financial history during an audit.

How long does an audit take?

SARS allows 90 days from the date your formal notification is issued to the time of completion. This is an estimation, and doesn’t take into account delays on your side or other unforeseeable challenges you may face. Get in touch with your assigned SARS official as soon as you foresee a potential issue or delay to avoid penalties.

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