VAT Audit: what is it?
A VAT audit is not something that a company wants but is a reality. There is nothing to be scared about really, provided that you have everything accurate, complete and ready to be handed in. For most companies, this is the case. If you are under the guidance of an accountant, certainly BC Accounting, they will be able to assist you in this. They may even be able to do it for you. HOW? this would happen if they are your tax practitioner and have power of attorney to represent you.
What will they look at in a VAT audit?
SARS (South African Revenue Services) are checking to see if everything is “in order” and that it is complete and accurate. Some of these will be “ticking the boxes” and will be done on their side without your input. it can be done like this because they have the information already.
Here are ten items they will look at. They may not check all of them though.
- Your return totals will be checked against your general ledger and summary –
- Trial balance or income statement.
- VAT input and output calculations (how you got to the numbers in your VAT return in question.)
- Your VAT control account will be reviewed to test your accounting system for errors
- SARS (South Africa Revenue Service) will check if interest and penalties were added back into your records. Penalties and interest are not tax deductible.
- A selection of tax invoices will be selected and tested –
- They will make sure they are valid!
- Example: It must say “tax invoice”
- Your debtors (customers) will be checked
- SARS will investigate how you’ve classified your trade
- This may sound unnecessary but they do check this
- This may sound unnecessary but they do check this
- Record of any previous audits will be examined
- Your track record is important ere.
- If you have previously had an audit and certain items were highlighted to be corrected, they will make sure you have corrected these.
- Provided you have, this will checked off
- Your type of taxable supplies will be checked
- Some companies have more than one type of VAT.
- This may be 0% or exempt supplies.
- SARS will also go through your history of refunds for any mistakes that have been carried over
- Lastly, SARS will look at the value of your assets and liabilities when you registered for VAT, as well as your capital assets acquired to ensure you’re making the correct capital gains tax claims.
What if they find something wrong?
SARS are, contrary to popular belief, accommodating when it comes to audit findings. There is a proviso here though! IT depends on your attitude towards the findings.
What does this mean?
If you “fight back” and deny everything and basically blame them for “making things up” or the like, they don’t like this and are less likely to accommodate your plea for forgiveness. Remember the track record mentioned earlier? SARS record EVERYTHING and they will remember what happened.
HOWEVER, if you go to them with “hands up” saying ‘we made a mistake, help us fix it for next time, they will do everything that is in their power to help you. They are not the monster that everyone thinks they are and understand that you are in business and are not a VAT expert. They will take all these factors into consideration. There are many ways to resolve these findings with SARS including (because of COVID-19) a telephonic or even video chat with a SARS expert.
A VAT audit can be a scary prospect BUT if you have everything in order, it is nothing to be scared of. Remember, SARS is not the monster everyone thinks they are.
To find out more about VAT, here are some links:
VAT: what you can claim and did not know.
The SARS website
This blog post was updated on 18th May 2021