Navigating the costs and risks of a SARS’ tax audit

Insurance protection for individuals, trusts and companies now available for mitigating the costs of defending a SARS tax audit and related disputes

The South African Revenue Services (SARS) is ramping up the frequency of tax audits to ensure compliance and to maximise tax collections. Having exceeded its audit coverage targets for 2021/22, SARS conducted more than *1,5 million tax audits and verifications, which means that you or your business could be next. (Source: SARS Annual report 2020/2021)

“The frequency of tax audits has increased significantly in the last two years, and it is no longer a matter of if, but when you or your business will be audited by SARS. In many instances, it is also not a simple case of only auditing your last financial year, but the audit can potentially span years.  This can be an enormous task in terms of time and accounting skills having to delve into your records, over many years, with a fine-tooth comb to substantiate your position,” explains Ann Cloete of Aon South Africa.

“The reality for the taxpayer is that defending a SARS' tax audit or dispute can be incredibly costly, and the taxpayer is liable for all the related costs of accountants, tax specialists and possibly legal experts to prepare and defend the audit. Many taxpayers simply do not have the financial resources for, nor access to specialist tax teams, and it’s here where the risk of an unfair audit outcome becomes a real risk,” she adds.  

Preparing for and defending a SARS’ tax audit, especially an extensive one, will require specialist skills that go well beyond that of having a qualified and capable accountant handling your tax and bookkeeping affairs. Legislation is constantly changing and evolving in this space, which means that you are likely to need the skills and advice of a tax specialist, and certainly a legal professional with solid tax experience if your matter should head to court. These are not skills that the typical individual or smaller business will necessarily have readily available, and the costs will soon stack up - especially if the matter drags on for months. 

Navigating the risk of a tax audit

Even if you believe, like most people, that your taxes are up to date and accurate, SARS can still select you or your business for an audit. Some audits are completely random and in other cases, SARS may put a case forward that you’ve underpaid your taxes, or a human error may have been discovered. A SARS tax audit or complicated dispute is always best handled by qualified experts in the field.

“Aon has launched a *Tax Risk Insurance solution that protects you or your business if you are selected for a SARS tax audit, or if there is a dispute with SARS about an unfair re-assessment in terms of which SARS is demanding additional taxes, by appointing and paying for a team of tax professionals on your behalf to ensure a fair audit and dispute outcome.  Your accountant will become a central part of the team and their fees are also paid for as part of the claim.  Tax Risk Insurance is all about having the peace of mind in knowing that you will have some of South Africa’s leading tax experts to represent your case when you need it most, to ensure a fair audit outcome, as well as protect you or your business from the onerous and unexpected costs in dealing with an audit and dispute,” explains Ann.

Why you need it?

• SARS is under pressure to meet targets which is leading to increased audits.
• Having a competent accountant or tax practitioner no longer guarantees protection.
• It is very difficult for your accountant to be always 100% up to speed with new tax legislation. Furthermore, your accountant cannot defend you in a court of law.
• Taxpayers may be at risk as you may not have insight into your rights as a taxpayer.
• The costs to defend against a tax audit may be financially debilitating. 

The Tax Risk Insurance solution is ideally suited to:

• Small to medium-sized enterprises (SMMEs)
• Trusts
• Individuals

The cover provided by Tax Risk Insurance will trigger in the event of:

• Income tax audits.
• VAT audits.
• Employees tax audits.
• Capital gains tax audits.
• Dispute resolution hearings and appeals to the Tax Board and the Tax Court.

Benefits include:

• Affordable monthly premiums
• No waiting periods
• Once cover is activated, you are covered no matter how far back SARS assess
• Can claim more than once a year
• Risk cover in the event of a SARS tax audit for individuals and companies.
• Access to SA’s top tax specialists.
• Removes uncertainty of an unexpected SARS’ tax audit and related dispute.
• Covers cost of your accountants’ services for duration of the claim.
• Ensures fair tax treatment and audit outcomes.
• Cover for defence costs in line with the terms and conditions of the policy.

*Tax Risk Insurance is administered by Tax Risk Underwriting Managers and underwritten by Bryte Insurance Company – both are authorised Financial Services Providers.