Vat Matters - 200% penalties are one good reason why you shouldn't adopt the ostrich strategy with the SARS audit team

Dear Reader

This week, Vat Matters comes from our very own editor-in-chief, Peter Franck.

Peter was the head of Vat at SARS, and part of the team that wrote the original Vat law, back in 1991. He also served as a SARS Vat auditor. For the last few years, he has been assisting people like you to avoid Vat traps and minimise your risk of Vat Audits, and has saved them thousands (if not millions) of rands. Have a squizz below if you need more proof!

Plus, Peter has been tackling your Vat queries on the Vat Helpdesk . Let’s have a look at some of the questions the helpdesk answered this week:

·         Can professional membership subscriptions be claimed as an input tax deduction?

·         A supplier has been registered for Vat on 30 November 2011 ( a copy of VAT103i has been received as proof). This number has been verified as correct on the SARS Vatvendor search. We’re being charged for Vat for invoices dated prior to this  ( Sept to Nov 2011 ) and on the Tax Invoices the Vat number is blank and states – not registered as yet. Are we liable to pay the Vat over to the supplier based on the above?

This week, he highlights the importance of NOT ignoring SARS when it asks you for information. Let’s have a look at what Peter’s got to share.

Kind regards

Lenell Hattingh

Vat Product manager

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Back in the day...

When I joined Inland Revenue in 1963, our offices were in the old Magistrate's Court building in Bloemfontein. Two years later, we moved to new offices. The move was not well advertised and was done after closing time. The next day, a taxpayer arrived at our new offices after hunting all over town for us. His remark was: "You are the last people who  I thought would be fly-by-nighters!"

Unfortunately, if one SARS office closes, five more pop up - and SARS will find you!

A great start...

A bookkeeper who subscribes to our tax and Vat handbooks has one such scarlet pimpernel as a client. He’s a builder who does a lot of work for the Government which, being law-abiding, demands "tax clearance certificates" when awarding tenders.

...that went from bad...

So Mr Pimpernel goes off to SARS, tells them he’s been in jail for 10 years (which may be true) and has only now started earning income. He is registered as a taxpayer and gets a tax clearance certificate. He opens up a bank account and once he has three month's bank statements, registers as a vendor. He’s now kosher and gets a tender to build a school for R24 million. With each progress payment, he gets the Vat, but none of it finds its way to SARS…

...to worse...

In May 2011, SARS arrived at his door, performed an audit and demanded their Vat payment. (By the way, the amount due on his Vat now amounted to R2.5 million. Do you know what to do when SARS is auditing you? Simply page to chapter A05 in your Practical Vat Loose Leaf to get the low down.)

It wrote to him and asked him to state why they shouldn’t impose a 200% additional tax. He ignored this request and in July 2011, he receives assessments for:

·         R7.5 million in Vat and additional tax;

·         Plus R250 000 in penalties; and

·         R680 000 in interest.

...and much worse...

Again, he ignored SARS. The school was 70% finished and the Department of Education still had to pay him R7 million - or so he thought! SARS attached the money in his bank account, his concrete mixers, tools and vehicles, as well as material on site. It also informed the Department of Education that all current and future payments to Pimpernel Construction had to be paid to SARS.

Last Friday, he couldn’t pay wages and was arrested for tax evasion. Now he wants to talk to SARS! It’s just too late and this time, it’ll be 10 years in jail.

The lesson to be learned is

When SARS calls for information or asks you for reasons why additional tax, penalties and interest etc., shouldn’t be imposed, play ball and so will they. A client of one of our subscribers avoided R26 million in additional taxes by simply sorting out his life with SARS.

For more hot tips and experts advice to stay out of trouble with the taxman, see what kept the finance team busy this week:

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Until next month,

Peter Franck
Editor-in-Chief – Practical Vat Loose Leaf