Dealing with tax return corrections and voluntary disclosure

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Dealing with tax return corrections and voluntary disclosure

• 16 March 2023
• Tax Administration
• Herman van Dyk

Request For Correction (RFC)

Preparers of tax returns (declarations) are required to provide various manual inputs of data and it is entirely plausible that clerical errors may occur in the process. Where possible, it is advisable that a second person performs an independent check of the completed return before submission. After submission, it is important that the notice of assessment be thoroughly scrutinised to ensure that it is in line with the expected results of the submission.

If the preparer of a tax return realises that an error has been made, the Request for Correction (RFC) process allows for the correction of a previously submitted return. This option is available on the relevant tax work page (accessed by navigating to Returns History) on the SARS eFiling platform. 

The RFC will not be available where an audit or verification case was completed, or if a revised declaration was done by SARS. The RFC is also not available to increase input tax on a VAT201 return (in such case, the further input tax deduction must be claimed in a subsequent VAT period).

Where a preparer of a return has completed the return correctly but is not in agreement with the assessment made by SARS, the preparer must lodge an objection (which can be preceded by requesting reasons for the assessment).

Voluntary disclosure

Chapter 16 (Part B) of the Tax Administration Act has made the Voluntary Disclosure Programme (VDP) a permanent feature of the South African tax system. The VDP encourages taxpayers in default to come forward on a voluntary basis to regularise their tax affairs with SARS and to avoid the imposition of penalties and even criminal prosecution for a tax offence arising from the default. A 'default' mean the submission of inaccurate or incomplete information to SARS, or the failure to submit information or the adoption of a tax position, where such submission, non-submission, or adoption resulted in an understatement.

VDP applications are only accepted for disclosures that are voluntary. This means that the disclosure must be made of the taxpayer's own volition and that SARS must have no prior knowledge of the default. This was emphasised by the Supreme Court of Appeal (SCA) in Purveyors South Africa Mine Services (Pty) Ltd v C:SARS where it was held that the VDP application must be made in the prescribed form and manner and that where a taxpayer "tests the water" by informally disclosing the default to SARS, the taxpayer would be precluded from subsequently applying for voluntary disclosure relief because the disclosure is no longer voluntary.

The prescribed form and manner for the VDP is to complete the VDP01 application form on SARS eFiling. The application will then be evaluated and if successful, a VDP agreement is provided to the applicant for consideration and signature.

FAQs

1. Can I correct a tax return after it has already been submitted to SARS?

Yes. SARS allows taxpayers to correct previously submitted tax returns by submitting a revised return via eFiling, provided the correction is made within the allowable time period and before an audit is finalised.

2. What is the difference between a tax return correction and a Voluntary Disclosure Programme (VDP)?

A correction fixes an error on a submitted return, while the Voluntary Disclosure Programme is used to disclose undisclosed income, incorrect reporting, or non-compliance before SARS detects it, often resulting in reduced penalties.

3. When should I use the Voluntary Disclosure Programme instead of correcting my return?

You should consider the VDP when the error involves material non-compliance, omitted income, or tax understatement that could result in penalties if discovered by SARS through an audit or investigation.

4. Can I submit a Voluntary Disclosure if SARS has already started an audit?

No. A valid voluntary disclosure must be made before SARS notifies you of an audit or investigation relating to the default. Once an audit begins, the VDP is no longer available.

5. Will SARS penalise me for correcting a tax return?

In most cases, honest errors corrected voluntarily may not attract penalties. However, if the correction results in additional tax payable, interest may still apply depending on the circumstances.

6. Does the Voluntary Disclosure Programme reduce penalties and interest?

Yes. SARS may waive understatement penalties and, in certain cases, criminal prosecution. However, the underlying tax and interest generally remain payable.

7. How do I apply for the Voluntary Disclosure Programme in South Africa?

Applications are submitted electronically through SARS eFiling under the Voluntary Disclosure Programme section, with full disclosure of the default and supporting information.

8. What information must be included in a VDP application?

A valid application must include a complete and honest description of the non-compliance, the tax periods affected, the amount involved, and confirmation that the disclosure is voluntary and not already under investigation.

9. Can individuals, trusts, and companies all use the Voluntary Disclosure Programme?

Yes. The VDP is available to individuals, companies, trusts, and other taxpayers who wish to regularise their tax affairs before SARS identifies the non-compliance.

10. Is it better to correct mistakes early rather than wait for SARS to detect them?

Yes. Proactively correcting errors or using the VDP significantly reduces the risk of penalties, interest, and criminal exposure, and demonstrates good faith compliance with South African tax laws.

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