Best Practice: SARS VAT and Payroll Audit 2021
Presenters : Johan Heydenrych
Overview
In the 2021/2022 Budget Speech delivered on 24 February 2021, the Minister of Finance, Tito Mboweni, stated: “We owe a lot of people a lot of money. We must shore up our fiscal position in order to pay back the massive obligations we have incurred over the years.”
The taxpayer should not underestimate the resolve of SARS to collect taxes, penalties, and interest wherever possible. The dispute resolution process (even though technically sound) favours SARS from a cash flow and a timing perspective and many taxpayers can simply not afford the cost of disputes and the time to resolve tax uncertain positions.
This workshop-webinar focuses on an anticipatory and precautionary approach to avoid costly disputes with SARS. By adopting the principles discussed in this workshop-webinar, an investment is made into tax certainty where disputes with SARS are avoided. Where tax uncertain positions are progressed through the legal system, the chances of success will be improved exponentially if the principles discussed in this webinar are adopted.
Workshop-webinar content
Dealing with SARS PAYE audit
South Africa’s budgeted gross tax revenue for the 2021/2022 fiscal year is R1.5 trillion of which personal income tax makes up 38%. Most of the personal income tax is collected through the PAYE system making this the single most important tax collection mechanism for SARS. Despite the importance of PAYE, the risks associated with non-compliance is often underestimated.
Employers are often unable to recover non-deducted PAYE from employees in which case the PAYE liability must be grossed up with the underlying taxes paid on behalf of the employee (which is a fringe benefit in itself). Assuming a 45% marginal rate, the tax liability on a fringe benefit where the PAYE is not recovered from the employee will be 81.81%. (In order to provide an after-tax benefit to an employee of R1 000, the total pre-tax amount must be R1 818.18 on which 45% tax is R818.18 [81.81%]).
In this workshop-webinar we will discuss each element of the PAYE lifecycle which starts with a tax friendly employment letter and Employee Benefit Form that provides tax certainty on all elements of remuneration. The PAYE lifecycle ends with the dispute resolution process, which risk should be minimised if appropriate attention is given to all elements of the PAYE lifecycle. We will discuss how to avoid understatement penalties by adopting a robust system of tax management.
In addition, we will discuss practical case studies of disputes with SARS, highlighting PAYE risks, including, but not limited to the following:
- Salary sacrifice principles and cost to company principles.
- Setting of travel allowances, including the reimbursement of fuel, maintenance, e-Toll, and business-related km.
- Bursaries and study loans.
- Relocation allowances.
- Section 8C gains and losses.
- Section 7C variable remuneration.
- Home study costs, wi-fi, cell phones and computers.
- Gifts, awards, and incentive trips.
- IT 14SD reconciliations.
- The employee spending significant time away from home (e.g., construction workers and expatriates).
Dealing with SARS VAT audit
VAT revenue is estimated to be 25% of the Gross National Tax Revenue for the 2021/22 fiscal year making it 56% more important than Corporate Income Tax that constitutes 16% of Gross National Tax Revenue. From a vendor’s perspective, VAT is arguably the single most important tax to manage in an organisation since errors can occur on output tax and input tax and affects each element of the business process. It is a transactional tax with limited exclusions.
In this workshop we will discuss each element of the VAT lifecycle which starts with a VAT friendly ERP system and ends with the dispute resolution process. We will discuss how to avoid understatement penalties by adopting a robust system of tax management.
In addition to the VAT 201 preparation lifecycle, we will discuss VAT risk management policies and procedures regarding the following processes:
- Corporate structure, loan funding, capital funding, reorganisations.
- Fixed asset management.
- Purchases and stock management.
- Sales and debtor management, including bad debts.
- VAT and payroll management.
- Shared services centres and recovery of costs.
We will also discuss practical case studies of disputes with SARS highlighting VAT risks including but not limited to the following:
- IT 14SD.
- Apportionment rules.
- Deemed supplies.
- Documentary requirements on exports.
- Entertainment.
- Cost recoveries.