By Craig Rocher, Chartered Accountant (SA) at Tax Consulting South Africa
On 1 February 2020, the South African Revenue Service (SARS) released an exciting media statement, indicating that the revenue authority has embarked on a journey to reinvent SARS.
With the power of technology and with the right people, SARS hopes to build an organisation that will provide a world-class service to the compliant taxpayer, but one that will be equally tough on transgressors.
SARS’ vision will come to fruition if they are able to successfully optimize collections in a bid to make up for a massive revenue shortfall. This announcement, albeit encouraging, should set off the alarm bells for HR and payroll managers due to SARS’ aggressive approach to auditing company payrolls.
Payroll audits: SARS’ ace in the hole
Company payrolls appear to be the latest target for audits or verification from SARS. Those who are not fully compliant will expose themselves to these far-reaching consequences that will result in harsh penalties. This is yet another blow to organisations who are trying to keep their head above water in these tough economic times.
Personal Income Tax (PIT), which is currently the biggest contributor to the total tax collection, exceeding both corporate income tax and VAT, has become an obvious target for SARS to increase their revenue collection. Employers should be on tenterhooks now as it is not a matter of if, but rather when SARS will come knocking at your door.
Why are payroll audits SARS’ weapon of choice?
SARS can quickly detect discrepancies and variances between payroll submissions and submitted financial statements due to the modernization of its technology systems and its targeted approach to payroll taxes.
Payroll audits have the potential to generate substantial amounts of additional revenue by identifying even the smallest errors processed on payroll. In addition, it is always easier to go after one taxpayer – the company – as opposed to hundreds or possibly thousands of employees to recover the under remittance of taxes.
In some instances, employers only become fully compliant once they have gone through a SARS payroll audit at the cost of additional tax, penalties and interest being imposed.
A head in the sand approach is best avoided
Taxpayers are becoming increasingly aware of SARS’ new collection initiative and powers to audit their payrolls and to impose significant penalties. SARS may even ask for criminal prosecution of taxpayers for any non-compliance.
Should an organisation be aware of any exposures on their payroll, they should without hesitation consider using the Voluntary Disclosure Program (VDP) – the only mechanism available in law to voluntarily disclose any non-compliance to SARS and to regularise the non-compliance whilst awarding amnesty against the imposed penalty and possible criminal sanctions.
“Running a tight ship” – strategy to ensure compliance
It is absolutely imperative that employers ensure their payroll systems are fully compliant and as such may consider auditing their payroll internally, before SARS comes knocking at their door. This process is also called a “payroll diagnostic” and is imperative to ensure compliance and mitigate risk.
The risk, should the employer take no action and non-compliance is discovered, could be an unpleasant dispute which will result in significant penalties that may exceed the actual taxes payable.
Your best defense is to ensure your payroll is unblemished and, if there are any issues, to utilize the available avenues by approaching SARS first.
Ultimately, it is in the best interest of the company to try and avoid time-consuming SARS audits. The best course of action would be to audit your payroll in depth per employee to ensure your payroll is absolutely watertight before SARS does.