Be Aware of SARS Payroll Audits

SARS has launched various campaigns over the past six months to recoup the massive tax deficit they currently face. One of SARS’ favourite quarries when it comes to targeting corporate taxpayers is the notorious payroll audit. There is a simple reason why SARS always comes foraging around your payroll when it is in need of extra taxes and that is purely because of its propensity to contain errors. Not only are there many instances where mistakes can occur, but such mistakes are magnified by the size of your payroll.

Where you have a big payroll with many employees, even small errors can leave the company with a large tax exposure, as these errors are proliferated across your employee base. In other instances, inexperienced payroll administrators simply do not know the law, which results in glaring errors such as failing to tax fringe benefits or paying lump sums without getting tax directives. The truth is that SARS will find something, and most employers only become fully compliant once they have gone through the ordeal of a payroll audit conducted by SARS.

SARS’ new angle of attack  

As if the challenges of a payroll audit are not daunting enough, we have observed a new trend from SARS that makes it even more difficult to get a clean bill of health from the SARS Audit Team. Rather than identifying specific items that were inaccurately treated on payroll, SARS now attacks your payroll from the financial statements’ perspective.

SARS, quite deviously, will assess you for an understatement and short payment of employees’ tax purely on the basis that there is a discrepancy between your payroll reconciliation and cost of employment as reflected in the company’s annual financial statements. SARS is very much aware that not all amounts reflected in the annual financial statements under cost of employment should be processed to the payroll, but SARS places the onus on you to dispute this and to delineate why the amounts making up the difference is either exempt or not taxable.

Many large corporates who believed they are in the clear, are now being found to be non-compliant and are facing hefty penalties from SARS.

How can you protect yourself and the company?

Given the ease with which SARS can collect revenue by targeting payroll taxes, a head-in-the sand approach is ill-advised and will end in calamity.  Our strategy includes a comprehensive PAYE tax diagnostic and review of the company’s payroll at a detailed level, to determine the completeness and accuracy of the payroll information, payroll wage-type set-up and whether this is aligned to company policy and bargaining unit agreements (where applicable), Fund rules, various insurance related elements per Insurance company premiums / unit rates, relevant tax legislation and other Statutory Laws. Our review incorporates expatriate tax law to ensure structures have been correctly set up for inbound expatriates.

If the company has not been compliant, we will propose ways to fix compliance, which includes but is not limited to submitting a Voluntary Disclosure Programme (VDP) application before SARS institutes an audit.

Legal privilege offered:

As a dedicated tax practice, we have over 50 professionals at your command, including a team of tax attorneys, chartered accountants and tax specialists. Our Payroll/PAYE review (read more) is conducted with legal privilege and which is especially important on certain aspects of the engagement and to ensure protection of client and senior employees. Legal privilege means that SARS cannot compel a tax attorney to supply information relating to communications between tax attorney and client surrounding legal advice that has been sought on client’s affairs.

Speak to us now about conducting a Payroll Audit