I guess if you don't know what to look out for or how to fill in an objection form correctly it's an easy mistake to make but it's a costly one.
Let's have a look at what H R Computek did, or didn't do in this case, so you know what to look out for and can avoid the same thing from happening to you.
In October 2003, SARS did a Vat audit on H R Computek (Pty) Ltd. The reason for the audit was because the Special Investigations Section saw the company didn't declare the correct amount and pay their Vat in full.
Six months later, on 9 March 2004, SARS wrote to them and told them it revised their Vat 201 returns. SARS did this to account for the Vat H R Computek charged but didn't disclose. On top of that, SARS added a 200% penalty in terms of Section 60 of the Vat Act
. Here's what SARS' assessment was...
The true story of how 1200 business taxpayers managed to:
• Save R42 050 in tax
• Avoid R3.6 million in penalties
• Keep up-to-date with 17 sneaky tax changes and
• Had 30 of their complex tax questions answered
They don't have any fancy finance degrees…
They're not doing anything illegal…
In fact, they were once exactly like you, struggling through the tax maze and trying to stay afloat until they got their hands on this one resource…
SARS' assessment was over R4 million
The assessment amount SARS came to was R4 040 377.28. This amount is split as follows:
• R1 246 177.57 under-declared output tax (the capital amount);
• R2 492 355.06 additional tax levied on the capital amount (200%);
• R124 617.75 penalty levied on the capital amount (10%); and
• R177 226.90 interest levied.
So, for an under-declaration amount of R1 246 177.57, H R Computek ended up paying R2 794 199.71 in additional penalties, tax and interest.
That's a lot of money to just give away. But here's the funny thing...
H R Computek didn't object to the capital amount of R1 246 177.57. But, they had an issue with the process SARS followed. They also had an issue with the additional R2 794 199.71 tax, penalty and interest charges. They chose not to ignore the situation and lodged an objection.
Read on to find out if SARS allowed the objection
Did SARS allow the objection?
No. SARS didn't. The main reason for this was because H R Computek didn't object to the unpaid Vat amount. This showed SARS they accepted the fact they didn't declare the right amount of Vat.
H R Computek response to SARS
Dr W A A Gouws, a chartered accountant, wrote a letter to SARS on H R Computek's behalf, saying they are in agreement with SARS' figures.
Their appeal states SARS' imposition of the 200% additional tax and penalty is unfair. They also said the interest charge is unfair and SARS followed unfair tax procedural matters.
In 2011 (yes eight years later) H R Computek filed a Statement of Grounds of Appeal. This statement must have the following:
• A clear and concise statement why they were appealing;
• The material facts and legal grounds they were relying on; and
• Which of the facts and legal grounds that SARS alleged in the grounds of assessment, they admit to and which they deny.
H R Computek also admitted that when SARS calculated their Vat liability it included the turnover figures of a related entity, HR & Associates.
Did their response hold up in court?
Nope. The Johannesburg Tax Court decided against HR Computek based on the fact they didn't contest the capital amount. The court did tell them they could appeal to the Supreme Court of Appeal (SCA), which they did.
How the SCA responded
The SCA found the taxpayer didn't object to the capital amount. Which showed them they were happy with the penalties SARS imposed.
What's the lesson here?
When you object to an assessment, make sure you tick all the relevant boxes and don't leave out any details. If you don't think SARS is correct you must object or appeal against it.
If you change your mind later, it might just be too late!
Checklist: 5 Things your objection must contain
❑ You must use the prescribed form. For companies, trusts (including VAT, STC and PAYE assessments) you must use the ADR 1 form.
❑ It must be in writing and must specify the legal grounds of your objection.
❑ Your objection should clearly state which figure you are disputing, and what you believe the figure should be.
❑ If your objection is submitted more than 30 days after assessment date (i.e. it's late), you must state the exceptional circumstances that resulted in your objection being filed late.
It must be signed. If you're unable to sign the objection or appeal and another person will be signing on your behalf, the following must be declared on the dispute form:
• The reason why you can't sign the dispute (objection or appeal);
• That the representative has the necessary power of attorney to sign on your behalf; and
• That you're aware of the dispute and agree with the grounds thereof.
SARS must notify you within 60 days after receipt of the objection if the objection is valid. If it finds its invalid, you have 10 days after receiving that notice to amend the objection.
SARS must consider all relevant factors and decide each application, fairly on its own merits, by following due procedure.
There's no penalty if you're wrong on a specific point in your objection or appeal. Just don't leave it out. If you do, you could end up forking out a fortune the same way H R Computek did.