How one fatal mistake by SARS saved AB Pty Ltd R32 million
If you under-declare your income, SARS will hit you with a laundry list of penalties, fines and interest. AB Pty Ltd got first-hand experience of this when SARS raised R69 million in penalties and interest!
But, there was something SARS didn't do which made part of the penalty fall away.
Let's look at this case and how AB Pty Ltd got away with some of the penalties SARS imposed.
Has SARS denied your objection to its assessment?
Typically, SARS won't do this, because it doesn't want you to win!
Give you reasons for the disallowance?
Tell you where you can address your appeal?
But you can fight back.
Here are six steps you can use to lodge your appeal
'Sorry, we didn't know we had to pay VAT'
AB Pty Ltd provides security services. From February 2007 to February 2011, they under-declared VAT of R130 million.
Before SARS raised assessments they asked AB to explain the differences between what the company's accounting records showed and what they declared on their VAT returns.
AB couldn't give any reasons, except they had very little tax knowledge and relied on other people.
Lack of knowledge of VAT law isn't a valid excuse!
Of course, SARS didn't accept this as a valid excuse! So they carried out an audit and raised VAT assessments:
This came to a grand total of R69 million!
R16 million in VAT;
200% penalty of R32 million additional tax;
Late payment penalty of R16 million; and
R5 million interest.
The tax dispute lands at the Tax Court
AB wasn't happy with the assessment. They appealed the case to the Tax Court. They appealed the VAT due from the under-declaration of income and the penalties imposed.
SARS could prove beyond a shadow of a doubt that AB hadn't declared around R130 million. So because of this, AB withdrew this part of the appeal.
Think VAT doesn't apply to your payroll? You're wrong! Avoid this common error and keep SARS away from your door at audit time
A common mistake picked up by SARS auditors at on-site audits is that employers fail to pay over VAT on company car fringe benefits.
This is one of the first areas the audit team will lock onto when they audit you, so here's how to make sure you're paying your output tax on company cars…
How AB saved R32 million on their tax bill
AB asked the Tax Court to reduce or remit the additional tax. And here's where SARS made a fatal mistake. SARS led no evidence to show their reasons for imposing the 200% additional tax. They didn't lead any evidence as to why they imposed this penalty on AB.
The Tax Court found that SARS had to show the Court that they had applied their mind and the additional tax was correctly imposed. But SARS couldn't prove why they had added on the penalty. So the Court ordered the additional tax of R32 million be reduced to NIL.
So AB had their payment reduced from R69 million to R37 million (consisting of VAT underpaid, 10% late payment penalty and interest).
If you find yourself in the same situation, you must ask SARS why they imposed additional taxes on you. The Practical VAT Handbook explains the process you need to follow in full details. Claim your risk-free copy here.
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