• Posted on Aug 10, 2022

Tax Risk Insurance saves the day for training company

Tax Risk Insurance saves the day for training company

ABC Training* works in the training and government-funded SETA learnership field. They offer tremendous value by empowering employees of companies to become self-reliant, life-long learners able to achieve their full work potential, while also unlocking the huge potential of government funded training for their client companies. ABC Training believes that having a Tax Risk Insurance policy saved their company by ensuring they remained tax compliant whilst sorting out a dispute with SARS.

Following procedure

It is of critical importance that ABC Training remains tax compliant, as tenders for business are dependent on a positive SARS tax compliance status. ABC Training is simply not allowed to tender if it is not tax compliant, thus, ABC Training is a diligent taxpayer employing the best tax consultants to ensure that taxes remain up to date. However, ABC Training could not escape the negative consequences of a SARS tax audit.

The shock

In the latter part of 2021, SARS audited ABC Training. In the process, SARS unfairly disallowed certain Employment Tax Incentive credits, and required ABC Training to re-pay hundreds of thousands of Rands in past credits claimed. Employment Tax Incentive (also known as ETI) is a government tax incentive aimed at encouraging employers to hire young and less experienced jobseekers. It reduces an employer’s cost of hiring young people through a cost-sharing mechanism with government. This negative finding by SARS caused serious disruption for ABC Training:

  • ABC Training received a tax non-compliant status with SARS, preventing ABC Training from tendering for business,
  • the company was unable to claim current ETI credits,
  • SARS demanded from ABC Training the refund of hundreds of thousands of Rands of past ETI credits claimed.

Tax Risk Underwriting Managers saves the day

Fortunately, ABC Training is a Tax Risk Insurance policyholder and submitted a claim for assistance in line with their active policy. The immediate concern was, of course, the tax compliance status of ABC Training, as it prevented them from doing business. Tax Risk Underwriting Managers approved the claim and immediately appointed top specialist Pieterse, Sellner, Erasmus TRM Tax Attorneys (‘TRM Tax Attorneys”) as service providers to deal with the matter.

TRM Tax Attorneys immediately raised an objection with SARS, obtained a suspension of the obligation to pay any alleged tax debt pertaining to the dispute. TRM Tax Attorneys also managed to obtain a full tax compliant status on SARS E-filing for the client pending the dispute. This resulted in ABC Training being able to trade again, and shortly thereafter, they landed one of their largest ever tenders - a big win indeed under the circumstances.

The larger matter of the disallowance and repayment of the ETI credits still remained. TRM Tax Attorneys drafted a comprehensive appeal on both procedural and substantive irregularities and the flawed interpretations of the tax legislation. SARS’s reasons for the disallowance were inadequate, and the appeal was submitted based on the grounds available to the taxpayer. The matter pivoted around SARS’ narrow interpretation of the word “employee”, and our appointed tax attorneys were of the firm opinion that SARS simply got it wrong - with dire consequences for our policyholder. SARS’ retrospective application of the amendments to the ETI Act in respect of the definition of an employee was also argued to be unlawful.

Following some legal wrangling with SARS over the following months, SARS finally conceded to the appeal in full in May 2022. The SARS assessment – which demanded the refund of past credits – was revised accordingly, and we fully expect that claims of future credits will remain unaffected. ABC Training’s tax compliance status was ensured, and the hundreds of thousands of Rands of tax debt deleted.

Aside from the obvious devastating financial consequences of an unfair SARS tax assessment such as this, the matter has caused our client many sleepless nights. Dealing with a SARS tax audit and dispute can be stressful, complicated and very costly. This is definitely not the time for DIY. You need experts in your corner able to navigate the pitfalls of a full-blown tax dispute with SARS. Fortunately, ABC Training could rely on their Tax Risk Insurance policy for expert assistance.

Being tax compliant and having great accountants is no longer a guarantee against a SARS tax audit or dispute. To ensure your rights as a taxpayer remain protected, it is imperative that you have an expert in your corner during the tricky audit process.

Tax Risk Insurance covers the cost of employing a team of top tax specialists in the event of a SARS’ audit and related dispute. This may include Tax Attorneys, Auditors, Tax Specialists, Accountants and other Tax Advisors as may be required to ensure a fair audit outcome – this includes paying the policyholders existing tax accountants’ fees for services for the duration of the claim.

Make sure that you are protected by a tax risk insurance policy before SARS come calling. Speak to your broker today, or visit www.taxrisk.co.za.

Pieterse Sellner Erasmus TRM Tax Attorneys is a specialist firm of tax attorneys that offers clients practical solutions and complete peace of mind.

*The company name has been changed for privacy purposes