Tax Risk Insurance rescues SMME from SARS nightmare
Mr Jones,* a sole trader, operating a medium-sized sales business from a smallholding in the northern parts of Johannesburg, believes that taking out Tax Risk Insurance for his company, saved his business from financial ruin.
After submitting his tax return on time, Mr Jones received a letter from SARS a few months later, (18 October 2018), requesting certain business information in support of his tax return. The information requested included payroll information, proof of payment of certain invoices, a travel logbook, explanations about the state of the business and other documents which SARS wanted to verify. SARS gave Mr Jones 21 business days to respond, which is standard for a request of this nature.
Mr Jones has a leading tax accounting firm, which deals with his taxes diligently and professionally. He asked his accountant to assist and provide the required documentation for SARS. This was collated and sent via email to SARS on 25 October 2018 – well within the stipulated 21 business days required.
The veiled threat
Mr Jones was not unduly concerned about the verification procedure but was taken aback by their letter to him. In it SARS noted that: ‘It is a criminal offence to willfully and without just cause fail to provide the relevant material.’
Then the shock
The very next day, on 26 October 2018, Mr Jones received an additional assessment from SARS, in terms of which he had to pay an additional R604 000 in taxes. SARS demanded this payment within 30 days and did not provide any reasons as to the reassessment.
He was, understandably, in absolute disbelief and shock. Not only did he believe his taxes were up to date and paid for, but was actually expecting a tax refund.
Mr Jones fully complied with SARS request for additional information and well within the time allowed. According to him and his accountant, he had done nothing. This payment would be devastating and probably the end of his business.
Mr Jones was in for the fight of his life
He contacted his accountant urgently who proceeded to raise a formal dispute with SARS on his behalf, which is the normal procedure in cases such as this.
Tax Risk Underwriting Managers had his back
Fortunately, Mr Jones had bought a Tax Risk Insurance policy through his insurance broker. The policy, administered by Tax Risk Underwriting Managers, provides comprehensive protection in the event of a SARS’ tax audit and related disputes. The cover provides for the appointment and remuneration of a team of highly-qualified tax accountants, tax attorneys and other tax professionals. These experts are brought in when a policyholder is selected for audit by SARS or when a dispute arises due to an unfair reassessment in terms of which SARS demands additional taxes following an audit.
- The accountant submitted a claim on behalf of Mr Jones with Tax Risk Underwriting Managers.
- Tax Risk Underwriting Managers immediately conducted a professional assessment of the situation to determine the best course of action, to ensure a fair outcome for the policyholder.
- They then appointed the service providers who included Mr Jones’ own accountant who double-checked that the tax accounting was done correctly.
- He worked with a firm of experienced tax attorneys based in Port Elizabeth. Together, this team of tax professionals provided expert protection to Mr Jones during this case.
- The tax team immediately started legal proceedings with SARS, reminding them of the taxpayer’s rights under the law.
The basis for the legal battle
The legal team argued that, inter alia:
- SARS had breached Section 6 of Act 3 of 2000 in failing to consider the supporting information properly. This deemed the subsequent administrative action to be irrational.
- That SARS failed to issue a letter of audit findings as is required in terms of Section 42 of the Tax Administrations Act 28 of 2011. Mr Jones’ rights as a taxpayer had not been adhered to.
Proceedings between the tax team and SARS continued over the next few months
SARS finally agreed to the facts in a letter dated 30/01/2019, where they simply stated: “The South African Revenue Service (SARS) has considered your Notice of Objection (NOO) dated 2018/10/29. Your objection against the 2018 tax period(s) has been allowed.” Case closed!
Then does a 180-degree turn
On the same day, SARS issued a reduced assessment in terms of which SARS must now refund Mr Jones an amount of R 599 000 in tax.
There can’t be a better outcome than that.
Following the case, Mr Jones’ wife wrote to Tax Risk Underwriting Managers. In her e-mail, she says: “Ons is regtig bly die nagmerrie is verby.” (We are really glad the nightmare is over.)
And it is. If Mr Jones had not had tax experts, who know and understand the various tax administration procedures and regulations applicable to SARS, the outcome would have been very different.
Audits and disputes – it’s not a time for DIY
Willem Lombaard, Managing Director of Tax Risk Underwriting Managers says: “The claim for Mr Jones is an example of a typical case we take on. Tax Risk insurance appoints, and pays for a team of top tax professionals in the event of a SARS’ tax audit or related disputes.
In this case, we were able to provide the services of top tax professionals to protect our client, when there was a massive and erroneous problem with his taxes. Taxpayers often only realise the true value of tax risk insurance protection when something serious goes wrong. Tax audits and incorrect tax assessments are always stressful and time-consuming, and can very often be terminal for a business and its owners, if not dealt with properly. This is definitely not the time for DIY!” says Lombaard. “It is very satisfying for us when we are able to help good, honest taxpayers like Mr Jones – so I’m very thankful for the outcome.”
Had Mr Jones not been insured under a tax risk insurance policy, the legal and accountant’s fees to deal with this matter would have run into tens of thousands of Rands – even though, at the end of it all, he did nothing wrong.
*The name has been changed for privacy purposes
To ensure your rights as a taxpayer remain protected, it is imperative that you have an expert holding your hand 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.