Getting To Grips With The IT14SD
05 April 2012
Posted by: TaxFind™
Getting To Grips With The IT14SD
Recently SARS implemented the IT14SD return as a supplementary declaration to the IT14 tax return that companies and close corporations file annually. This introduced a mechanism that requires the taxpayer to reconcile their VAT201 returns, import and export customs declarations, and employees’ tax declarations for the same financial period as that of the annual financial statements,which was the basis for the IT14 return.
Previously, SARS would apply similar comparative testing.SARS would issue a letter requesting the taxpayer to explain the differences,which was either part of an audit, or could lead to an audit based on the risk associated with the response provided.Compiling the information required to populate the fields of the IT14SD is generally not a simple administrative exercise, but requires substantial effort and time.Consideration should be given to differences caused by timing and financial reporting disclosure requirements. In fact, some fields of the IT14SD relate to values that were not previously required in SARS declarations, or a disclosure item for the annual financial statements.
Filing the IT14SD with un-reconciled differences, or a difference of greater than R100 will most likely result in an assessment. This assessment issued by SARS will not easily be disputed as you require sufficient grounds for the objection, considering that the assessment is based on the values that you filed with SARS.
The issue is further exacerbated when the vendor did not disclose the different types of supplies correctly.Often the vendor is merely concerned that the net amount paid to SARS is correct with reference to total output tax and total input tax, with disregard to the distinction of adjustments, deemed supplies, separating capital and non-capital supplies and input tax deductions.As an example, capital input tax deduction will not be tested against the detailed income statement (statement of comprehensive income), but rather the statement of cash-flow and balance sheet (statement of financial position).
In some cases the taxpayer is not registered for VAT, but issues a tax invoice by default, and perhaps in ignorance.A person who raised tax (as a tax invoice could imply) on goods or services by him is deemed to be a vendor for VAT (section 31(6) of the Value-Added Tax Act), and any tax represented to be charged on a supply is thus deemed to be a tax payable by him.This provision does not entitle the deemed vendor to a deduction of input tax.Many off-the-shelf accounting systems will by default issue a tax invoice.Even if the tax invoice expressed the VAT amount to be zero, an argument could be made that the issue of a tax invoice implies a taxable transaction with regards to VAT.
VAT Disclosure and Recovery
Registered VAT vendors are required to file regular VAT201returns.The return forms the basis of the liability and disclosure of output tax levied on behalf of State and the input tax deductions claimed. It’s often forgotten that the output tax levied is already State funds and should not be used by the vendor as part of its cash-flow.For this reason, I generally educate my clients that a separate VAT bank account should be maintained, separating the output tax received from the general bank account used for day-to-day cash-flow and operations.This limits the risk of a vendor manipulating the value of output tax disclosed in their returns.
During the last few months we have all become accustomed to the SARS review notice issued shortly after filing a VAT201 return.This review is aimed at identifying that proper accounting records are maintained, that the output and input tax values match the accounting records, and in many cases include a review of about five tax invoices that were claimed for input tax deduction. In some cases, the review is a prelude to an audit when risk has been identified.The consequence of ignoring the notice of review is that SARS will raise an assessment writing back all the input tax deductions claimed, generally resulting in a short payment of VAT for that period. In order to remedy this, the vendor cannot simply reclaim the input tax in another period, but an objection must be lodged with sufficient grounds to justify the input tax deductions claimed.The lodging of an objection is more onerous and time-consuming.
It’s important that proper disclosure is made when filing theVAT201 return.The newest thorn in the taxpayer’s side is the IT14SD that requires the taxpayer to reconcile the VAT disclosure as per the VAT returns to the IT14 return and annual financial statements.SARS has a time limit of five years to recover tax or raise an assessment for tax due, with regards to VAT.However, this prescription will not apply if an assessment of the unpaid tax has been raised at any time within the five year period, nor will it apply if the vendor fails to prove that the amount due was not paid for reasons other than a deliberate intention to pay the tax, the vendor acted in good faith and on the assumption that the supply or importation was correctly taxed and that input tax deductions was in fact applicable, and this assumption was based on reasonable grounds and was not due to negligence on the part of the vendor.
Value Added Tax
Failure to make proper disclosure would allow SARS to pierce the prescription provisions, and deliberate incorrect or manipulated disclosure could even be prosecuted as fraud, as you declare the information submitted on the return to be true and correct when signing the return or submit the return using e-filing.
Proper disclosure and maintenance of supporting documentation,such as the original tax invoices for input tax deductions, is essential.A properly maintained accounting record, accounting system, correct setup of the accounting system, and regular reconciliation of the VAT control account(s) is advised.
Incorrectly charging VAT
Where a person who is not a vendor for VAT, meaning not registered for VAT nor liable to be registered for VAT, raises tax on goods or services supplied by them, that person will be deemed to be a vendor in terms of Section 31(6) of the Value-Added Tax Act.Any tax represented to be charged by this deemed vendor is thus deemed to be tax payable by him. Since the person is deemed to be a vendor, it should follow that he may deduct any input tax incurred in making the supply on which the output tax is now due.While the tax is payable once assessed, the deemed vendor may find it very difficult secure any input tax deduction, considering the requirements for such deduction.Also, the client that paid the VAT will most likely not be in possession of a valid tax invoice, which is one of the requirements for claiming an input tax deduction.
Similarly, where a vendor represents that tax is charged or chargeable on a supply that is in fact not taxable or should be zero-rated, any tax charged will be deemed to be payable by the vendor in terms of section 31(1)(e), 31(2)(d), and 31(6)(b) of the Value-Added Tax Act.The fact that such supplies yield a deemed liability to pay the tax, such deeming provision will not automatically change the nature of the supply, and as such will not automatically entitle the vendor to related input tax deductions that would normally have been denied or apportioned.
Source: By SAIPA Tax Committee