By Mike Dingley (Mazars/Moneywebtax)
The new IT14SD is a good initiative in concept, but the return is difficult to complete and requires reconciliations of amounts that do not reconcile. The IT14SD is sent to companies and close corporations where the IT14 submitted requires verification.
Sars's new request for information from companies and close corporations, the IT14 Supplementary Declaration, is a good initiative in concept. What hasn't been good is its implementation. The return itself is difficult to complete and requires reconciliations of amounts that don't reconcile.
The request is sent to taxpayers where Sars has identified that the IT14 submitted requires verification. This is often where the taxpayer has been assessed on the information submitted in the IT14 and is due a refund.
The IT14 SD requests a PAYE Reconciliation Schedule, Income Tax Reconciliation Schedule, VAT Reconciliation Schedule and a Customs Reconciliation Schedule. Taxpayers are given 21 days to complete and submit the return.
An example of how difficult it is to implement is in the VAT Reconciliation Section of the return. Taxpayers are requested to compute the total amount of expenditure on which Input Tax was claimed by dividing total Input Tax as reflected in the VAT returns for the financial period, by the VAT fraction. They are then required to reconcile this amount to Cost of Sales as claimed as a deduction in the IT14. The problem is that the two amounts will never reconcile. Input Tax as reflected in the VAT 201's relates to VAT on expenditure, which is not only contained in Cost of Sales but also in a number of other deductions claimed in the IT14.
Whilst a reconciliation of sorts can be done it is confusing for taxpayers who are not accountants and is a factor that has contributed to the returns not being submitted to Sars within the required 21-day period.
This leads to a major problem for taxpayers. If the returns are not submitted within the required 21-day period, Sarsissues a final request allowing a further 21 days. If the return is not submitted within the extended period, Sarsissues an additional assessment disallowing all expenditure.
With respect to Sars, we don't believe this is right. To issue an additional assessment the Commissioner should be satisfied that there was an amount that was subject to tax that was not so assessed. We don't believe that without further investigation the Commissioner could be satisfied that a company incurred no expenditure at all. No letter of findings or letter of explanation is issued. This means that an aggrieved taxpayer has to object to a revised assessment without understanding why expenditure as claimed in the IT14 has been disallowed.
The taxpayer's remedy is to request reasons for the assessment from Sars in terms of the Rules Issued for Objections and Appeals. This seriously delays the objection process.
Our experience is that where taxpayers have requested reasons they have not been provided by Sars. In most cases, the time period for response by Sars as stipulated in the Rules has lapsed. Taxpayers are placed in the invidious position where the Sarscollection department are demanding payment of the assessments and the taxpayer has not been able to begin the process of objection.
We can understand why taxpayers are aggrieved. From expecting a refund to having an amount that is patently incorrect demanded from them is a difficult leap.
How has Sars used the information in the IT14 SD? Dealing solely with the VAT consequences; heads Sars wins, tails the taxpayer loses.
In the output VAT reconciliation two situations can arise. The total amount of supplies as disclosed in the VAT 201's may be more than turnover in the financial statements or it may be less. Where the variance is more, Sars will raise an additional income tax assessment, where less, an additional VAT assessment. A similar approach is taken with input VAT.
Our submission to Sars is that they make the IT14 SD more user friendly and where they have issued additional assessments, they provide letters of findings for those assessments. Where no letter of findings has been issued and no reasons provided within the stipulated time then the assessments should be reversed.