Successful Tax Practices: Back to the Front
15 March 2013
Posted by: Authors: Graeme Saggers & John Edwards
Authors: Graeme Saggers & John Edwards
SARS continues to push more of the responsibility of administration of taxes onto tax payers and whilst this attempts to alleviate the compliance burden through measures such as e-ﬁling and creating a link for taxpayers across all tax types, many tax payers are feeling overwhelmed by all the changes and additional responsibilities.
The Tax Administration Act eﬀectively gives SARS more power to prosecute, and now, more so than ever, taxpayers need a reliable helping hand to guide them through current and future amendments to tax legislation and administrative processes. There exists, therefore, incredible opportunity for Tax Practitioners to grow their practices provided the principles on which they are based are not only sound, but clear and structured.
In addition to this opportunity, the Tax Administration Act also creates an obligation. Section 240 of the Act requires tax practitioners to register with a controlling body by 1 July 2013. Since 2002 there has been discussion over the regulation of the Tax Practitioner profession and this requirement of the Tax Administration Act eﬀectively incorporates the ﬁrst step towards regulation of the industry.
Previously Tax Practitioners were only required to register with SARS which could be done quite easily via E-Filing, whereas now they have to satisfy the minimum qualiﬁcation and entrance requirements of the relevant controlling body. Tax Practitioners will then have to comply with the relevant body’s codes of ethics and conduct and disciplinary codes and procedures as well as their requirements for continuing professional development. This requirement of the Act will not have such an impact on practitioners such as Registered Auditors, Attorneys and Advocates, who already comply with the applicable requirements by virtue of their registration with their relevant controlling bodies. It will however, have an impact on practitioners without a current professional registration, who will now need to seek qualiﬁcation for registration with a recognized controlling body such as the South African Institute of Tax Practitioners.
The requirements of these bodies may signiﬁcantly alter practitioners’ methods of conducting their businesses and potentially create additional administrative burdens and therefore a forward thinking Tax Practitioner should assess his current business processes against them in order to determine any shortfalls in compliance.
A tax practice should be split into two distinct functions, one being a back oﬃce function that controls the administration and compliance of taxes, and a front oﬃce function, that controls the relationship with the taxpayer (the client) and the higher level of service being tax advice and tax structuring. Whilst these functions should be able to integrate well, each should be formed on their own sets of operating policies and procedures with clearly distinguished areas of responsibility. Tax compliance is an area where anything "slipping through the cracks” can have severe ﬁnancial and potential criminal consequences and therefore the reporting lines within a tax practice must be clearly established. Simultaneously however, the nature of the industry is that our product is our time and so we need to always bear in mind the most eﬃcient approach to avoid tasks being done more than once or being done by someone less eﬃcient than another.
The core of the back oﬃce is the systems that aid and accelerate their tasks. The back oﬃce needs to have suﬃcient systems in place, whether manual or automated, to enable them to:
•Be prompted for various deadlines well in advance to ensure there is suﬃcient time for preparation;
•Proactively contact clients to request information for the ﬁling of various returns;
•Standardize communication to avoid having to manually type similar messages repetitively;
•Keep record of communication and archive it an a manner that allows it to be retrieved quickly when needed;
•Easily amend forms and documents for changes to tax legislation and administrative procedures.
There are various tax management soﬅware products available that oﬀer much functionality and can greatly enhance productivity if utilised as they are designed, and practices should look to automate as much as possible. The only way the back oﬃce can operate eﬃciently is to make use of Information Systems, as SARS has computerised most compliance functions during the last 10 years.
There are well proven packages available which assist practices achieve eﬃciency in the administration, compliance and checking of assessments amongst other tasks. Practices generally thrive on the use of IT when they have someone (called a "champion”) who proactively looks for ways to use IT to their advantage and assists other staﬀ members in implementing automated processes. It is important however, not to underestimate the time and eﬀort needed to implement a new system. It will pay oﬀ in the future to spend time implementing the system and customising it for your needs in order to reap the beneﬁts available.
If the back oﬃce is operating eﬃciently it enhances the service oﬀering to the client who will trust the practice and begin looking for further services such as reviews of tax computations, investigations into eﬃcient tax structures and consulting on tax eﬀects on potential business opportunities and decisions.
This is where the front oﬃce function kicks in and a proactive Tax Practitioner can really use opportunities to not only provide their clients with the best service and grow their relationship, but further their own expertise and therefore product oﬀering.
As a Tax Practitioner, you are placed in an extraordinary situation where, although the responsibility of the contents of a tax return rests with the taxpayer, the return is oﬅen completed on your advice and you in turn bear limited responsibility for the advice given. The Tax Administration Act, however, allows for SARS to lodge complaints with your relevant controlling body if they identify that you have given bad advice whether wilfully, negligently or through incompetence. It is therefore of utmost importance that Tax Practitioners place themselves and their clients in the position to produce returns that are in terms of the relevant tax Act.
The requirement to register with a controlling body will greatly assist in enhancing the product oﬀered by Tax Practitioners. A common aspect of all codes of professional conduct is the requirement to exercise due care in the conduct of your profession. Situations where the registered tax practitioner is seen not to have complied with the requirements of the relevant code can have devastating eﬀects on the reputation of both the ﬁrm and the individual registered Tax Practitioner, and can ultimately result in loss of membership of the controlling body.
It is important, therefore, for tax practitioners to have clearly documented and structured quality control procedures which cover aspects such as:
•Standard engagement letters which need to be signed before undertaking any assignment;
•A system whereby all work performed is clearly documented so that any reasonable person reviewing it, will be able to determine how and why the work was performed and the justiﬁcations for the respective conclusion;
•A process of review where all work performed is reviewed by the registered Tax Practitioner prior to the sign oﬀ the client deliverable;
•Reporting lines and procedures for staﬀ within the practice;
•Processes to follow when diﬃculties are encountered for example identiﬁcation of a situation of previous non-compliance with a Tax Act by a client;
•A quality control review program whereby engagements are reviewed by an independent person that provides an objective evaluation of the signiﬁcant judgements made and conclusions reached in formulating the ﬁnal deliverable;
•Monitoring the relevance of the ﬁrm’s policies and procedures in terms of new developments in of tax legislation, practice notes, private binding rulings, case law, latest news etc;
•Consultation with external service providers on diﬃcult or contentious issues;
•Recruitment of staﬀ with the appropriate Academic background as well as an assessment of the competence of any individuals working on speciﬁc engagements.
The requirement to register with a controlling body is only the ﬁrst step in the regulation of Tax Practitioners. Whilst it does not regulate the profession to the extent of creating an independent board as initially envisioned in the Regulation of Tax Practitioners Bill, it does create a level of governance that has long been needed in the industry.
Whilst some might see the additional regulation as a further compliance burden, a tax practice with an eﬃcient back oﬃce and eﬀective front oﬃce that has based their ﬁrm on sound principles, will see it as a means to create due diligence requirements and therefore a step in the right direction of enhancing the quality of tax advice given by all Tax Practitioners.