May The Force be With You
24 July 2013
Posted by: Author: Dirk Kotze
Author: Dirk Kotze (TaxTalk Professional)
Some practical advice for tax practitioners who wish to survive this tax season without struggling down a dark path
"Once you start down the dark path, forever will it dominate your destiny, consume you it will.” – YODA in The Empire Strikes Back (1980).
The above may very well be true when describing the feeling of many tax practitioners ("TP’s”) towards the 2013 tax filing season and while you may think the statement to be overly dramatic, be warned that if your planning for this tax season is not done well, then a dark path awaits you and it will dominate your destiny. A year ago it was business as usual for many TP’s but now the Tax Administration Act ("TAA”) and its requirements have cast a dark shadow over the tax landscape. Add to that a marked increase in SARS enforcement activities at which point the TP is also involved, then it will make for a very busy tax filing season – and all within the same time constraints as in the past. TP’s have also been required to inform SARS of the approved controlling body they belong to and where necessary some TP’s have ha to register with a controlling body to retain their TP status. Some TP’s are in fact in real danger of not retaining their TP status if they cannot find a controlling body to which they can turn.
A recent newspaper article indicated that as many as 17 000 TP’s may struggle to find a controlling body to which they may turn. The risk is that these TP’s do not qualify, in which case their source of income has effectively ceased. This may also result in a flood of taxpayers to TP’s who remain registered, in which case potential client volumes may increase in certain areas. However, in this profession quantity kills quality most of the time. The more clients you have presumably the higher the risk of an error. As a TP your own housekeeping will be key and it should be considered that keeping it tight in a high volume environment may be more difficult than in a low volume environment.
For those of you who think the above is an overreaction consider that recent updates from Professional Indemnity Insurers have listed a marked increase in claims by accounting and other business professionals in respect of tax matters. Many of the reports lists the TAA as the source of the increased exposure as aggrieved taxpayers seek compensation from the TP’s for perceived errors and lack of care and skill. Some cases noted by the insurers include understatement penalties arising on the omission of income by the TP where the client has confirmed the income and TP’s generally missing tax risks due to clients getting involved in complex structures and the TP not remaining up to date with the changes in the various tax laws.
However, even the best of us are only human and errors and mistakes are bound to happen. There are however certain safeguards that can be implemented to gain some control in minimising the risks.
Your administration matters
Gone are the days when TP’s have clients with multiple tax years of unfiled tax returns. The administrative penalty for late submission of tax returns will eventually include trusts and companies and clients will hold TP’s responsible for late filings, even if they have dragged their feet with the information as these clients especially believe that all things tax related are the responsibility of the TP.
Risk management policies and practices are no longer the domain of only the larger TP’s but it is something that each TP must adhere to in order to limit the potential damage to your operations.
Manage client relationships
Clients should be very aware of their responsibility in respect of their taxes and what your role as the TP would be. Clear engagement letters setting out the exact scope of the service and requirements are key. The engagement letters should also stipulate what you as the TP will NOT be responsible for – if you have not specifically excluded the item from the scope, the client will assume you are addressing the matter. Also, it may be an option to limit the expectation of clients in respect of information that is received late i.e. the filing of the tax return by the deadline date cannot be ensured if the information is not received by XYZ date.
Be sure that client contact information is up to date for the correct insertion on the tax return. Also confirm bank account details every year to ensure that refunds are paid into the correct bank accounts. As the inevitable is bound to happen it is also advisable that TP’s update their indemnity insurance. Determine up to what level you can carry the cost from own sources – just remember that a number of small claims not covered by the insurance may almost have a bigger impact than one large claim that will be covered by the insurance. Also consider that while we as TP’s struggle with the application and interpretations of the TAA so will SARS. Additional time may therefore also be taken in just getting to a reasonable solution in some instances due to the lack of precedent.
Knowledge is power
I dare say that if, as a tax practitioner, you have not spent some time reading or updating your knowledge and understanding of at least the TAA you may very well find yourself in some difficulty this tax season. It may sound counterproductive but spend time reading the TAA or publications on it so that you have at least an understanding of some of the more relevant sections. The time spent up front will save you many hours of work in potential claims from clients or even SARS on administrative matters that have not been dealt with correctly. And this goes for all tax practitioners, whether you provide only tax consulting, or payroll, VAT and income tax return processing or a full suite of tax services – you have to know the regulatory environment you operate in.
You may also regard filing tax returns as one size fits all but with the amount of legislative changes alone you must at least try to keep current with those aspects that affect your practice. Have you looked at the new IT14 yet to ensure that you have the correct information on the tax file to complete all the relevant sections, are you filing Dividend Tax Returns correctly and are you aware that foreign dividend income is now taxed differently than in the past? Attend the seminars and read the publications applicable to your area of business to ensure that you remain up to date and can service your clients effectively.
Staffing and expertise
While e-filing has made the filing and tracking of tax returns simpler and easier it has also created the situation where information on taxpayers is constantly either received from or requested by SARS. SARS has also increased its authentication processes and a SARS power of attorney is required for any contact with them in most instances. Staffing and responsibility is therefore important to ensure a smooth filing season. You should have enough staff to deal with the information inflow and outflow and the staff should also understand exactly what their responsibility will be.
There are also increased enforcement contacts from SARS on various levels of taxpayers and TP’s must ensure that these matters are dealt with efficiently and in a manner that protects both the taxpayer and the TP. Staff dealing with these matters should be suitably experienced and qualified. Certain matters may very well require a referral to a more suitably qualified and experienced TP. SARS has also increased its requirements for adherence to the dispute resolution process and TP’s must ensure that their staff adhere to these requirements in order that they do not fall foul of administrative dismissal of the dispute at the cost of the taxpayer.
As with the audits, certain tax disputes should also be referred to tax practitioners who have specialist knowledge in that area of taxation. TP’s should act in the best interest of their clients and if that means that another TP should handle a matter then so be it. It is not a large overstatement to suggest that this tax filing season will be one of the most challenging for TP’s yet. We have not yet seen the TAA in its full application and this filing season will be the open door through which it will definitely make a greater entrance than the unwelcome one most of us have viewed of its appearance to date. The TAA also brings with it the opportunities of being of greater assistance to your clients, increasing your fee base and it should therefore not just be shunned as a major stumbling block. The journey of a thousand miles is started by the first step – so get moving this tax season and may the force be with you.
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