What to expect from your tax professional
21 November 2014
Posted by: Author: Kari Lagler (Iol)
Author: Kari Lagler (Iol)
In an unforgiving tax environment, with changes to tax legislation
lurking around every corner, it may be tempting to appoint a tax consultant to
look after your tax affairs – if you haven’t already done so. If you do put
this important responsibility into the hands of a professional, what can you
expect for the not-insubstantial fee?
Some might think that regular, large tax refunds are the sign of a
good consultant. In my opinion, however, large refunds could be an indication
that too much tax was paid during the year – certainly not the indicator of an
efficient tax process.
Instead, look for the following characteristics of excellent
Clarity and good communication
Are you entirely clear about your tax obligations to the South
African Revenue Service (SARS)? Does your consultant spell out what you have to
do and by when? You should be advised clearly of the following:
* The categories of taxes for which you are liable – for example,
income tax, capital gains tax (CGT), dividends tax, donations tax, VAT;
* Whether you are also liable to register for advance payments,
such as provisional tax;
* The registration requirements;
* The due dates for payment of taxes; and
* The amount of tax payable in a given tax year.
You should feel able to ask your tax adviser these questions and
get answers you understand. Your tax adviser should give you sufficient notice
of what you need to pay and when.
Minimisation of tax payable
Obviously, your adviser should make sure you are taking advantage
of every possible tax deduction, allowance and exemption. He or she can do this
only if you are open about your sources of income and economic activities.
If you work from home, you may be able to deduct the expenses of
maintaining an office at your home, and, if you are self-employed, any other
expenses incurred in the process of generating income, such as business travel,
should be considered. Your adviser should tell you what documents you need to
keep in order to support these deductions and the format of the records
required – for example, travel log books. If you earn remuneration for work
done outside South Africa, you should be made aware of the circumstances under
which this income could be exempt.
A proactive adviser will prompt you to make full use of the
available deductions, by, for example, suggesting you consider making voluntary
top-ups to your retirement annuity (RA), or take advantage of the exemption on
interest income. He or she should alert you to special exemptions where
appropriate, such as the one that ended on December 31, 2012, which allowed you
to transfer residences out of companies and trusts without paying any tax.
Do be aware that no one can be an expert in all fields of tax. A good
adviser will know when you should consult another expert who may specialise in
a particular area.
Ideally, you want to have a rough idea of the amount of tax you
will be expected to pay and by when, so you avoid unpleasant surprises on
deadline. A phone call the day before you are expected to pay a large sum is
not the mark of a good adviser.
You should pay the correct amount of tax – not too much and not too
little – by the due date. This is particularly important for provisional
taxpayers, who are expected to make advance payments of income tax every six
months, on August 31 and February 28 each year.
As a starting point, it is important that you are correctly
categorised as a provisional taxpayer by your adviser. If you fall into the
net, but have not registered as a provisional taxpayer, you could be liable for
penalties for non-registration and late payment. If you do not fall into the
net, paying tax in advance is not an efficient use of your cash.
The advance payments are estimates of your expected tax for the
year. SARS allows some leeway in making the estimates, but if your actual tax
for the year, as calculated on submission of the tax return, differs from the
estimates too much, penalties of up to 20 percent may be levied.
In many cases, your estimates will be based on the taxable income
as calculated in your last assessed tax return (called the "basic
amount”). If your earnings for the tax year are expected to be much lower,
however, you are allowed to submit an estimate lower than this basic amount.
It is more efficient to pay less provisional tax upfront than to
base your provisional tax on an inflated estimate and receive a refund several
months later. This action does carry a risk, however. If your actual earnings
turn out to be higher than you expected and the provisional tax you paid was
too little, you can expect to pay penalties and interest. Your tax adviser
should outline the different options available to you and the concomitant
If your earnings escalate significantly each year, your adviser
should take this into account when preparing your provisional tax returns, so
that you do not pay penalties for underestimation.
You should also be aware that if the due date for payment falls on
a weekend or public holiday, you will be expected to make the relevant payments
the day before. If you fail to do this, penalties and interest may apply.
There is not much leeway when it comes to the calculation of the
PAYE tax deduction from your salary. However, consideration should be given to
minimising the deduction if possible, because this is good for your cash flow.
Some things to look at are whether your employer takes your pension, provident
and RA fund contributions into account. If you provide your employer with proof
of payment of RA contributions, for example, they may reduce your PAYE
deduction. Similarly, donations to registered public benefit organisations may
reduce your tax.
Appointing a tax adviser
When you appoint a tax professional for the first time, you should
expect a consultation that gives your professional a full understanding of your
tax situation, so that all aspects of your taxes are taken into account.
Thereafter, most professionals will request at least an annual update of your
income and expenses, assets and liabilities, usually in the form of a
This is an area where much can go wrong. If you are switching
advisers, it is important that all parties (you, the previous professional and
the new professional) are clear as to who is doing what.
Many professionals prefer not to have to deal with tax returns that
were submitted by someone else, but queries and penalties might arise in
respect of a previously submitted return. Who then will be responsible for
responding to the query – the previous adviser or the new one? Make sure that
the division of responsibilities is clear and in writing. I know of occasions
when penalties from previous returns have gone unattended and have escalated.
Ideally, the outgoing tax professional should provide you with your
status at the point of exit from his or her practice – for example, all returns
submitted to that date, the status of your payments, any queries, objections or
appeals that are in progress, outstanding penalties and interest, and so on.
However, if you part ways less than amicably, or you are changing because of
poor service, this may not be practical. You should then insist that the new
adviser does an "audit” of your status right at the start, so that you can
then decide on the way forward.
Registered tax professionals
Your adviser should be registered with SARS as a tax professional and
have a unique tax practitioner number to prove it. Since July 2013, tax professionals
have also been required to be registered with a controlling body such as the
South African Institute of Tax Professionals that require its members to meet
certain standards of education and have established codes of conduct and
disciplinary procedures if their members do not comply. eFiling contains a function
that enables you to verify if your advisor is registered.
How you can help
You should keep your adviser informed of changes in your personal
circumstances – for example, new investments, disinvestments (because these
could give rise to CGT and affect your provisional tax) and inheritances. In
addition, you should advise him or her of any changes in your address, bank
details, and so on. An adviser cannot be expected to provide a good service
without all the background information about your assets, income and
You should expect to pay for good service. Tax compliance is
onerous and tax professionals take on a lot of responsibility. Ideally, you
should agree on fees upfront according to a menu of services, starting off with
basic compliance, such as preparation and submission of tax returns and
provisional tax, as well as basic responses to queries from SARS and regular
reviews of your SARS statement of account. Additional fees would be reasonable
if you have trusts and companies to tax in your own right, if you earn income
from a variety of different sources and/or if you require advice about the
structuring of your tax.
Fees should be structured as a fixed standard fee for specific
services or they should be based on a stated hourly rate. If the latter, you
should feel comfortable asking for an estimate of the time required, so you
have some idea what the fee will be.
Be wary of contingency fees – in other words, fees that vary
according to the tax outcome, for example, the size of a tax refund. Compliance
services, such as the submission of tax returns, should not be charged on a
However trustworthy and conscientious your tax consultant is, don’t
absolve yourself of all responsibility for complying with the law. In the end,
it is your tax liability and only yours, and SARS helps by providing
information and support, from publicity around the start of the tax season and
various due dates, to a helpful call centre. (Bear in mind, though, that you
may have to wait for a response during busy periods, so don’t leave things to
the last minute). Note the due dates and any changes in tax legislation, read
articles and listen to programmes about tax, instead of switching off, and be
aware that even a dedicated tax adviser is only human and can make mistakes.
And keep good records ... If you have the relevant information
easily available, you will be in a better position to respond to any queries
from the taxman – or the next communiqué from your consultant.
This article was first published in the third-quarter 2014 edition
of Personal Finance magazine.