Speed up your refund, even if you are being audited
23 January 2015
Posted by: Author: Lesedi Seforo
Author: Lesedi Seforo (SAIT)
You know the story. Company A submits a VAT return to SARS
and is fortunate enough to be in a refund position. Your initial jubilation at
the prospect of obtaining much-needed funds for your business quickly dampens
when you get a notice telling you that SARS has to perform an audit. Why?
Because your tax advisor once told you that being audited means no refund until
SARS is done. The audit then drags on for months and months with no
communication from SARS regarding its progress. Finally, everything gets
finalised 18 months later when the VAT refund is paid into Company A’s bank
The above is an all-too-familiar tale that tax practitioners
have seen repeated ad nauseam. On
many occasions I’ve had to assist tax practitioners escalate such matters to
the relevant persons at SARS who can assist with speeding up the refund
Surprising bad news
What most people may be horrified to learn is that the law
does not compel SARS to pay out a refund within a specific time-frame. "But shouldn’t
they pay within 21 business days of me submitting the tax return?” you ask. Unfortunately
those 21 business days is internal SARS policy. They technically don’t have to
do stick to it, but usually do so as part of their attempt to provide good
service to taxpayers. It’s actually
rather impressive, if you think about it, that they’ve managed to stick to that
deadline so regularly that people have assumed that they were legislatively
required to do so. To add insult to injury, there is no law that forces SARS to
complete an audit within a set period. Consequently, an audit could drag on for years.
The law only states that they should provide the taxpayer with a progress
report of the audit every three months. And SARS doesn’t seem to regularly
comply with this rule. So Mr. Tax Practitioner gets bombarded with numerous
weekly phone calls from a business owner asking "have you heard anything from
SARS about my refund?” And the more phone calls he gets, the more incompetent
he looks; all because SARS does not stick to the rules.
Security to the rescue
So what can you do to get your refunds more speedily from
SARS? The solution is so advantageous that to this day I wonder why more
taxpayers do not make use of it. Remember earlier I pointed out that being
audited means you don’t get your refund until the audit is completed?
Thankfully, the lawmakers have seen fit to include an exception to the rule.
The exact words read:
"SARS must authorise
the payment of a refund before the finalisation of the verification, inspection
or audit if security in a form acceptable to a senior SARS official is provided
by the taxpayer”.
Good news indeed. The great thing about this law is the word
"must”. As in, SARS doesn’t have a choice in the matter. If you can provide
security (in other words,. collateral) in a form that is acceptable to a senior
SARS official, then SARS must
pay the refund, even before they have finished auditing the particular tax
return. This law was presumably enacted to allow SARS to protect itself from
situations where a refund is paid, but an audit performed at a later date reveals
that the refund should have been lower. In such a case, if SARS has some form
of security, it will be able to recover the overpaid portion of the refund from
the proceeds obtained from the sale of the secured asset. Since security is the
domain of lawyers and not tax advisors, appropriate legal guidance should be
sought in determining which assets to pledge or cede to SARS as well as how to
go about it.
A possible point of contention in this whole issue is
whether the security provided by the taxpayer would be accepted by SARS. Assets
such as company equipment, vehicles and machinery may qualify, assuming they
have been fully paid off. Conceivably, the easier it is to sell an asset, the
more likely it will be accepted as security by SARS. In this regard, listed
shares, unit trusts and fixed deposits come to mind. One SARS document
specifically mentions a cash deposit as an acceptable form of security. It is not difficult to cede these kinds of
"financial assets”. Consequently, one is likely to succeed in getting SARS to
accept them as security. What about entities that do not have assets which
could qualify as security? An example of this would be a car rental company
that is still paying off all its vehicles under an instalment credit agreement.
None of those vehicles could qualify as security to provide to SARS because
they have already been pledged as security to the bank.
The tax law seems to have an answer, though it could be
considered somewhat debatable. The particular rule allows a senior SARS official
to require shareholders, trustees, members or the management of those entities
to sign a contract of suretyship. The logical extention to this rule is that a shareholder
may offer his or her own financial assets to SARS as security for their
business (which, you will remember, is owed a refund). It’s definitely worth a
try in my opinion.
Are there any risks to my suggestion that taxpayers provide
SARS with security in order to expedite a refund? My opinion is that if your
tax accountant has done an accurate job of calculating your refund, then there’s
really no risk of losing your assets to SARS. That is why taxpayers should take
the greatest care in choosing tax advisors.
Consult a SAIT-registered tax practitioner for more advise
on how you can get SARS to pay your refunds quicker.