SOUTH AFRICA: Replacement of IT14SD forms – New SARS Verification Process

AUTHOR: Ziyaad Moosa – PKF Octagon (Johannesburg)

With effect from 16 September 2022, The South African Revenue Services (SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently...) discontinued the use of the IT14SD return. This return was previously used by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... where a taxpayer was selected for verification (which is a high level review of the taxpayer’s income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable...tax returnA Tax Return is a formal statement filed by an individual or entity that details income, expenses, and other pertinent tax information to a tax authority. Its primary purpose is to assess tax liability, determine refunds owed, or highlight outstanding taxes due. Tax returns may include information about earnings, capital gains, allowable deductions, and credits, depending on the tax regulations...). The IT14SD return required the taxpayer to perform a three-way comparison, between Value-Added Tax, employees’ tax and income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable....

Over the last 2 weeks, SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... has now begun to issue a series of new verification letters to taxpayers in what appears to be the replacement of the old IT14SD process. These letters are system generated and are issued if a taxpayer’s tax returnA Tax Return is a formal statement filed by an individual or entity that details income, expenses, and other pertinent tax information to a tax authority. Its primary purpose is to assess tax liability, determine refunds owed, or highlight outstanding taxes due. Tax returns may include information about earnings, capital gains, allowable deductions, and credits, depending on the tax regulations... is selected for review by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... internal risk model.

These verification letters appear to be system generated and call for, at a minimum, the following information:

• A copy of the taxpayer’s signed annual financial statements;
• A detailed tax computation together with the supporting documentation and schedules making up the tax computation.

In addition to the above, specific information is also requested from taxpayers that have claimed certain deductions or made certain disclosures on their tax returnsA Tax Return is a formal statement filed by an individual or entity that details income, expenses, and other pertinent tax information to a tax authority. Its primary purpose is to assess tax liability, determine refunds owed, or highlight outstanding taxes due. Tax returns may include information about earnings, capital gains, allowable deductions, and credits, depending on the tax regulations.... These include, but are not limited to:

1. copies of S18A certificates confirming donations made;
2. an explanation as to why the taxpayer incurred a loss for the financial year (if applicable);
3. an explanation and proof as to why the taxpayer’s 3 largest expenses are considered deductible for tax purposes;
4. where any assets sold: a detailed fixed asset register reflecting the depreciation rate and rand value, previous allowances claimed and supporting documentation justifying the recoupment (or lack thereof) adjustment on the tax computation;
5. any other expenditure claimed that SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... may deem as abnormal;
6. workings and supporting documents where special allowances/incentives are claimed (e.g., the section 24C deduction on future expenditure the relevant contracts may be requested).

At face value, the new requests are less administratively cumbersome to attend to than the old IT14SD requests. The information requested by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... (financial statements and tax computations) are available at the time of completion of the tax returnsA Tax Return is a formal statement filed by an individual or entity that details income, expenses, and other pertinent tax information to a tax authority. Its primary purpose is to assess tax liability, determine refunds owed, or highlight outstanding taxes due. Tax returns may include information about earnings, capital gains, allowable deductions, and credits, depending on the tax regulations... and should be readily available for upload by taxpayers.

However, the new risk-based approach adopted by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... may pose challenges for taxpayers whose documentation is not in order or have not retained the necessary supporting documentation justifying adjustments made to their income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable...tax returnsA Tax Return is a formal statement filed by an individual or entity that details income, expenses, and other pertinent tax information to a tax authority. Its primary purpose is to assess tax liability, determine refunds owed, or highlight outstanding taxes due. Tax returns may include information about earnings, capital gains, allowable deductions, and credits, depending on the tax regulations....

In particular, requests relating to historical asset information may pose a challenge if inadequate documentation has been retained by the taxpayer. This is particularly relevant where assets may have been purchased several years prior. The retention of documents may also be beyond the taxpayer’s control where, for example, the taxpayer has had a change in information systems in recent years or the information has been destroyed/lost due to the recent floods and unrest experienced in KwaZulu-Natal and/or parts of Gauteng.

Reviews of the taxpayer’s tax computation by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... could also lead to further follow up queries by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... calling for additional documentation or adjustments to the taxpayer’s assessments.

We would therefore recommend that all corporate taxpayers prepare the above information prior to submitting their tax returnsA Tax Return is a formal statement filed by an individual or entity that details income, expenses, and other pertinent tax information to a tax authority. Its primary purpose is to assess tax liability, determine refunds owed, or highlight outstanding taxes due. Tax returns may include information about earnings, capital gains, allowable deductions, and credits, depending on the tax regulations.... This way, the documentation is readily available in the event of a review and any potential inconsistencies or areas of concern can be identified and corrected prior to the submission of the taxpayer’s tax returnA Tax Return is a formal statement filed by an individual or entity that details income, expenses, and other pertinent tax information to a tax authority. Its primary purpose is to assess tax liability, determine refunds owed, or highlight outstanding taxes due. Tax returns may include information about earnings, capital gains, allowable deductions, and credits, depending on the tax regulations....