A SARS Audit Doesn't Have to Be a Business Crisis

Running a business means managing risk every day. Whether it's protecting assets, managing cash flow or ensuring regulatory compliance, business leaders understand the importance of planning for the unexpected. But one risk that often receives far less attention, is the possibility of a tax audit.

The South African Revenue Service (SARS) has conducted approximately 230,000 tax and customs compliance audits in the last fully reported financial year, alongside an additional 1.7 million verification cases[1], which means it’s not a case of if - but when - your business will be audited.

According to Michael Whitehead of Aon South Africa, many business owners assume that audits only happen when something has gone wrong. “SARS conducts millions of audits as part of its ongoing compliance programme, and businesses can be selected even when their tax affairs are in order. Audits may be random or triggered by data discrepancies, changing legislation or routine verification processes,” Whitehead explains.

An Audit Doesn't Mean You've Done Anything Wrong

A SARS audit should not automatically be viewed as an indication of non-compliance. However, once an audit begins, businesses are expected to respond quickly with detailed financial records, supporting documentation and technical explanations. Depending on the complexity of the review, this process can take months to resolve and often requires specialist tax expertise.

"Many businesses believe that having a good accountant is enough," says Whitehead. "While your accountant plays a vital role in your business, complex SARS audits and disputes may require additional tax specialists or legal expertise. Those professional costs can escalate quickly, regardless of the final outcome."

The Hidden Cost of Defending Your Business

For many SMEs and commercial businesses, the greatest financial impact of a tax audit isn't necessarily additional tax. It is the cost of defending the business throughout the audit process.

Professional fees may include:

Specialist tax practitioners

Tax attorneys

Auditors

Technical tax advisors

Additional accounting services

Representation during objections, appeals or dispute resolution

These costs can place unexpected pressure on operating budgets and is hugely time-consuming, diverting management's attention away from running the business. “Tax risk insurance protects businesses against the professional costs associated with managing SARS audits and related disputes. It essentially frees up your time and resources as a business owner to run your business, while having the peace of mind that your tax audit is being handled by experts in the field,” Whitehead explains.

“Rather than trying to source specialist expertise following an audit notification, policyholders have a team appointed to assist from the beginning of the process, ensuring submissions are technically sound and procedurally correct. If the business already works with an accountant, they remain part of the defence team, with their fees covered for services during the claim,” he adds.

Cover may include matters relating to:

Income tax audits

VAT audits

Employees' Tax (PAYE)

Capital gains tax audits

Appeals and dispute resolution before the Tax Board or Tax Court

The policy also offers additional advantages, including:

Cover that applies retrospectively once the policy is active, regardless of how far back SARS reviews records.

Multiple claims during a policy year, where applicable.

Predictable indemnity limits that help businesses plan for potential exposure.

A Smart Addition to Your Business Risk Strategy

Businesses routinely insure their buildings, vehicles, cyber risks and liability exposures because they understand that unexpected events can disrupt operations. Tax risk deserves the same consideration.

As SARS continues to strengthen its compliance capabilities, businesses of every size should consider whether they have the financial resources and specialist expertise available if an audit occurs. "The objective is to ensure that your business has experienced professionals guiding you through the process of a tax audit without unexpected professional costs disrupting your cash flow," Whitehead concludes.

Ends…

About Aon

Aon exists to shape decisions for the better — to protect and enrich the lives of people around the world. Through actionable analytic insight, globally integrated Risk Capital and Human Capital expertise, and locally relevant solutions, our colleagues provide clients in over 120 countries and sovereignties with the clarity and confidence to make better risk and people decisions that help protect and grow their businesses. 

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Disclaimer:

This document has been compiled using information which was current and accurate as at the date of publication.  The information contained in this document should not be considered or construed as insurance broking advice and is for general guidance only. Accordingly, the information contained herein is provided with the understanding that Aon, its employees and related entities are not rendering insurance broking advice. As such, this should not be used as a substitute for consultation with an Aon Broker or Consultant.

Media Contact:

Deidre Beylis

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+27 84 426 0410

[1] https://www.sars.gov.za/latest-news/media-release-sars-is-committed-to-serving-south-africans/