How to prepare for a VAT Audit
I don’t know of anyone or any business owners, who don’t experience anxiety, trepidation, fear or all of the above when faced with a VAT audit. Such emotional reactions are understandable because one is invariably wary of “what SARS will find”.
In most cases however the audit inspector from SARS is looking for overall compliance, and in most cases where a SARS inspector uncovers minor incorrect claims, both in respect of input and output VAT, these are simply pointed out to the business undergoing the inspection with the relevant corrective instructions with a pay-in or a refund to follow. Sometimes interest and penalties might also apply. But beware of blatant omissions in order to lower the amount to be submitted. If such a practice is uncovered, SARS will “throw the book at” the offending business.
Do’s and Don’ts
Perhaps before commenting on how to prepare for an actual VAT audit, I will touch on the “DOs & DON’Ts” on an on-going basis, so that one is relatively well prepared for a SARS audit in the event that your business is selected for a SARS VAT audit.
First of all, it is important that the person responsible for posting transactions and preparing the VAT submissions is familiar with the VAT rates and aspects of INPUT and OUTPUT VAT that attract VAT. For example, you cannot claim VAT on “entertainment” expenses, but you can claim VAT on “stationary” purchased for business consumption. And if in doubt, you should seek guidance from your external accounting officer or even directly from SARS.
The next step is to get organised. Know where to find whatever source (original) document you might be required to produce during a VAT audit. So, your document filing must be properly organised and the relevant source documents filed in logical (ascending) order. Make sure that your source (original) documents contain all the relevant information on them as specified by SARS. For example, all your supplier invoices must have your registered trade name on them as well as your VAT number etc. and ensure that the VAT amount is clearly indicated on all invoices, both on customer and supplier invoices. It is often not good enough indicating to the SARS inspector that the relevant invoice was processed correctly. The inspector will want to have sight of the source (original) documents in many cases.
If you are using a computerised accounting software package, which, apart from calculating Input and Output VAT correctly during the normal day to day processing, it should also enable you to produce accurate reports which allow you to complete the relevant VAT (201) form. It should also, be capable of printing detailed reports supporting the various totals required for completion of the VAT (201) form. Your computerised accounting package should also have a “lockdown” facility that locks down and links the relevant transactions that made up the VAT (201) return with historical retrieval so that you can effectively “re-produce” a VAT return with its relevant supporting audit trails. This is important because you would in all probability be required to supply such relevant reports during a VAT audit, and they need to match the VAT (201) returns that have been submitted. Remember, VAT audits can often cover several months, even years, so easy access to accurate historical data is important, because as mentioned, a VAT audit may involve an audit going several years back, so your accounting software package should also have “unlimited” history. In addition, the VAT returns should at all times agree to your VAT control account.
If therefore, you have adopted the correct disciplines such as a logical filing system for all the relevant source (original) documents and you have a computerised accounting system that has the kind of functionality mentioned above, then you ought to be ready for a VAT audit more or less anytime. It is important to note that you will never really know what the VAT inspector is going to want to see and/or reconcile to, and no two VAT audits will be the same.
So the best way to “prepare for a VAT audit” is to ensure that you have all the documentation at hand all the time. Treat each day as is it if is a VAT audit day!!
Omni Accounts offers all the functionality mentioned in this article and more.