Employees Tax Audits – Most Common Findings

Employees’ tax audits can be very time consuming, both for the employer and SARS. The following article will highlight the type of findings mostly found during an Employees’ Tax audit and what documentation / information SARS will request:

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1. Reconciliation between the employees cost as per the annual financial statements and the payroll records.

There is a risk for SARS if the employees cost, as per the annual financial statements, exceeds the employees cost, as per the payroll.

Possible reasons according to SARS for the overstatements could be:

to claim private expenses incurred by the members, directors and / or staff;
ghost workers to increase expense; and / or
part time employees / casuals that did not go through the payroll but were included in employees cost.

SARS will request the following:

Detailed reconciliation between annual financial statements and the payroll records
Detailed explanations with documentary proof for any discrepancies found
Detailed list of all employees must be available with the following minimum information:

Full name and surname
Id no / passport number
Period employed
Amount paid per hour
Total gross remuneration

2. Use of company vehicles for business and private purposes.

A taxable benefit shall be deemed to have been granted where an employee is granted the right of use of any company owned motor vehicle for private or domestic purposes. It must be noted that the travel between work and home is private travel / domestic travel.

SARS will request the following:

Asset register
Indicate which employee / director / member (individuals) has the use of which company vehicle
Copies of the applicable individuals’ employment contracts
Proof that day to day records are kept by each of the individuals that have the use of a company motor vehicle

3. Payment of employees’ debt or release of employee from an obligation to pay debt.

A taxable benefit shall be deemed to have been granted if the employer has paid an amount owing by the employee to a third party, whether directly or indirectly, without requiring the employee to make any payment for the amount paid or the employer has released the employee from an obligation to pay an amount owing by the employee to the employer.

SARS auditors will scrutinise cash book entries and will query certain amounts which could be private in nature.

SARS will request the following:

Detailed cash book.
Invoice / documentary proof for the amounts they sampled.

4. Benefits granted to relatives of employees and others.

An employee is deemed to have been granted a taxable benefit by his/her employer if, as a reward for services rendered or to be rendered by the employee:

the employer has granted a benefit or advantage directly or indirectly to a relative of the employee; or
anything is done by the employer under any agreement, transaction or arrangement so as to confer any benefit or advantage upon any person other than the employee, whether directly or indirectly

The benefit or advantage would be a taxable benefit if it was granted to the employee.

SARS will request the following:

Documentary proof that the person whom received the benefit or advantage, directly or indirectly, was actually an employee of the company
Detailed reasons why this benefit or advantage was granted
When an audit engagement letter is received from SARS, spend some time and ensure that your records and systems are in order and that you will be able to reply to each point stated above.

If you have any enquiries, please contact Petri Westraadt at pwestraadt@fhbc.co.za

Information taken from FHBC Accounting Tax Consultants.