Managing risk when submitting an IT14SD reconciliation
SARS is more frequently requesting taxpayers to submit a Company Income Tax Supplementary Declaration (IT 14SD) after having assessed the annual income tax return.
An IT 14SD is a supplementary declaration which requires a company to reconcile its Income Tax, Value-Added Tax (VAT), Pay-As-You-Earn (PAYE) and Customs declarations for the relevant financial Year. This is used by SARS to identify discrepancies with the objective to raise additional assessments and understatement penalties.
It is important to note that SARS, generally, does not apply the concept of “materiality” when a reconciliation difference is evident on an IT14SD and will seek to raise assessments. However, this does not imply that reconciliation differences are not allowed, only that such differences must be explained together with supporting documentation. Often this can only be achieved by detailed data analytics and supporting ledger entries.
Reconciling differences are almost inevitable when completing an IT 14SD due to various variables such as timing differences between tax entries and accounting entries, zero-rated VAT revenue, VAT exempt income, PAYE reconciling differences, correction of Customs entries, variances in tax periods for VAT and Income tax and a host of other factors.
Taxpayers are often on the receiving end of additional assessments and understatement penalties should they not be able to timeously provide reasons for the reconciling differences. This is becoming a formidable task for bigger corporates with more complex structures, multiple transaction types, branches, and divisions unless the ERP is configured to provide the required information.
To mitigate risk, it is advisable to be proactive and perform a monthly reconciliation to ensure that all the various tax reports are reconciled to the financial accounting information instead of being reactive when instructed by SARS to submit the IT 14SD. It is also prudent to implement the appropriate internal controls and configure the ERP to ensure that the required information is readily available.
VAT IT can assist clients with IT14SD reconciliations and provide assistance and guidance on optimizing ERP systems.
Contributed by Nico Grobler, VAT Manager, VAT IT SA.