A business goes from smooth operations to an emptied bank account

INDUSTRY NEWS A business goes from smooth operations to an emptied bank account

SARS reviews old VAT returns, rejects all input VAT and demands millions. The business is on the brink of collapse when Cornerstone comes to the rescue.

In 2017 an enterprising young business was formed and quickly found growth and success within its community over the subsequent years. Common to young businesses the owner – and manager – did not have any familiarity with SARS, tax, or general principles. Through a recommendation from a mutual friend, the owner found a company that offered to handle all the administrative and tedious requirements of tax compliance for the business. As the business was still young and growing at the time, this third party negotiated to handle the tax compliance in exchange for a percentage of any VAT refunds that the company received as a result of its efforts. As a result of unfortunate negligence, the business owner agreed to the negotiation, thus allowing the third party to load their contact details with SARS as if they were the business. This way, any notifications or correspondence from SARS would go directly to the third party without the appropriate business owner being alerted. With this arrangement in place, the business continued with its operations and trusted the third party to handle all tax-related matters. The business had consistent growth, money was coming in, and life appeared to be good and bountiful. The truth of the matter was that tax compliance was not actually going well. The third party had negotiated to be paid a percentage of all refunds, and as such, they were heavily incentivised to maximise refunds whenever possible. Eventually, SARS noticed something strange going on with this growing business. SARS conducted an investigation and concluded that this growing business had a suspicious pattern of refunds, and that their VAT submissions of their years were littered with fraudulent errors.

As a result, SARS raised additional assessments on almost all the returns submitted in the past, denied all the input VAT, and demanded immediate payment for all the output VAT. With all correspondence set up to go directly to the hired third party, the relevant business owner did not know the demands made by SARS. The business owner was only alerted after the fraudulent third party failed to resolve the matter themselves. These alerts came a little too late, as the

business owner was unable to timeously respond to the additional assessments raised by SARS. SARS, becoming impatient with the business that seemed to be ignoring demand after demand, saw that the bank account of the business seemed to be slowly declining over time. While this ebb and flow of the bank balance is a regular occurrence in business, SARS assumed the worst and decided to take what money they could before it disappeared. With an instruction to the bank, the business bank account was forcibly emptied and all funds were deposited to SARS. The owner of the business, fortunately, had additional capital set aside and used this to seek out the services of a more reputable tax practitioner to help find a way forward. The newly appointed tax practitioner for the business was of course Cornerstone Tax and Accounting Services. Using bank statements, slips, and various contacts Cornerstone has been able to arrange a more amicable situation with SARS, allowing the correction of the old VAT returns and the denied input VAT. The business does still owe money to SARS as they were, strictly speaking, never supposed to receive any refunds. The money owed to SARS has however at least been reduced by an order of magnitude. While the owner is not exactly happy that they will not be getting back the money that SARS emptied from their business account – in addition to the money still owed to SARS – they have at least learned the importance of having some involvement in their tax affairs and having a reputable practitioner guiding them along the way. How can Cornerstone help you?

Cornerstone Financial Services Group,

marketing@cornerstonefsg.co.za, www.cornerstonefsg.co.za