What Happens During a SARS Audit and How to Prepare

An MMT Financial Services Guide for South African Individuals and Business Owners

Tax compliance is an essential part of doing business or earning an income in South Africa. But even the most diligent taxpayer may receive an unexpected notice from the South African Revenue Service (SARS) — a dreaded audit. For many, the word "audit" brings fear and uncertainty, but understanding the process and being properly prepared can turn a stressful experience into a manageable one.

In this guide, we’ll break down what a SARS audit entails, how the process works, what you need to have ready, and — importantly — how MMT Financial Services can help you navigate this complex journey with ease.

What Is a SARS Audit?

A SARS audit is a detailed examination of your financial records, tax returns, and supporting documentation. It is conducted to ensure that you or your business have paid the correct amount of tax and complied with all the necessary laws and regulations.

Audits can be random or triggered by red flags in your tax submissions. They may focus on a single tax year or cover multiple years and types of tax (such as VAT, PAYE, or income tax).

Why SARS Conducts Audits

SARS uses audits to:

• Detect tax evasion or errors

• Improve compliance among taxpayers

• Ensure the integrity of the tax system

Audits are part of SARS's mandate to close the tax gap — the difference between taxes owed and taxes collected. With enhanced data collection tools and artificial intelligence, SARS has become more efficient at identifying inconsistencies in tax returns.

Types of SARS Audits

1. Verification Audits

   This is the most common and is a preliminary check after you submit a return. SARS may request supporting documents (like IRP5s, invoices, or bank statements).

2. Full Audits

   A comprehensive inspection of your financial affairs. SARS may scrutinise bank records, contracts, payrolls, VAT schedules, and even physical stock.

3. Criminal Investigations

   If SARS suspects tax fraud or evasion, a criminal audit may be initiated and can involve the South African Police Service or the National Prosecuting Authority.

Common Audit Triggers

SARS uses data-matching technology to pick up discrepancies. Some triggers include:

• Large refunds claimed

• Unusual expenses or deductions

• Differences between third-party data and tax returns

• Repeated late filings or non-compliance

• Drastic changes in income or expenses

• VAT input/output mismatches

• Operating in a high-risk industry (e.g., construction or hospitality)

The SARS Audit Process Step-by-Step

1. Notification

You’ll receive a letter or email via eFiling or post indicating that you’re under audit. It includes the audit’s scope and the years involved.

2. Document Request

SARS will request specific documents — for example:

• Bank statements

• Invoices

• Payroll records

• VAT schedules

• Lease or supplier agreements

• Tax certificates (IRP5, IT3, etc.)

📌 MMT Tip: This is where being organised matters. If you’re an MMT client, we’ll already have your financial records compiled and ready.

3. Review & Analysis

SARS reviews the documentation and may request additional info or clarification. If you're not responsive, SARS may make assumptions based on available data.

4. Audit Findings Report

SARS will issue a letter of findings outlining:

• Discrepancies

• Tax owed (if any)

• Penalties or interest applied You’ll have 21 business days to respond.

5. Final Assessment

After considering your response, SARS may issue a revised assessment or close the audit if everything is in order.

What Are the Consequences of a SARS Audit?

If SARS finds errors or non-compliance, consequences may include:

• Additional tax assessments

• Interest on late payments

• Administrative penalties (up to 200%)

• Criminal charges (in severe cases)

But it’s not all bad — if your records are in order, the audit may result in no changes, or even an approval of your refund.

Your Rights During an Audit

• Right to receive written notice of an audit

• Right to professional representation (MMT can act on your behalf)

• Right to privacy and confidentiality

• Right to appeal or object to findings

What You Should Always Keep On File

To avoid scrambling during an audit, keep these on file for at least 5 years:

• Financial statements

• Tax returns

• Invoices and receipts

• Employee records (payslips, UIF, PAYE)

• Bank statements

• Contracts and agreements

• SARS correspondence

📌 Pro Tip: MMT Financial Services offers cloud-based bookkeeping so your records are always secure and accessible.

How MMT Financial Services Can Help

MMT can support you before, during, and after an audit:

✅ Prevention Is Better Than Cure

• Ongoing accounting and tax services to avoid red flags

• VAT, PAYE, and Income Tax submissions

• Annual financial statements

✅ Audit Preparation

• Collect and organise required documentation

• Review your returns before SARS does

• Identify potential issues in advance

✅ During the Audit

• Liaise with SARS on your behalf

• Draft responses to audit findings

• Provide evidence and clarifications

✅ Post-Audit Assistance

• Assist with objections or appeals

• Help implement systems to improve future compliance

Audit Preparation Checklist

Here’s a simple list you can use or download for your business:

Business Owners:

✔ Annual Financial Statements

✔ Company tax returns (IT14)

✔ VAT returns and schedules

✔ EMP201 and EMP501 reports (PAYE/UIF/SDL)

✔ Supplier and customer invoices

✔ Bank statements (personal and business)

✔ Payroll reports

✔ Loan agreements

✔ Fixed asset register

✔ SARS correspondence

Individuals:

✔ IRP5/IT3 certificates

✔ Medical aid and retirement annuity certificates

✔ Travel logbook

✔ Proof of expenses (home office, donations)

✔ Rental income and expenses

✔ Investment statements

📌 MMT offers document tracking and secure backups for all clients.

What to Do If You Receive an Audit Notice

1. Don’t panic. Contact your tax practitioner or MMT immediately.

2. Do not ignore it. There are strict deadlines.

3. Start compiling documents. The sooner you respond, the smoother the process.

4. Review your last return. Understand what may have triggered the audit.

5. Be honest. Never submit false documents or data.

How to Avoid a SARS Audit in the Future

While audits aren’t always avoidable, here’s how you can lower your risk:

• File all returns on time

• Declare all income honestly

• Keep clear records

• Avoid inflated deductions

• Work with a qualified accountant (MMT can help!)

• Do periodic self-reviews of your financial health

Real-Life Scenarios

Case Study 1: VAT Audit Nightmare

A small business in Cape Town claimed excessive VAT refunds over three quarters. SARS flagged their returns and requested documents. The owner didn’t have proper records and faced penalties.MMT Outcome: Once onboarded, MMT helped reconstruct records, correct filings, and negotiate with SARS to reduce penalties.

Case Study 2: Individual Under Review

A freelance designer in Pretoria received a refund but was later selected for verification. SARS requested a travel logbook and RA certificates.MMT Outcome: We had helped them set up a digital filing system beforehand, so all documents were submitted within a day. No issues, refund processed.

SARS audits can be intimidating, but they don’t have to be. With preparation, accurate recordkeeping, and the right professional support, you can handle an audit with confidence.

MMT Financial Services is here to guide you every step of the way — from everyday tax compliance to audit defence and representation. Let us handle the paperwork while you focus on growing your business.