Introduction: When SARS Comes Knocking

Picture this: it’s a regular Tuesday morning. You’re sipping your coffee and checking emails when you spot the subject line — “Notification of Tax Audit.” Just like that, your heart skips a beat.

For many business owners, the word "audit" feels like being summoned to the headmaster’s office — intimidating, confusing, and potentially costly. But here’s the truth: a SARS audit doesn’t mean you’ve done something wrong. In fact, audits are a normal part of running a business in South Africa, especially for small and medium-sized enterprises.

What matters most isn’t avoiding audits — it’s being ready for them.

As accountants who’ve helped dozens of SMEs through the audit process, we’ve seen the difference between panic and preparation. This guide will walk you through the key steps, insights, and red flags to help you survive — and even thrive — during a business audit.

1. Understand Why Audits Happen

Let’s start with the basics: Why does SARS decide to audit a business in the first place?

Sometimes, it’s because something triggered a flag — a mismatch between what you submitted and what SARS sees on its side. Other times, it’s simply a routine check, part of the revenue service’s broader compliance strategy.

Common audit triggers include:

• Claiming a large VAT refund

• High-value or irregular deductions

• Inconsistencies between your PAYE, VAT, and income tax returns

• A pattern of late submissions

• Being part of a random sample of businesses selected for review

Imagine this like a routine vehicle check on the N1. Just because you're pulled over doesn't mean your car is broken — but if your tail light’s out or your license is expired, you’ll wish you’d checked ahead of time.

The Two Main Types of SARS Audits:

• Verification Audit – SARS asks for specific supporting documents to verify something on your return.

• Comprehensive Audit – A more in-depth investigation, often involving multiple tax periods and all major financial statements.

A Real-Life Example:

We once worked with a growing e-commerce startup in Cape Town that had submitted a hefty VAT refund after purchasing new inventory and tech equipment. Although everything was above board, the large refund flagged SARS’s system and triggered an audit.

Because the business had clean, well-documented records — and because we had labelled every supporting invoice and matched it with bank payments — the audit was completed in under three weeks. No penalties. No stress.

2. Get Your Financial Records in Order

Once you receive that audit notification, your paperwork becomes your best defence.

Think of your financial records like a well-organised library. Every transaction, invoice, and return should have its own place — easy to find, easy to explain. If SARS asks for a receipt from a supplier dated eight months ago and you spend three days digging through shoeboxes and email threads, you’re already behind.

What SARS Might Ask For:

• Bank statements (business and personal, if you’re a sole prop)

• Tax invoices and receipts for expenses and sales

• Payroll records (UIF, PAYE, salaries)

• Fixed asset register (for equipment claims)

• VAT201, EMP201, ITR14 and supporting documentation

• Loan agreements, dividend declarations, or shareholder loans (for companies)

Pro Tip:

Keep both digital and physical backups. Cloud-based platforms like Xero, QuickBooks, or Sage make it easier to stay audit-ready with real-time documentation, but it’s wise to store copies offline too — just in case.

A Story From the Trenches:

A client of ours — let’s call him Sizwe — ran a small logistics company out of Durban. He kept good records... but only in his head. His admin consisted of WhatsApp messages with drivers, fuel slips stuffed in his cubbyhole, and Excel spreadsheets saved with names like “final-final-invoice2022-maybe.xlsx”.

When SARS requested backup for his vehicle maintenance deductions, he panicked. We had to dig through months of emails and reconstruct everything. The process took weeks, delayed operations, and nearly led to penalties.

Lesson learned? Keeping your records clean and centralised all year round is far less painful than scrambling during an audit.

Questions for the Reader:

• If SARS requested proof of your top 10 expenses today, could you provide it by tomorrow?

• Are your invoices and bank transactions reconciled regularly?

• Is your bookkeeper or accountant audit-prepared?

Mini-Checklist: Audit-Ready Financial Habits

✅ Monthly reconciliations
✅ Invoices numbered, stored, and matched to payments
✅ Cloud backups and offsite storage
✅ Regular reviews with your accountant or tax advisor

3. Know Your Risk Areas

Every business has blind spots — areas in their financials that might seem fine on the surface but could raise SARS’s eyebrows during an audit. Think of these as potholes on your financial road. You may not see them coming until you hit one… hard.

SARS isn’t just looking at what you’ve declared — they’re looking for patterns, inconsistencies, or anything that seems “off” compared to your industry, turnover, or past submissions.

Common Audit Red Flags for SMEs in South Africa:

• Excessive entertainment or travel claims
  Claiming every business lunch, weekend getaway, or Uber ride without clear justification.

• Home office deductions
  Claiming a portion of rent, electricity, and internet — without separating personal from business use.

• High contractor or freelancer payments
  Especially if there’s no valid invoice, proof of work, or PAYE declarations.

• VAT refund requests that don’t match turnover
  Especially in low-revenue months.

• Recurring losses or unusually low declared income
  Particularly if lifestyle expenses (car, house, travel) tell another story.

Case Example:

The Freelancer Who Claimed Too Much

We once helped a Johannesburg-based creative consultant whose audit was triggered after she claimed significant marketing, travel, and software expenses — totalling nearly 70% of her declared income. SARS wasn’t convinced.

After reviewing her bank statements, it turned out some expenses were actually personal (Netflix, a weekend in Clarens, and a few late-night food deliveries). She had to repay some of the deductions, plus interest — but luckily avoided harsher penalties because she cooperated fully and corrected the return quickly.

What This Means for You:

SARS isn’t out to punish — they just want proof. So if you’re operating in a “grey area” or claiming borderline expenses, make sure the justification is solid and the paper trail is clear.

Questions to Consider:

• Have you reviewed your most common deductions in the past 12 months?

• Are there any areas where you “round up” expenses or guess?

• Could someone outside your business understand your numbers at a glance?

Bonus Tip:

If you're not sure whether something is deductible — ask before you claim, not after SARS comes calling. A quick chat with your accountant can save you months of back-and-forth.

4. Respond Promptly and Professionally

The way you respond to an audit notice can make or break your entire experience.
Think of it like a job interview — how you show up says a lot, even before you say anything.

If SARS reaches out and you go radio silent, deliver incomplete information, or get defensive, it creates friction — and possibly further scrutiny. But if your response is timely, clear, and professional, you can often resolve the audit swiftly and with minimal disruption.

Here’s What to Do the Moment You Receive the Notification:

• Read the letter carefully.
  SARS typically outlines what they’re looking for — don’t assume or guess.

• Note the deadline.
  You usually have 21 business days to respond. Missing that window can lead to penalties or assessments being issued without your input.

• Start gathering documents immediately.
  Avoid waiting until the last minute — especially if you need to request files from your accountant or bookkeeper.

• Write a structured response.
  A brief summary of the request, followed by clear, labelled attachments. Use folders with names like “Bank Statements – Jan to Dec 2023” or “Invoices – Marketing Expenses”.

Example: How One Business Owner Handled It Right

Let’s take Amar, who runs a construction consultancy in Pretoria. He received a SARS verification audit for his 2022 VAT return — specifically flagging a large input VAT claim.

Instead of panicking, Amar called his accountant that same day. Together, they reviewed his VAT claim line-by-line, retrieved the relevant invoices, and highlighted any large amounts with extra notes. Within 10 days, the submission was in — clear, complete, and professional.

SARS responded a week later: audit closed, no issues found.

Key Tip:

Be transparent, not defensive.
You’re not on trial — you’re simply being asked to verify your numbers. Treat it as a compliance exercise, not a confrontation.

Questions to Consider:

• Do you know how to read a SARS audit notice?

• Do you have a trusted accountant or tax advisor you can call right away?

• Are your documents labelled and easy to share digitally?

Bonus Resource:

Offer a downloadable “Audit Response Template” – including a sample email, a checklist for document attachments, and folder-naming best practices. This can serve as a practical takeaway for readers.

5. Don’t Go Through It Alone

Facing a SARS audit can feel like trying to navigate a maze in the dark — full of turns, dead ends, and unexpected questions. That’s why professional guidance isn’t just helpful… it’s essential.

Whether you’re a solo entrepreneur, a growing SME, or a seasoned business owner, there are times when having a qualified accountant in your corner can save you time, money, and serious stress.

Why Professional Help Matters:

• Interpreting the Audit Request:
  Sometimes the language in audit letters is technical or vague. A tax professional can help decode it and make sure nothing is overlooked.

• Compiling the Right Documentation:
  Knowing what to submit — and how — can speed up the process and prevent unnecessary back-and-forth.

• Avoiding Costly Mistakes:
  Submitting the wrong info or misrepresenting figures (even by accident) can lead to penalties. An accountant helps you stay compliant and accurate.

• Dealing with Disputes or Appeals:
  If SARS challenges your submissions or issues assessments you disagree with, a professional can assist with objections, letters, and escalation.

True Story: From Audit Panic to Peace of Mind

One of our clients — a family-run plumbing business in Mpumalanga — came to us mid-audit after trying to handle it themselves. They had submitted partial documents, forgotten to include salary slips, and missed their initial deadline.

We stepped in, reorganised their submission, clarified discrepancies, and sent SARS a structured response. Within 14 days, the audit was resolved — with no penalties.

The client’s response? “Next time SARS emails me, I’m forwarding it to you first.”

Questions to Consider:

• Do you have an accountant who understands your business and industry?

• Are you confident enough to handle a full audit on your own?

• What would peace of mind be worth in a high-pressure financial situation?

Quick Tip:

Even if your books are in order, a professional can spot gaps you might miss and frame your response in a way that makes life easier for the auditor.

Conclusion: Preparedness Is Power

An audit doesn’t have to be a nightmare — in fact, for many businesses, it’s a wake-up call that leads to better systems, stronger habits, and improved compliance.