The Accountant's responsibility to disclose under the Tax Administration Act
The Tax Administration Act introduced far reaching implications for accountants. It leaves the unexpected accountant vulnerable to potential criminal sanction if they don’t take immediate steps to ensure they review their engagement and relationship with their clients.
All accountants and tax practitioners are urged to protect themselves and their careers by not allowing unscrupulous practices or ill intensions of those trying to dodge tax to affect their careers they have worked so hard for. It is common knowledge now that SARS can already see what is happening on the bank accounts of taxpayers, just because SARS hasn't yet acted doesn't mean they won't. The days of those evading taxes are over, it is no longer a case of if SARS will catch you but rather when.
To date it has been mainly the tax practitioner receiving sanctions in their capacity for the advice they give their tax clients, whereas the entire financial chain is now scrutinized.
The Tax Administration Act now requires that any person providing advice on the application of a tax act, or that completes or assists with completing a tax return should register with SARS and a controlling body. Failure to register is a criminal offence.
The Tax Administration Act does more than just regulate the conduct of practitioners. The TAA empowers SARS to monitor the entire supply chain in financial reporting and it affects a wide range of areas. This opens the practitioner up to substantial risk and criminal liability if they don't do their due diligence with new and current clients.
The financial reporting supply chain includes the tax practitioner, bookkeeper, accountant, accounting officer, independent reviewer and auditor. If they are found to assist a client or business to unduly avoid, postpone or evade taxes, then they can be held criminally liable.
A high-ranking SARS official can file a complaint against a tax practitioner with their professional body. This power also includes accountants who help businesses with financial statements.
A complaint can be laid against the accountant if he intentionally or by way of negligence assists a business to avoid paying tax or unduly postpones the payment of a tax. Late filing of financial statements or applying an incorrect accounting method may see the accountant fall foul of this requirement.
SARS can ask the accountant for a new "statement of account" for a business or taxpayer's financial statements. The accountant must clarify how the financial statements were created. They also need to confirm if the statements accurately represent any transaction, receipt, accrual, payment, or debit. The accountant, not the tax practitioner, will be criminally liable if they make a false or misleading statement.
Accountants must apply the correct accounting framework when preparing financial statements for clients and reports they issue on the financial statements must be prepared within acceptable standards. Failure to comply will result in criminal sanctions.
Accountants can no longer use a “don’t ask, don’t tell” approach when preparing financial statements. If they know or have reason to believe that the financial information presented to them by their clients are prepared recklessly, incorrect, incomplete, inconsistent or prepared without the required diligence, they have a statutory duty to rectify the non-compliance or resign as the client’s accountant.
Accountants should therefore ensure that they:
- Do their due diligence before onboarding a client, this is usually done by sending a professional letter to the previous practitioner to ask whether there is any reason they should not take the client. This is specifically required by Professional Accounting Bodies' code of conduct
- Inform their clients of the accountants’ Tax Administration Act imposed duties
- Implement engagement procedures to mitigate the potential risks
- Update their knowledge of accounting standards
The TAA has changed the relationship between the accountant and their client. Accountants must detach emotionally from clients and adopt a formal and legal approach to ensure their own protection.
The Tax Administration Act 28 of 2011 Intends:
- to provide for the effective and efficient collection of tax;
- to provide for the alignment of the administration provisions of tax Acts and the consolidation of the provisions into one piece of legislation to the extent practically possible;
- to determine the powers and duties of the South African Revenue Service and officials;
- to provide for the delegation of powers by the Commissioner; to provide for the authority to act in legal proceedings;
- to determine the powers and duties of the Minister of Finance;
- to provide for the establishment of the office of the Tax Ombud;
- to determine the powers and duties of the Tax Ombud; to provide for registration requirements;
- to provide for the submission of returns and the duty to keep records;
- to provide for reportable arrangements; to provide for the request for information;
- to provide for the carrying out of an audit or investigation by the South African Revenue Service;
- to provide for inquiries;
- to provide for powers of the South African Revenue Service to carry out searches and seizures;
- to provide for the confidentiality of information;
- to provide for the South African Revenue Service to issue advance rulings;
- to make provision in respect of tax assessments;
- to provide for dispute resolution;
- to make provision for the payment of tax;
- to provide for the recovery of tax;
- to provide for the South African Revenue Service to recover interest on outstanding tax debts;
- to provide for the refund of excess payments;
- to provide for the write-off and compromise of tax debts;
- to provide for the imposition and remittance of administrative non-compliance penalties;
- to provide for the imposition of understatement penalties;
- to provide for a voluntary disclosure programme;
- to provide for criminal offences and sanctions;
- to provide for the reporting of unprofessional conduct by tax practitioners; and
- to provide for matters connected therewith.
Need to report suspicious behaviour or a tax crime? Read our blog on How to Report a Tax Crime
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