A VAT refund can be a welcome cash-flow boost.

But for businesses that regularly receive VAT refunds, there is an important distinction between claiming a refund and receiving the refund.

SARS may verify, inspect or audit a refund claim before releasing the money.

How VAT refunds work

A VAT refund generally arises when allowable input tax exceeds output tax for a tax period, or where a vendor has made an erroneous overpayment.

SARS states that a qualifying VAT refund should generally be paid within 21 business days after receiving a correctly completed VAT return, subject to circumstances in which the period may be withheld, suspended or recalculated.

This is where businesses sometimes become frustrated.

A refund claim may be submitted correctly but still be selected for verification.

Why does SARS verify refunds?

From SARS’s perspective, refunds represent money flowing out of the fiscus.

The tax authority therefore needs to establish that the refund is valid.

Where a vendor is selected for verification, SARS may request supporting documentation.

The key is not to view the verification as something that happens only after the problem occurs.

It should influence how the VAT records are maintained before the return is submitted.

The “verification trap”

The trap is simple:

• A business claims a large refund.
• The accounting records contain unreconciled transactions.
• Supporting invoices are missing.
• VAT codes have been applied incorrectly.
• Supplier details don’t agree.
• Import documentation isn’t available.
• Then SARS asks for supporting documents.

Suddenly, what should have been a routine refund becomes a time-consuming exercise.

Build the evidence before claiming

Businesses expecting significant VAT refunds should consider performing a pre-submission review.

Check:

Input VAT

• Are valid tax invoices available?
• Has the VAT been correctly claimed?
• Are there any blocked or restricted deductions?
• Are supplier details correct?

Output VAT

• Does turnover agree to the accounting records?
• Have credit notes been accounted for?
• Are zero-rated and exempt supplies correctly classified?

Imports

• Are the relevant customs/import documents available?
• Does the VAT claimed agree to the supporting records?

Reconciliations

• Does the VAT201 agree to the underlying accounting system?
• Can unusual movements be explained?

Documentation matters

The modernised VAT environment makes data quality even more important.

SARS’s proposed Digital VAT Model envisages transactional information moving through the system in near real time, with validation occurring much closer to the transaction itself.

That means businesses shouldn’t think about supporting documentation only when SARS sends a verification notice.

The underlying records should be maintained continuously.

What happens if the refund is delayed?

SARS may withhold a refund where, among other things:

• a VAT return is defective or incomplete;
• banking details need attention;
• outstanding VAT returns exist;
• a verification, inspection or audit is underway; or
• another statutory reason applies.

This is why businesses should regularly check their SARS profile rather than simply assuming that a refund will arrive automatically.

The future may make refunds easier -but only for clean data

One of the potential benefits SARS identifies for VAT modernisation is faster refunds.

With reliable transactional information available closer to the point of the transaction, SARS could potentially assess risk more efficiently and focus manual intervention on exceptions.

For compliant businesses, that could ultimately mean less friction.

But there is an important lesson:

Automation doesn’t eliminate the need for good records. It makes good records more important.

The best way to avoid the verification trap is not to become better at responding to SARS requests.

It is to build a VAT process where the supporting evidence is already there.