You’ve been automatically VAT-registered by SARS, maybe without warning. You didn’t charge VAT, you didn’t know, and now SARS is auditing you — asking for corrections to past VAT201s, contracts, invoices, and bank statements.
For many businesses, this can trigger a devastating VAT bill on income you’ve already spent — especially if you work on fixed-fee contracts (like consultants, medical providers, or small firms). But here’s the truth: you do have options — and how you respond in the next 30 days matters more than what happened 3 years ago.
We’ve helped businesses in this exact situation reduce or eliminate their backdated VAT liability. This guide explains what SARS is doing, what your rights are, and what you should never do before speaking to a tax expert.
Don’t amend those VAT returns yet. Read this first — then book a clarity call.
Why Am I Being Audited After Automatic VAT Registration?
If you’ve received a SARS letter requesting VAT corrections or documents — and you were automatically registered for VAT in the last year or two — you’re not alone.
SARS has rolled out a system-driven process that identifies businesses whose turnover exceeds R1 million in any 12-month period, and automatically registers them for VAT, often without warning. The registration is typically backdated to the date SARS believes you crossed the threshold — sometimes going back two or even three years.
The problem? Most business owners only find out when:
They receive an eFiling alert months later
A letter arrives from SARS requesting old VAT201 corrections
Their accountant submits a return and sees the VAT number already active
Once the system flags your account, it escalates in phases. The first phase is registration. The second is audit.
SARS’s logic is simple:
If you should have been registered earlier, then you should have been charging VAT all along — and they want it now.
The audit is their way of closing that loop.
You may be asked to:
Explain why nil returns were submitted
Resubmit corrected VAT201s from the backdated effective date onward
Provide contracts, invoices, bank statements, and other proof of income
At this stage, most business owners panic — and that’s exactly what you shouldn’t do.
This is not yet a final assessment.
It’s a procedural audit request, and how you respond now will determine whether this becomes a manageable compliance reset or a multimillion-rand retrospective tax debt.
In the next section, we’ll break down exactly what SARS is asking for — and what it means.
What SARS Will Ask For
Once SARS initiates the audit process after automatic VAT registration, they typically send a formal letter requesting a review of all VAT201 returns from the effective date of registration — even if that date goes back several years.
The letter may sound routine, but make no mistake: it’s the start of a formal verification or audit process, and your response will directly influence whether SARS issues an estimated assessment, accepts your explanation, or escalates the case further.
What you can expect SARS to request:
Corrected VAT201 returns for all periods from the backdated effective date
Turnover reconciliation — proving total income for each VAT period
Invoices and supporting documentation for declared income
Bank statements to verify inflows and match them to VAT201s
Contracts or service agreements to clarify whether VAT was charged or could have been
Explanations for nil or low-value returns (if applicable)
This can cover dozens of VAT periods at once, and the deadline is usually 21 to 30 days — with SARS expecting either full corrections or a clear explanation for why corrections are not required.
At this point, many business owners — or their bookkeepers — feel pressured to “just fix it” and submit the amended returns. But doing that locks in the tax liability and waives your opportunity to object to the registration date, apply for remission, or challenge the audit on legal grounds.
Before you upload a single document, you need a strategy. There may be legitimate, legally supported reasons not to amend those VAT201s at all — and your case must be framed properly from the outset.
In Section 3, we’ll explain why rushing to amend returns can be the most expensive mistake of all.
Why You Should NOT Rush to Amend Past Returns
When SARS requests corrections to historic VAT201s, the natural instinct is to comply immediately — especially if the returns were submitted as nil, or not at all. But here’s the trap:
The moment you amend those past returns, you validate SARS’s backdated registration — and you lock in a liability that may be completely avoidable.
This is especially dangerous for businesses that:
Never charged VAT to their clients
Operate under fixed-fee contracts (e.g. medical, education, consulting)
Have little or no input VAT to offset
Only became aware of their VAT registration months or years later
SARS will treat every sale since the effective date as VAT-inclusive — meaning if you invoiced R1 million, they’ll assume R130,434 was VAT, even if you never charged it. That’s a 15% cut of your income, instantly owed, with no way to recover it from clients retroactively.
Why this matters:
You lose the right to object to the registration date once you accept it in practice
You may forfeit access to interest or penalty remission
You could unintentionally create a multi-year tax debt you had legal grounds to challenge
SARS’s systems don’t care whether the outcome is fair — but South African tax law does.
There are legal mechanisms to:
Dispute the effective date of registration
Argue for proportionality and fairness under PAJA
Apply for relief if enforcing the registration would cause undue hardship or serve no revenue purpose
But none of those arguments work if you’ve already corrected the returns and confirmed the liability yourself.
In Section 4, we’ll show you what can be challenged — and how we do it for clients in this exact situation.
What You Can Legally Challenge
Contrary to what many believe, just because SARS backdated your VAT registration doesn’t mean all that VAT is automatically owed. South African tax law allows you to challenge how SARS applied its powers — and in many cases, the consequences of backdated registration can be reduced or reversed entirely.
Here’s what can be challenged:
1. The Effective Date of Registration
SARS often backdates VAT registration to the month your turnover first exceeded R1 million — even if that was years ago.
But if you:
Were never notified at the time,
Didn’t charge VAT to clients,
Would suffer financial harm by enforcing it retroactively,
then you may have a strong legal basis to object to the effective date, even if registration itself was valid.
Objections under Section 104 of the Tax Administration Act allow you to challenge SARS’s decisions — including registration dates — especially when they cause disproportionate or unfair outcomes.
2. The Fairness of SARS’s Action (PAJA Grounds)
Under South Africa’s Promotion of Administrative Justice Act (PAJA), SARS must act:
Lawfully
Reasonably
And in a procedurally fair manner
If SARS registered you years back without informing you, and then demanded millions in backdated tax once you were already locked into non-VAT-charging contracts, that can be argued as:
Administratively unfair
Unreasonable
Destructive to business survival
We use PAJA-based arguments in cases where SARS’s action is lawful in theory, but unjust in impact.
3. Interest and Penalty Remission
Even if SARS insists on enforcing registration from a prior date, you may still qualify for:
Full or partial remission of interest
Waiver of understatement or late submission penalties
Relief under Section 39(7) of the Tax Administration Act
4. Whether Your Services Were Actually Taxable
In very rare cases, we’ve found that the business’s services were partially or fully exempt from VAT — for example:
Working under a public health or NGO structure
Earning only passive income
Rendering exempt financial or educational services
This is complex and case-dependent — but if you qualify, SARS may reverse the entire registration or reclassify your revenue.
In the next section, we’ll explain how we approach SARS on your behalf — without handing over the keys before we’ve negotiated the terms.
How We Respond on Behalf of Our Clients
Once a SARS audit letter lands — especially one requesting retrospective corrections — you have limited time and one chance to get your response strategy right.
This is where we step in.
At Evergreen Accounting, we don’t just prepare tax returns. We handle complex SARS disputes, including automatic VAT registration audits, and we’ve successfully helped businesses avoid ruin by leveraging the full scope of tax law and administrative justice.
Here’s a high-level overview of how we handle these cases — without revealing every tactical move (we save that for our clients):
Step 1: We Gather the Facts
We start with a confidential strategy consultation. We gather:
The original VAT103 and registration history
Contracts and invoices (to establish billing model and VAT chargeability)
Bank and turnover data for the disputed period
VAT201 filing history and SARS correspondence
This helps us assess both your legal standing and your practical exposure.
Step 2: We Craft a Strategic Response to SARS
Instead of rushing into amendments, we:
Draft a professional audit response letter to SARS
Explain the contractual and billing limitations of the business (e.g., fixed fees, no VAT recovery)
State that a formal objection is in progress, and request a hold on audit enforcement until resolved
Engage the auditor professionally to manage tone and timing
Step 3: We Submit a Formal Objection (if justified)
We prepare and submit a full legal objection under Section 104 of the TAA, with:
Supporting documentation
Case law and statutory references
A request to amend the effective date of registration, or relieve past-period obligations
Where applicable, a PAJA-based fairness argument
Step 4: We Explore Remission and Relief Options
If liability remains:
We apply for remission of interest and penalties
In certain cases, we use the Voluntary Disclosure Program (VDP) as a tactical tool to protect the client from understatement penalties or criminal exposure — while still negotiating the terms
Step 5: We Negotiate Practical Solutions
We act as a buffer between you and SARS, working to:
Avoid backdated VAT201 corrections unless legally required
Reduce the registration impact to the current or most recent financial year
Protect your ability to operate going forward
We do all of this while protecting your privacy, managing the tone of communication with SARS, and ensuring every move supports the long-term survival and compliance of your business.
In Section 6, we’ll share the common mistakes that ruin a good case — and how to avoid them.
The Biggest Mistakes to Avoid
When SARS audits your business after a surprise VAT registration, your first instinct might be to respond quickly, fix old returns, or forward the letter to your bookkeeper. Unfortunately, those actions — while well-intentioned — often lead to unrecoverable VAT liabilities and missed legal opportunities.
Here are the most common (and costly) mistakes we see:
1. Amending Past VAT201s Without a Legal Strategy
Many business owners — or even junior accountants — feel pressured to comply with SARS’s request by quickly amending prior VAT201 returns. But the moment you do that:
- You’re accepting SARS’s backdated registration as valid
- You’re creating a VAT debt on revenue where no VAT was ever charged
- You’re locking yourself out of objecting to the registration date later
In short: you’ve just made SARS’s case for them.
2. Ignoring the Audit or Missing the Deadline
Some entrepreneurs freeze. They assume it’s a generic letter or hope SARS will move on. But SARS doesn’t forget. Missing the audit deadline could result in:
- An estimated assessment based on turnover, not profit
- Interest and penalties compounding monthly
- Possible SARS enforcement or recovery action
3. Assuming SARS Will Be Reasonable Without a Fight
SARS auditors are trained to enforce compliance — not interpret contracts or protect your cash flow. Without a clear objection, hardship submission, or legal response, SARS will simply apply policy:
"You earned it. You should’ve charged VAT. Pay it now — with penalties."
That’s not personal. But it’s also not negotiable unless you challenge it properly.
4. Thinking Your Bookkeeper or Junior Accountant Can Handle It
This isn’t about reconciling receipts — it’s about defending your business from retrospective tax enforcement under the VAT Act, the Tax Administration Act, and administrative law.
Most bookkeepers:
- Don’t understand how to object to registration
- Won’t cite legal precedent
- May unintentionally trigger assessments by “doing what SARS asks”
If the wrong person replies, you lose your leverage.
5. Assuming This Will Go Away on Its Own
It won’t.
Once registered, SARS expects you to comply. If you do nothing, they’ll move to issue assessments or even refer the case for enforcement. That’s when it gets expensive — and legal.
What Happens If You Do Nothing
We get it — dealing with SARS can be stressful, and it’s tempting to delay, ignore the audit letter, or hope it sorts itself out. But with automatic VAT registration and retrospective audits, silence is costly.
If you do nothing, here’s what will happen — and why you must act now:
1. SARS Will Issue Estimated Assessments
If you don’t respond to their audit letter, or if you ignore the request to correct past VAT201s, SARS can:
Issue assessments based on estimated turnover
Apply 15% VAT on all past revenue — even if you never collected it
Treat all sales as VAT-inclusive, reducing your net income overnight
And once issued, those assessments become legally binding unless you object within strict timeframes.
2. Penalties and Interest Will Mount
Even if you owe nothing in principle, SARS will:
Add late submission penalties (up to 200%)
Accrue interest monthly
Charge understatement penalties — especially if you’ve filed nil or low-value returns
These charges compound quickly, turning a bad situation into a permanent financial burden.
3. You Lose the Right to Object
If you:
Submit corrections to old VAT201s, or
Miss the objection deadline,
you accept SARS’s position by default. After that, your only option is escalation to Tax Court or applying for remission — a far harder route.
4. SARS May Enforce the Debt
Eventually, SARS will move to:
Offset your other tax refunds
Issue final demands or third-party appointments (e.g. to your bank)
Engage in legal recovery, including attaching business assets
Once enforcement starts, it’s not just about numbers — it becomes a legal crisis.
Bottom Line: Doing Nothing Is Not Neutral — It’s Expensive
You might not owe SARS a cent yet — but if you stay passive, they’ll treat you as non-compliant. And by the time you try to fix it, your options will be fewer and more expensive.
Fortunately, if you’re reading this in time, you still have options.
What To Do Next
If you’ve received a SARS audit letter after being automatically registered for VAT — and especially if the registration was backdated to a year or more ago — this is not something you should try to handle on your own.
You have legal rights. You have options. But they are time-sensitive.
At Evergreen Accounting, we’ve helped small businesses, consultants, and medical professionals navigate this exact situation — and in many cases, we’ve helped them eliminate hundreds of thousands of rands in backdated VAT, penalties, and interest before it became a crisis.
We don’t offer templates. We don’t sell quick fixes. We offer personalised strategy and expert-level SARS negotiation, backed by tax law and real experience.
Don’t wait for the deadline to pass.
Book a private VAT audit response consultation now.
We’ll review your case, explain your legal position, and if we can help, we’ll handle the objection and SARS response for you — start to finish.
You focus on your business.
We’ll deal with SARS.