How to Clean Up Tax Messes - Your Guide to VDP

27 Nov

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Let’s be honest: most accountants have a client or two (or ten) with undeclared income, missed VAT returns, or foreign earnings that never made it to SARS. The good news? SARS provided a way to come clean voluntarily without facing the firing squad. It’s called the Voluntary Disclosure Programme (VDP), and it could save your clients from massive penalties, criminal charges, and sleepless nights.

The VDP isn’t a gimmick. It’s a legal process under the Tax Administration Act, 2011 (TAA) that lets taxpayers admit defaults, update returns, pay what’s owed (tax + interest), and in many cases walk away without understatement‑ or admin‑penalties, or criminal exposure.

At its heart, VDP is about compliance, not punishment. SARS wants taxpayers to voluntarily clean up old mistakes before enforcement and audits catch up.

Why VDP Exists

VDP is a legal, SARS-endorsed process that lets taxpayers fix past mistakes, declare hidden income, and get compliant, with far less pain than an audit or investigation. If you get in before SARS comes knocking, you could avoid:

Criminal prosecution
Understatement penalties
Admin penalties.

It’s all about promoting voluntary compliance and rewarding honesty (as long as it’s honest before SARS starts asking questions).

Who Can Use VDP?

Any taxpayer (individual, company, trust) who has defaulted on any tax type, income tax, VAT, PAYE, you name it. including income tax, employees’ tax (PAYE, SDL, UIF), VAT, but excluding Customs and Excise. But there are rules:

SARS must NOT have started an audit or investigation on the issue
You can’t apply for a refund through VDP
The disclosure must be complete, voluntary, and accurate
No similar VDP disclosures in the last 5 years for the same default.

Common Defaults that Qualify

Undeclared foreign income
If a client earned interest, dividends, rental income or capital gains from offshore accounts or investments and never disclosed it to SARS, that’s a default. This is particularly risky since SARS receives automatic exchange of information from foreign tax authorities.
Incorrect VAT submissions
Overstating input VAT (i.e. claiming deductions where not entitled) or understating output VAT (i.e. not declaring all vatable sales) can lead to big liabilities. These errors are often picked up during routine reconciliations or SARS audits.
Payroll tax errors
Failing to withhold or declare PAYE, UIF, or SDL correctly is more common than many think. This includes misclassifying employees as independent contractors, or not declaring fringe benefits.
Failure to submit returns
Simply not filing tax returns for any period (personal income tax, VAT, PAYE, corporate tax, etc.) can create compliance flags. Even if no tax was technically due, SARS still considers it a default.

Practical Example: Backdated VAT Registration

Let’s say a small business reached the mandatory VAT registration limit on 1 March 2023, but only noticed this and applied for VAT registration in 2025. SARS may backdate the VAT registration to the actual date liability began (e.g. 1 March 2023). This creates a problem as the business should have been charging and collecting VAT since 2023, but didn’t. Now, SARS expects the business to declare and pay VAT for those past periods. If the taxpayer voluntarily applies through VDP before SARS initiates any compliance action, they could:

Avoid penalties for late registration
Avoid understatement penalties for unpaid VAT
Avoid potential prosecution for non-compliance

The taxpayer would still have to pay the VAT and interest, but that’s a small price to pay compared to what could follow without VDP relief. Also note: VDP will only apply if the VAT registration is voluntary, not initiated by SARS. The VDP application should be submitted within 21 working days from registration.

How to Apply

Check eligibility
Ensure SARS hasn’t already launched an audit or investigation. ensuring that there are no audits or inquiries from SARS
Register on eFiling
If you haven’t already registered on Efiling, do so. The VDP01 form can only be completed online. Alternatively, you will need to visit a SARS branch for assistance.
Complete the VDP01 form
Provide full details about the taxpayer, the nature of the default, relevant tax types, periods, and financial details. Be detailed, accurate, and honest. Leave nothing out.
Attach supporting documents
These aren’t mandatory but help your case. Include bank statements, spreadsheets, explanations, source codes, and calculations.
Submit the form
SARS will review the application and may request more information or a meeting.
Sign the VDP agreement
If approved, you’ll receive an agreement detailing the facts, amounts, penalties, payment terms, and responsibilities
Pay up
This includes the tax plus interest. Penalties may be reduced or waived depending on the type of default and disclosure

What is the VDP Agreement?

The VDP Agreement is a legally binding contract between SARS and the applicant. It outlines:

The default facts
Amounts owed (including any penalties, if applicable)
Payment terms and deadlines
Duties of both parties

Both SARS and the applicant are bound to honour the terms. Breach (like missed payment) may result in cancellation. If it turns out that the disclosure wasn’t full and complete, SARS can withdraw relief and prosecute.

What VDP Won’t Do

It won’t give you a refund
It won’t protect you if SARS already knows about the issue
It won’t stop interest from accruing.

Why This Matters for Accountants

Offering VDP support isn’t just good advice — it’s a billable service. You can help your clients avoid disaster, stay compliant, and clean up years of mess. Plus, it positions you as the expert who protects clients from SARS, not just the one who files returns.