The eight expenses SARS disallows most often in small business verifications are: vehicle costs with no logbook, home office claims that fail the exclusivity test, entertainment claimed for VAT, expenses with no valid tax invoice, private costs run through the business, provisions and estimates, round-number claims with no supporting detail, and bad debts written off with no evidence of recovery attempts.
Almost none of these fail because the expense was fake. They fail on documentation — which means almost all of them were preventable at the point the expense was incurred.
1. Vehicle costs with no logbook
The most common finding by a distance.
SARS's position: without a logbook recording opening and closing odometer readings and every business trip with its date, kilometres, destination and purpose, there is no basis on which to determine the business-use portion.
What gets disallowed: the entire claim, not a reduced portion. A reconstructed estimate or "approximately 70% business use" does not survive.
What would have saved it: a logbook kept contemporaneously. A logbook app, or a notebook in the vehicle. Plus a dated photograph of the odometer at the start of the tax year.
See can you claim your car as a business expense.
2. Home office claims failing the exclusivity test
SARS's position: section 23(b) requires the part of the home to be specifically equipped for trade and used regularly and exclusively for that purpose. A space with any other function fails.
What gets disallowed: claims where the "office" is a desk in a bedroom, a corner of the lounge, or a spare room that doubles as a guest room.
What would have saved it: a dedicated room, photographed when it was set up, with a floor plan and measurements supporting the apportionment percentage — and for an employee, a letter confirming they are required to work from home.
See how to claim a home office deduction.
3. Entertainment claimed for input VAT
SARS's position: section 17(2)(a) denies input tax on goods or services acquired for entertainment, regardless of business purpose.
What gets disallowed: input VAT on client lunches, office refreshments, staff functions, catering and corporate hospitality.
Why it is caught so easily: the ledger account is usually helpfully labelled "Entertainment", and a trial balance showing a VAT-inclusive balance in that account alongside an input tax claim is visible before anyone opens an invoice.
What would have saved it: a chart of accounts with entertainment ring-fenced and flagged as no-VAT in the software, so the system cannot claim it by accident — and a separate account for staff subsistence on overnight travel, which is claimable and is the most commonly missed legitimate claim.
See the expenses you can never claim VAT on and what is a chart of accounts.
4. Expenses with no valid tax invoice
SARS's position: without a valid tax invoice, input tax cannot be deducted — regardless of whether the expense was genuinely incurred, paid from the business account, and obviously business-related.
What gets disallowed: input VAT on invoices missing the recipient's VAT number above R5,000, missing the supplier's physical address, headed "Statement" or "Proforma", or with descriptions like "services rendered".
What would have saved it: checking invoices at the point of receipt and asking the supplier for a corrected one, rather than discovering the defect inside a 21-business-day verification window when the supplier has gone quiet.
See what makes a valid tax invoice.
5. Private expenses through the business
SARS's position: private and domestic expenses fail the production-of-income test and are denied under section 23.
What gets disallowed: groceries, personal travel, family cellphone contracts, clothing that is not protective or a uniform, personal subscriptions, and school fees.
The secondary consequence people miss: a disallowed private expense does not simply reduce the deduction. It usually becomes a debit on the director's loan account, which can trigger a deemed dividend under section 64E at the official rate of 7.75% and 20% dividends tax.
What would have saved it: a separate business bank account and card, used only for business. This is the single cheapest control available.
See what is a director's loan account.
6. Provisions and estimates
SARS's position: section 11(a) requires expenditure to be actually incurred — an unconditional legal obligation existing in the year of assessment. An estimate is not incurred.
What gets disallowed: provisions for future repairs, general doubtful debt provisions, bonuses that are intended rather than contractually owed, and accruals with no underlying obligation.
What would have saved it: for bonuses specifically, a board resolution or written commitment creating an unconditional obligation before year-end. The difference between a deductible bonus and a non-deductible provision is the documentation, not the intention.
See legal ways to reduce your company's tax bill.
7. Round numbers with no detail
SARS's position: a claim that cannot be substantiated in detail cannot be verified.
What gets disallowed: R60,000 of "sundries", R24,000 of "consulting fees" with no invoice or contract, and any suspiciously round figure with no underlying schedule.
Why round numbers attract attention: real costs are rarely round. R58,432.17 of itemised expenses reads as a record. R60,000 of sundries reads as a plug.
What would have saved it: classifying transactions properly as they are processed rather than parking them in a catch-all, and clearing the suspense account monthly. See what is a suspense account.
8. Bad debts with no evidence of recovery
SARS's position: a bad debt is deductible where it was previously included in income and is genuinely irrecoverable. SARS routinely asks what steps were taken to recover it.
What gets disallowed: debts written off at year-end with no letters of demand, no collection correspondence, and no evidence the debt was ever pursued.
What would have saved it: a documented collection process — reminders, a letter of demand, and a record of the decision to write it off. See how to get customers to pay you on time.
What a disallowance actually costs
The reversed deduction is only the start.
| Consequence | Amount |
|---|---|
| Tax on the disallowed amount | 27% for a company, up to 45% for an individual |
| Interest | 10.25% per annum from when the tax should have been paid |
| Understatement penalty | 0% to 200%, depending on behaviour and whether disclosure was voluntary |
| Repetition across periods | The same error usually recurs, so findings multiply across open years |
That last row is the one that turns a small finding into a large assessment. Bookkeeping is habitual — an expense coded wrongly in one month is coded wrongly in every month. A verification that finds R2,500 of entertainment VAT claimed in one period will look at the others.
Worked example. A business claiming R2,500 of entertainment input VAT every two months for three years:
Reversed input tax: R45,000
Plus interest at 10.25%
Plus whatever understatement penalty percentage applies
The four controls that prevent almost all of it
1. A chart of accounts that ring-fences the denied categories. Entertainment, motor cars and sporting or social club subscriptions in their own accounts, flagged as no-VAT in the software. The error then becomes impossible rather than merely unlikely.
2. A separate business bank account and card. Removes the private expense problem entirely, and reduces your accounting fee at the same time.
3. Invoices checked at receipt, not at verification. A defect is cheap to fix on the day it arrives and expensive to fix eighteen months later.
4. A logbook, kept as you go. For vehicle claims this is the whole ballgame.
None of these are difficult. They are set-up decisions made once, and they are the difference between a verification being an inconvenience and being an assessment.
Frequently asked questions
What expenses does SARS reject in a small business audit? Most commonly vehicle costs with no logbook, home office claims failing the exclusivity test, entertainment claimed for input VAT, expenses without a valid tax invoice, private costs run through the business, provisions and estimates, round-number claims with no detail, and bad debts written off without evidence of recovery attempts.
Why does SARS disallow vehicle expenses? Because without a logbook recording opening and closing odometer readings and every business trip with its date, kilometres, destination and purpose, there is no basis to determine the business-use portion. The entire claim is generally disallowed rather than reduced.
Can SARS disallow an expense that was genuinely incurred? Yes. Documentation is what is assessed, not intention. An expense genuinely incurred for business purposes will still be disallowed if there is no valid tax invoice, no logbook where one is required, or no evidence supporting the apportionment.
What happens when SARS disallows an expense? The deduction is reversed and the tax becomes payable, with interest at 10.25% per annum and potentially an understatement penalty between 0% and 200%. Because the same coding error usually repeats, findings are typically extended across all open periods.
Are provisions tax deductible in South Africa? Generally no. Expenditure must be actually incurred, meaning an unconditional legal obligation exists in the year of assessment. Provisions for future repairs, general doubtful debt provisions and bonuses merely intended rather than contractually owed all fail that test.
How do I stop entertainment VAT being claimed by mistake? Give entertainment its own ledger account and flag it as no-VAT in your accounting software, so the system cannot calculate a claim. Create a separate account for staff subsistence on overnight travel, which is claimable and is the most commonly missed legitimate claim.
Do I need evidence to write off a bad debt? Yes. SARS routinely asks what steps were taken to recover the debt. Keep the reminders, the letter of demand and a record of the decision to write it off, and ensure the debt was previously included in income.
Preventable at the point of entry
Every finding on this list is created when a transaction is processed and discovered eighteen months later, when nobody can reconstruct what happened.
Smartbook sets the chart of accounts up so denied categories are ring-fenced from the start, checks invoices against the SARS requirements as they arrive, and documents the apportionment basis for mixed-use costs — so a verification is a filter and an export rather than an argument.
Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Deductibility is fact-specific and depends on the documentation available — take advice on your own circumstances. Worked examples are illustrative.
Primary sources: SARS — Income Tax · SARS — Value-Added Tax · SARS — Tax Invoices · SARS — Short Guide to the Tax Administration Act