How to Escape the Nightmare of SARS Administrative Penalties

Key Takeaways

• SARS imposes administrative penalties for failing to submit tax returns or other required information on time.
• The penalty amount varies based on the company’s taxable income and can range from R250 to R16,000 per month.
• The penalties accrue monthly until the company comes into compliance, with a maximum duration of 35 months if the company’s address is known, or 47 months if unknown.
• Companies also owe interest on any unpaid taxes, which is currently 10% per year, compounded monthly.
• Depending on the nature of the non-compliance, SARS may also impose additional penalties, such as criminal prosecution or fines.
• Companies can avoid penalties by complying with various SARS regulations, such as submitting accurate and timely tax returns, registering for and paying the correct taxes, keeping proper financial records, and disclosing all relevant information to SARS.
• Companies can request a remission of penalties if they have a valid reason, such as illness, death, natural disaster, system failure, or human error.
• Companies can also negotiate with SARS and reduce their penalties if they can demonstrate good faith, cooperation, and willingness to rectify their non-compliance.

Introduction

If you are a business owner in South Africa, you know how important it is to comply with the tax regulations of the South African Revenue Service (SARS). Failing to do so can result in severe penalties that can cripple your cash flow, damage your reputation, and even land you in jail.

SARS is not lenient when it comes to enforcing its rules and collecting its dues. It has the power to impose administrative penalties for various forms of non-compliance, such as late or non-submission of tax returns, underpayment or non-payment of taxes, or inaccurate or incomplete disclosure of information.

These penalties are not trivial. They can amount to thousands of rands per month, depending on your taxable income, and they can accumulate over time until you rectify your non-compliance. In some cases, SARS may also charge you interest on the outstanding taxes, or impose additional penalties, such as criminal prosecution or fines.

How SARS Administrative Penalties Work

SARS administrative penalties are the most common penalties that SARS levies on non-compliant taxpayers. They are imposed for failing to submit tax returns or other required information on time, or for submitting incorrect or incomplete information.

The penalties are based on a fixed percentage of the taxpayer’s taxable income for the preceding year, and they are applied monthly until the taxpayer comes into compliance. The percentage varies depending on the type of tax and the number of months of non-compliance.

The table below shows the percentage and the corresponding penalty amount for each type of tax, based on the 2023/24 tax year.

For example, if a company has a taxable income of R1 million for the 2022/23 tax year, and it fails to submit its income tax return for the 2023/24 tax year by the due date, it will incur a penalty of 0.5% of R1 million, which is R5,000, for the first month of non-compliance. If it fails to submit the return for the second month, the penalty will increase to R10,000, and so on, until it reaches the maximum of R16,000 per month.

The penalties are imposed automatically by SARS, and they are reflected on the taxpayer’s statement of account. SARS will also issue a penalty notice to the taxpayer, informing them of the amount and the reason for the penalty, and the steps to take to rectify the non-compliance.

The penalties will continue to accrue monthly until the taxpayer comes into compliance, with a maximum duration of 35 months if the taxpayer’s address is known to SARS, or 47 months if unknown. This means that the total penalty amount can reach up to R560,000 or R752,000, respectively, if the taxpayer does not submit the required information for the entire period.

In addition to the administrative penalties, SARS may also charge interest on any unpaid taxes, which is currently 10% per year, compounded monthly. This means that the taxpayer will have to pay not only the principal amount of the tax, but also the interest that accumulates over time.

Depending on the nature and severity of the non-compliance, SARS may also impose additional penalties, such as:

• Criminal prosecution: SARS may prosecute the taxpayer for tax offenses, such as tax evasion, fraud, or obstruction of justice. The penalties for these offenses may include imprisonment, fines, or both.
• Fines: SARS may impose fines for specific violations, such as failure to register for tax, failure to keep records, or failure to issue tax invoices. The fines may range from R250 to R100,000, depending on the type and frequency of the violation.
• Understatement penalties: SARS may impose understatement penalties for submitting incorrect or incomplete information that results in a tax shortfall, an incorrect refund, or a reduced assessment. The penalties are based on a percentage of the tax shortfall, and they vary depending on the behavior and the degree of culpability of the taxpayer. The table below shows the percentage and the corresponding behavior for each type of understatement penalty.

For example, if a taxpayer submits an income tax return that understates their taxable income by R100,000, and SARS determines that the taxpayer was grossly negligent, the taxpayer will incur an understatement penalty of 100% of R100,000, which is R100,000, in addition to the tax due and the interest.

How SARS Administrative Penalties Can Affect Your Business

SARS administrative penalties can have serious consequences for your business, such as:

• Financial losses: The penalties and interest can erode your cash flow and profitability, and affect your ability to pay your suppliers, employees, and creditors. They can also reduce your working capital and limit your growth opportunities.
• Reputational damage: The penalties and interest can tarnish your image and credibility, and affect your relationship with your customers, investors, and stakeholders. They can also expose you to negative publicity and media scrutiny, and damage your brand and goodwill.
• Legal action: The penalties and interest can trigger legal action from SARS, such as garnishee orders, attachment of assets, liquidation, or sequestration. They can also expose you to civil or criminal litigation from other parties, such as creditors, shareholders, or regulators.
• Difficulty obtaining financing: The penalties and interest can affect your credit rating and score, and make it harder for you to obtain loans or other forms of financing. They can also increase your borrowing costs and reduce your access to capital markets.
• Stress and anxiety: The penalties and interest can cause you a lot of stress and anxiety, and affect your mental and physical health. They can also distract you from your core business activities and goals, and reduce your productivity and performance.

8 Ways You Can Avoid or Reduce SARS Administrative Penalties

The best way to avoid or reduce SARS administrative penalties is to comply with the tax regulations and obligations, and to rectify any non-compliance as soon as possible.

Here are some tips and resources to help you do that:

Seek professional tax advice

If you are not sure about your tax obligations, or if you need help with your tax affairs, you should consult a qualified tax practitioner, such as an accountant, a lawyer, or a registered tax practitioner. They can help you with various aspects of tax compliance, such as:

• • Registering for and paying the correct taxes
  • Submitting accurate and timely tax returns and reports
  • Keeping proper financial records and documents
  • Disclosing all relevant information to SARS
  • Applying for tax relief or incentives
  • Dealing with tax audits or disputes
  • Requesting a remission or reduction of penalties
  • Negotiating with SARS and reaching a settlement

Implement proper accounting and record-keeping systems

You should have a reliable and efficient accounting and record-keeping system that can help you with your tax compliance, such as:

Submitting accurate and timely tax returns and reports

You should submit your tax returns and reports on time, and ensure that they are accurate and complete. You should also check your tax assessments and statements of account, and report any errors or discrepancies to SARS as soon as possible. You can use the SARS eFiling system to submit your returns and reports online, and to access your tax information and correspondence. You can also use the SARS MobiApp to file your returns and make payments using your mobile device. You can find the due dates and the forms for the different types of taxes on the SARS website.

Disclosing all relevant information to SARS

You should disclose all relevant information to SARS, such as your income, expenses, assets, liabilities, transactions, and any changes in your circumstances. You should also respond to any queries or requests from SARS promptly and honestly. You should not conceal, omit, or misrepresent any information, or engage in any tax avoidance or evasion schemes. If you discover that you have made a mistake or an omission in your tax affairs, you should correct it and inform SARS as soon as possible. You can use the SARS Voluntary Disclosure Programme (VDP) to disclose any undeclared or under-declared income or tax liabilities, and to obtain relief from penalties and interest.

Applying for tax relief or incentives

You may be eligible for various tax relief or incentives, such as:

• Tax exemptions or deductions for certain income or expenses
• Tax rebates or credits for certain taxes or payments
• Tax deferrals or postponements for certain taxes or periods
• Tax refunds or reimbursements for certain taxes or overpayments
• Tax holidays or reductions for certain industries or activities

You should check the eligibility criteria and the application procedures for the different types of tax relief or incentives on the SARS website, and apply for them if you qualify. You should also keep the relevant documents and records to support your claims.

Dealing with tax audits or disputes

You may be subject to a tax audit or a dispute by SARS, either randomly or based on a risk assessment. You should cooperate with SARS and provide the requested information or documents within the specified time frame. You should also keep copies of all the correspondence and evidence related to the audit or dispute. If you disagree with the outcome of the audit or dispute, you have the right to object or appeal to SARS, or to escalate the matter to the Tax Ombud, the Tax Board, or the Tax Court. You should follow the prescribed processes and time limits for each stage of the objection or appeal process, and seek professional assistance if needed.

Requesting a remission or reduction of penalties

You may request a remission or reduction of penalties if you have a valid reason for your non-compliance, such as:

• Illness, death, or incapacity of the taxpayer or a close relative
• Natural or human-made disaster, such as fire, flood, or civil unrest
• System failure, such as power outage, network disruption, or hardware malfunction
• Human error, such as misunderstanding, oversight, or miscalculation

You should submit your request for remission or reduction of penalties to SARS, along with the relevant supporting documents, such as medical certificates, death certificates, police reports, or invoices. You should also explain how the reason affected your ability to comply, and how you have rectified or intend to rectify your non-compliance. You should submit your request within 21 business days from the date of the penalty notice, or within a reasonable time if the reason prevented you from doing so. SARS will consider your request and inform you of its decision. If your request is approved, SARS will remit or reduce the penalties accordingly. If your request is rejected, you can still object or appeal to SARS, or escalate the matter to the Tax Ombud, the Tax Board, or the Tax Court.

Negotiating with SARS and reaching a settlement

You may also negotiate with SARS and reach a settlement if you can demonstrate good faith, cooperation, and willingness to rectify your non-compliance. You can use the SARS Alternative Dispute Resolution (ADR) process to resolve your tax dispute or liability in a mutually beneficial way, without resorting to litigation. You can also use the SARS Tax Compliance Status (TCS) system to improve your tax compliance status and to obtain a tax clearance certificate, which can help you with your business activities and transactions. You can find more information about the ADR and TCS processes on the SARS website.

Conclusion

SARS administrative penalties are not something to be taken lightly. They can have serious financial, reputational, legal, and emotional consequences for your business. Therefore, you should do your best to comply with the tax regulations and obligations, and to rectify any non-compliance as soon as possible.

However, if you do incur penalties, you should not panic or ignore them. You should seek professional tax advice, and explore the various options and resources available to you to avoid or reduce them. You should also communicate and cooperate with SARS, and try to resolve the matter amicably and efficiently.

By doing so, you can escape the nightmare of SARS administrative penalties, and focus on your core business activities and goals.

FAQs

Q: How can I check if I have any SARS administrative penalties?
A: You can check your statement of account and your penalty notice from SARS, which will show the amount and the reason for the penalty. You can also use the SARS eFiling system or the SARS MobiApp to access your tax information and correspondence online.

Q: How can I pay my SARS administrative penalties?
A: You can pay your penalties using various methods, such as:

• Electronic funds transfer (EFT) from your bank account
• Debit order from your bank account
• Credit card or debit card online or at a SARS branch
• Cash or cheque at a SARS branch or a bank
• Third-party payment service provider, such as EasyPay or Pay@

You should use your unique payment reference number (PRN) when making the payment, and keep the proof of payment for your records.

Q: How can I prevent SARS administrative penalties in the future?
A: You can prevent penalties by complying with the tax regulations and obligations, such as:

• Registering for and paying the correct taxes
• Submitting accurate and timely tax returns and reports
• Keeping proper financial records and documents
• Disclosing all relevant information to SARS
• Applying for tax relief or incentives if eligible
• Dealing with tax audits or disputes promptly and honestly
• Requesting a remission or reduction of penalties if justified
• Negotiating with SARS and reaching a settlement if possible

You can also use the SARS eFiling system or the SARS MobiApp to manage your tax affairs online, and to receive notifications and reminders from SARS. You can also use the SARS Tax Compliance Status (TCS) system to monitor and improve your tax compliance status, and to obtain a tax clearance certificate.