SARS Admin Penalties - What Taxpayers can Expect
The Tax Administration Act stipulates that SARS can issue administrative penalties for outstanding tax returns.
In previous years, tax authorities only imposed penalties on taxpayers with more than one outstanding tax return. Since December, SARS can now penalize taxpayers with a late return under the Tax Administration Act.
This year, many South African taxpayers got fines from SARS. They owe thousands of rands in taxes, built up over years for SARS penalties and interest.
When are penalties incurred
SARS can raise administrative non compliance penalties if a taxpayer is non-compliant in a specific area of their tax affairs, including Personal Income Tax (PIT) and Corporate Income Tax (CIT), Pay as You Earn (PAYE) or value-added tax (VAT).
A penalty proportional to the amount due is levied if a payment is not received on time. To avoid this penalty, the payment should be deposited into the SARS bank account on or before the stipulated deadline.
SARS charges fixed penalties for late tax returns or non-compliance with personal or corporate income tax. Starting in 2020, taxpayers who file their returns late will face a one-time PIT penalty or a fixed amount penalty..
Also, a recurring penalty applies for the failure to submit a return for PIT and CIT. The penalty amount depends on how much money a person makes or their taxable income. It can be as low as R250 per month if they have no income or are losing money. It can go up to R16,000 per month if they make over R50 million. This penalty is for not following tax rules.
If you haven't filed your income tax returns for 2007 or later, you will be charged a penalty by PIT.
For CIT, the recurring penalty is imposed where the company has failed to submit an income tax return for years of assessment from 2009, where SARS has issued the company with a final demand and the company failed to submit the return within 21 business days of the final demand.
As such, the tax authority now applies monthly penalties for tax returns dating back many years.
Companies also face administrative penalties for PAYE. If an employer has failed to submit an EMP501 reconciliation declaration on time, an admin penalty of 1% per month over 10 months, based on the employer’s liability over 12 months, is levied.
The costs of the penalties
Percentage-based penalties are often steep, such as the 10% late payment penalty on VAT or PAYE, or the penalty of 1% over 10 months where an EMP501 was not submitted in time.
But it is the recurring penalties levied every month that really snowball. This is because SARS will keep penalizing non-compliant taxpayers month after month until the outstanding returns are submitted, or up to a maximum of 35 months, if the taxpayer’s address is known, or 47 months if the taxpayer’s address is unknown.
Even at the lowest monthly admin penalty of R250, just one return outstanding for 35 months will have already racked up a tax debt of almost R9,000, not including interest.
Remember, unpaid penalties will also attract interest for each month they remain outstanding.
If you ignore Admin Penalty notifications from SARS, it will keep levying these penalties. In addition, the individual or company will have a non-compliance tax status. If a tax refund is due to the taxpayer, SARS will not pay the refund until any outstanding penalties are paid. Penalties can also only be offset against a refund after approval of a formal request to SARS.
Ultimately, if the admin penalty is not paid, SARS also can appoint an agent, such as a bank or employer, to collect the money on its behalf.
What should you do if you already have admin penalties
If you have admin penalties, you need to do two things immediately:
- Correct the non-compliance by filing the outstanding return/s; and
- Pay the penalty on time or submit a request for remission of penalties.
Your accountant can help you fix any overdue tax returns by locating the missing documents and making the penalty payment. If you are unable to pay any outstanding tax and penalties immediately, your accountant will help you enter into a repayment plan with SARS to pay it off.
If you have a valid reason for not submitting your tax return, you can ask SARS to forgive the penalty. You can do this by requesting remission.
To request a remission of the penalty from SARS, it is advisable to seek help from your accountant. A remission is granted only after the issue is resolved and a valid reason is provided. Valid reasons include it being the first occurrence or lasting less than five days. Certain exceptional circumstances such as serious illness or accident, social disturbance or natural disasters will also be considered.
SARS will impose penalties fairly based on the seriousness and duration of non-compliance. Requests to reduce penalties may not always be successful or may only result in a partial reversal.
Avoiding penalties in the future
The necessity for both individuals and businesses to attain and uphold tax compliance has never been more critical.
Even when not generating income or if a business is inactive, taxpayers are still required to file returns. In such situations, zero returns must be submitted to SARS, otherwise, they risk accruing significant fines.
Where a company will remain dormant, consider deregistering the company with the Companies and Intellectual Property Commission (CIPC) and with SARS for the various types of tax.
It is important to remember that the expertise and experience of your accountant or tax practitioner will be vital in achieving and maintaining tax compliance now and in the future.
The onus is on the taxpayer to remember to submit an income tax return or any other tax returns outstanding. The legislation is clear and published in public notices that the taxpayer is expected to be aware of.
Therefore, the need to work with a professional is all the more important as the registered practitioner keeps abreast with legislative developments in tax and accounting.
Do you need a Quote for our Tax and Accounting Services?
Contact our team via any of the following channels to get a proposal for your accounting and tax services:
Subscribe to our newsletters.
Disclaimer:
The views or opinions expressed on this site are solely those of the original authors and other contributors.
The material and information contained on this website is for general information purposes only.
This information is for general purposes only. Don't use this information for making business, legal and tax decisions without consulting a professional.
We do not make any express or implied representation, as to the completeness or accuracy of the information published.
Tax law changes regularly, so any tax information on this site could become outdated.
We are not responsible for any other websites that you may access through links on our website.
ZPA accepts no liability for any loss or damage arising from the use of any material on this site.
