Tax filing can be stressful and time-consuming at the best of times, and this year small businesses are already in dire straits, says Candice Mullins, CEO of The Tax House.
Individuals and businesses of all kinds face erratic cash flow and significant uncertainty, and staying in tax compliance can become an issue.
Mullins said there are various reasons why businesses go into debt with the South African Revenue Service (SARS).
“Some may be pushed into the red due to late submission penalties, while others may not pay or only pay part after submitting their return. SARS sometimes changes an assessment as a result of an audit or review, creating debt. Owning money for SARS isn’t ideal, but companies can take steps to make it right. “
The tax expert said that understanding debt is essential if your business hopes to avoid unpleasant surprises or additional penalties.
Mullins gives some advice for small businesses that owe SARS money.
Understand the difference between postponement and compromise
SARS has two mechanisms for individuals and businesses who cannot pay the amount they owe: a deferred payment arrangement and a compromise.
“A deferral arrangement is an arrangement that a taxpayer enters into because they have no money, but they have to pay SARS immediately. Instead of just not paying and incurring penalties and interest – or even jail time – they sign a deal with SARS to extend the payment period.
“It usually takes the form of equal monthly payments for a period of time until the debt is paid off. The debt isn’t canceled, but the company has more time to pay it off, ”Mullins said.
A compromise, on the other hand, is an agreement whereby SARS extinguishes all or part of the taxpayer’s tax debt, the tax expert stressed.
“This only happens in very unusual circumstances. If only part of the debt is written off, the balance owed to SARS has yet to be paid, possibly as part of a deferral agreement. A compromise agreement is only reached when a taxpayer finds himself in dire straits and has no other alternative. If an agreement is reached, SARS will normally waive penalties and interest. “
The taxpayer is considered tax compliant in both agreements and will receive a tax clearance certificate if necessary, Mullins said.
Eligibility and Request for Deferral Arrangement
To be eligible for a deferral agreement, Mullins said the taxpayer must:
- Suffer from a lack of assets or liquidity which is reasonably certain to be remedied in the future;
- Anticipate income or other revenue that can be used to settle the tax debt;
- Show that the prospects for immediate collection activity are weak or unprofitable but are likely to improve in the future;
- Demonstrate that the collection activity would be harsh in terms of the survival of the individual or business, and that the deferral or installment agreement is unlikely to prejudice tax collection;
- Provide security as needed;
- Submit all outstanding returns.
If your company enters into a postponement deal with SARS and then defaults, it will have broken the deal, Mullins said. SARS will deem the contract null and void, they will reinstate penalties and interest, and the debt will become immediately collectable, she said.
Qualify and ask for a compromise
For SARS to compromise on unpaid tax debt, the company must approach them and be honest about:
- The fair value of the taxpayer’s assets;
- Description of all prospects and transactions;
- The monetary value of any future rights that the taxpayer will waive;
- Details of all parties related to the taxpayer.
Mullins said SARS will examine both the affected taxpayer and whether someone in their capacity as trustee might be liable for those taxes.
If it is determined that the company is amenable to compromise, a senior SARS official and authorized public official then sign a compromise agreement that states the following:
- The amount payable by the taxpayer in full payment of the tax payable;
- A commitment by SARS to cease pursuing the collection of tax owed after an agreed settlement is reached;
- The conditions under which the tax debt is compromised.
“The terms usually include a few important things, including a requirement that the company agree to comply with future tax obligations and pay the tax debt as agreed. Otherwise, they would forfeit their right to certain existing or future tax benefits, such as loss carryforwards, deductions, credits and rebates, ”Mullins said.
“It is essential to be frank when dealing with SARS: Lies of omission remain lies, and SARS is free to break the deal if it finds out that the company has distorted the truth in any way. that is. If SARS terminates the deal, all of the debt, plus penalties and interest, will be immediately reinstated. “
Don’t be an ostrich
Mullins said it’s very tempting to keep your head in the sand and withhold SARS payments, but they will always catch up with you in the long run, and stiff penalties can be applied when payments are missed or underpaid.
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