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Cannot pay SARS? There is light at the end of the tunnel!

23 January 2015   (0 Comments)
Posted by: Author: Erich Bell
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Author: Erich Bell (SAIT)

Although you, as a responsible citizen, must pay your dues, there is always a chance that something might occur that prevents you from paying that final tax bill. Although this situation may lead to depression, headaches and numerous sleepless nights, there is light at the end of the tunnel if you play your cards right. Set out below are three remedies for that nasty headache that might very well also cure your depression and insomnia! For illustrative purposes we’ll assume that you run a business as a sole proprietor.

Suspension of tax payments

Given the fact that your tax liability is determined by law (which is somewhat static and open for interpretation) and SARS’ aggressive audit approach, it is almost certain that a dispute about the facts and law surrounding a transaction would occur between yourself and SARS at some stage. As you may or may not be aware, SARS follows the ‘Pay now argue later’ principle which is firmly embedded in section 164(1) of the Tax Administration Act (No. 28 of 2011). This has the effect that should you dispute a portion of your tax liability by objecting to your assessment as calculated by SARS, you would still have to pay the disputed tax while waiting for the dispute to be sorted out - and just so you know - it can take more than a year for some disputes to be resolved!

However, should you be one of the informed citizens who makes use of a registered tax professional, then you might very well be out of the hot water (or at least for the period pending the outcome of the dispute). This is due to the fact that a registered tax professional is in a perfect position to assist you to apply for a suspension of payment for the disputed tax debt until the dispute is finally resolved (not to mention that the registered tax professional would be able to assist you in fighting your case against SARS in a fair and transparent manner). This suspension might very well just be the medicine that your ailing cash flow so desperately needed. It is important to note that this remedy is provided at the discretion of SARS and it is therefore advised that you make use of a seasoned tax professional with great persuasive skills.

Instalment payment agreement and compromises

Let’s say it took over a year to resolve the above dispute and against all odds you’ve lost the dispute. As any person would know, a year is a very long time in the business world. Despite the fact that the suspension of payment protected your business’ cash flow, your business is struggling and you literally cannot make ends meet by quite some margin. Now you are faced with a major tax debt that must be paid in order to prevent SARS from applying for a civil judgement against you, which could signal the return of all those headaches. You don’t know what to do and suddenly it comes to mind – ‘I must call my SAIT-registered tax professional’.

Obviously your tax professional may again come to the rescue through his or her vast expertise by assisting you in applying (depending how deep you’re in) for either an instalment payment agreement or a compromise of the tax debt.

Through an instalment payment agreement, a senior SARS official may, again at his/her discretion, allow you to pay the outstanding tax debt in either a series of instalments or in one some but only after a period of time (when your business starts picking up again). Should you believe that the prospects of your business may not pick up in the foreseeable future, then you may be requested to provide security for the outstanding tax debt before SARS would be willing to enter into the instalment payment agreement. Should SARS enter into the agreement with you, you’ll need to strictly comply with the agreement as non-compliance would lead to SARS terminating the agreement and instituting collection procedures for the tax debt.

On a heavier note, if you’re business is in serious trouble, then as a last resort it may be worthy to request that SARS compromise your tax debt which would lead to a permanent write off of the whole outstanding sum or a portion thereof. It is important to note that such an application may be a lengthy one with various supporting documents and you’ll need to be completely open and transparent with SARS. In this regard it is strongly advised to make use of a tax professional when applying for this remedy. You should also take note of the fact that SARS is in the business of collecting taxes and would only enter into a compromise if it would be to its own benefit. 

Even though the compromise is also provided at SARS’ discretion, SARS would under no condition enter into such an agreement if any of the following circumstances apply to you (as it would be compelled by law not to enter into the agreement):

  • If you entered into a compromise with SARS within the three years immediately preceding your current application;
  • Your tax affairs, other than the outstanding tax debt, are not in order;
  • Another creditor has communicated its intention to initiate or has initiated liquidation or sequestration proceedings against you;
  • The compromise will prejudice other creditors (unless the affected creditors consent to the ‘compromise’) or if other creditors will be placed in a position of advantage relative to SARS;
  • Although not applicable to an individual running a sole proprietorship, if the business is run in the form of a company or trust and SARS has not first explored action against or recovery from the personal assets of the persons who may be liable for the debt. Examples here include agency agreements with among others the bank and holding financial managers and connected persons to the company or trust liable for the debt if certain criteria are met.

Even though the chances of success for entering into a compromise agreement are a lot less than for entering into an instalment payment agreement, it may be an avenue worth exploring when your back is against the wall when it comes to your tax debt.

Conclusion 

For any payment related matter it is strongly advised to make use of a SAIT-registered tax professional. These professionals are highly trained and are legally bound to continuously maintain and enhance their tax knowledge through continuous professional development to ensure that only the highest standard of services are delivered to you – the worthy client. Remember, at the end of the day, the only thing that may be standing between a stress-free life and your depression, headaches and insomnia may be a registered SAIT tax professional!



WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

MINIMUM REQUIREMENTS TO REGISTER

The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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