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Non-exec directors could face substantial VAT liability

Friday, 11 September 2015   (0 Comments)
Posted by: Author: Ingé Lamprecht
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Author: Ingé Lamprecht (Moneyweb)

‘Undeclared income may result in liability, penalties and interest of hundreds of thousands’.

Non-executive directors who received fees and other consideration exceeding R1 million in a 12-month period and failed to register for Value-Added Tax (VAT) could face a VAT liability, penalties and interest running into hundreds of thousands of rands, according to an industry expert.

Chris Eagar, attorney and director at Finvision VAT Specialists, says undeclared income of R1 million per annum could translate to a VAT liability of roughly R600 000 over the five-year period Sars would typically assess.

On top of this a late payment penalty of R60 000 (10%), interest of roughly R180 000 and a possible understatement penalty of 10% to 25% (and as much as 150%) could be levied.

Eagar says while registered VAT vendor employers would be able to recover VAT, holding companies that use the services of non-executive directors are typically not vendors or can only recover a small portion of their input tax. It is unlikely that they would be willing to assist directors in paying these additional amounts.

But why would non-executive directors be liable for VAT in the first place?

Eagar says any person who conducts an enterprise and who makes supplies for consideration of more than R1 million over a 12-month period has to register for VAT, unless a specific exemption or exclusion applies.

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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.

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