Many entrepreneurs and business owners live in fear of the South African Revenue Services (SARS). In most cases, this fear is compounded by lack of knowledge and failure to understand what is required. Yet most of the anxiety – and the stress of paying outstanding taxes – can be quite easily avoided.
“The major concern for most business owners and indeed, taxpayers, is that they will go to jail for not paying their taxes,” says Tyronne Nel, tax consultant at SME.TAX. This is a major misunderstanding. Under current legislation, SARS treats the failure to submit the correct forms (PAYE, VAT, etc) as a criminal act, whilst failure to pay is a civil act.
“Often, we see that clients don’t submit the forms because they haven’t got the money,” says Nel. “Yet if you don’t put the form in, that’s a criminal offence – and the reason is that they can send someone in to physically collect you to fill in the forms. On the other hand, not making payment is a civil act. So you’ve got to view SARS as another creditor on your books, although of course they want to be first in line.”
In addition, many business owners and entrepreneurs aren’t aware that there are various routes to take if you do owe SARS money. They are naturally intimidated by what appears to be a ‘pay first, argue later’ approach taken by SARS, yet Nel says that the authority is in fact very open to negotiation and fair settlements.
“If you’ve done your bookkeeping accurately and everything is in order, SARS will allow you to pay it off or give you a compromise agreement,” explains Ken Brown, Master Franchisor at SME.Tax. “They want to keep your small business open.”
According to Brown, there are two primary options for business owners who are looking to reach a settlement with SARS.
The first is the Voluntary Disclosure Programme (VDP) that SARS offers. This is a good option for businesses and individuals who owe SARS money, but have not declared it (i.e. by not submitting PAYE, VAT or Income Tax Returns). Business owners can now declare these amounts under the VDP – and save by not being charged interest or penalties for late filing.
“SARS assumes that you are honest from the start,” says Nel.
“So the minute your VDP application is submitted, it absolves you from any criminal prosecution and interest on the debt you owe. So you effectively just owe on the capital that’s outstanding.”
The second settlement route is offered through the Tax Administration Act, which deals with the waiving of taxes owed to SARS – and also compromises on debt owed by individuals, trusts, close corporations and companies. SARS may be willing to write off or reduce taxes, penalties, interest and even additional tax owed to SARS under this Act.
“The most important thing is to stay up-to-date with your books, and ensure that you understand what is required from SARS,” adds Brown. “If it’s done right and on a monthly basis, then bookkeeping is the cheapest part of running your business. If you have the data, everything else flows from there. You can make the right calls, because you know where you stand.”
Ken Brown is Master Franchisor at SME.Tax, an SME accounting and advisory firm. E-mail: email@example.com