Facing a looming tax debt with the South African Revenue Service? Burying your head in the sand is a dangerous gamble. Unlike a passing storm, this threat won’t blow over. Instead, you risk resurfacing to find your savings emptied by SARS, leaving you with no legal recourse. As countless companies, local celebrities, and affluent individuals have discovered, ignoring SARS tax debts is a recipe for disaster. But for every problem, there is a solution: a legitimate one. Let’s look at what you need to know about tax debt solutions and the compromise of tax debt with SARS. Remember, if you are feeling overwhelmed, seeking expert assistance is vital.
SARS tax debt – zero tolerance for non-compliance backed by High Court in JBSA Props (Pty) Ltd and Another v CSARS
SARS is very serious about people paying their taxes. A recent court case was a stark reminder that ignoring tax debt is not a viable option when considering what to do if you owe SARS money. Your tax debt problem will not magically disappear, unfortunately. The same applies to business taxes – some people think that initiating business rescue procedures will automatically erase a portion of what is owed to SARS if their business is struggling. This is simply not how SARS rolls.
In the JBSA case, the company entered business rescue in May 2020, which was concluded in December 2021. During this time, the company incurred a further VAT debt with SARS of approximately R24 million. A portion of this debt, around R9 million, originated before the approval of the business rescue plan, while the remaining R15 million SARS tax debt accumulated between the plan’s approval and the termination of the rescue process.
The argument in the JBSA case revolved around whether the company had adequately shown that its VAT obligations, arising from trading during the business rescue, were legitimately reduced under the established business plan. The company argued that SARS had implicitly agreed to reduce the tax debt incurred once the business rescue began. However, the Tax Administration Act expressly outlines the requirements for compromising debt in sections 200 – 204.
These legal provisions clearly state that any agreement to reduce tax debt must be formally documented in writing and signed by a high-ranking SARS representative and the taxpayer. As a result, the court rejected the company’s claim, pointing out the need for strict adherence to legal requirements. The moral of the story? If you’re looking for tax debt relief, follow the rules and get it in writing.
What to do if you owe SARS money – solutions for tax debt relief
If you’re in a situation where you need to cut your tax debt, you have to play by the book. SARS must be correctly and legally approached from the outset. Where a taxpayer does not have legal standing to pursue any dispute relating to the SARS tax debt but would have difficulty paying in full, a Compromise of Tax Debt application may be available to the taxpayer.
Tax debt relief – compromise of tax debt
This is intended to help taxpayers reduce tax liability by entering into a compromise agreement with SARS. Where SARS is correctly approached, and the taxpayer’s financial circumstances justify it, a tax debt can be reduced and the balance paid off according to the terms of the mutual compromise.
To get SARS to compromise on tax debt, the taxpayer must show present financial hardship and estimate their net worth. If the taxpayer qualifies, they can seek a write-off on interest and penalties, after which they must offer to settle (whether in whole or part) the capital amount due to SARS either in a lump sum or instalment payments. As highlighted in the JBSA case, this proposal must be reduced to writing once SARS accepts it.
How to resolve tax debt with SARS
SARS offers various avenues for taxpayers to address their outstanding tax debts. The compromise tax agreement, in particular, is designed to be widely accessible and can be employed for any type of tax debt, whether related to personal or corporate income tax, VAT, or PAYE. It is available to individuals, trusts, and businesses, ensuring the availability of tax relief solutions for individuals and businesses.
For those who do not meet the criteria for a tax compromise, a payment arrangement known as a deferral of payment can be negotiated with SARS. This provides an alternative method of managing and settling their tax obligations.
Deferral of payment SARS – to see the steps to make payment arrangements on eFiling, go to the SARS website.
Can SARS take money from my bank account?
Yes. SARS is legally empowered to seize funds from your bank account to settle unpaid tax debts. Under the Tax Administration Act, the revenue authority can issue directives to banks, compelling them to transfer owed amounts. However, this action is typically reserved for taxpayers who have neglected their tax obligations and failed to establish suitable payment arrangements.
How to avoid SARS debt collection actions: To prevent SARS from taking such drastic measures against you, it is best to address outstanding tax debts promptly and maintain open communication with SARS. Ignoring their notices can lead to direct account seizures, a nasty surprise no one wants.
Read more: Understanding the Impact of SARS’ Ability to Access Retirement Savings for Tax Debt Recovery.
FinGlobal: let us handle SARS for you
While SARS tax debt might feel overwhelming, it’s not a beast you need to slay on your own. At FinGlobal, we provide a full suite of South African tax services designed to help expats and tax residents achieve and maintain compliance with the South African Revenue Service. We can also assist with tax refunds, tax clearance and tax emigration.
To learn more about our trusted, convenient SARS services, please leave your contact details below, and we’ll get in touch!