Tax compliance is fundamental to operating a legitimate business in South Africa. When you fall behind on returns or payments to the South African Revenue Service (SARS), the consequences can be severe, ranging from substantial penalties to legal action. The stress of knowing you're non-compliant, combined with uncertainty about how to resolve the situation, can be overwhelming.

The good news is that SARS provides mechanisms for taxpayers to address non-compliance and return to good standing. Understanding what you owe, why penalties are imposed, and what options exist for resolving tax debt allows you to take control of the situation and work towards compliance.

If you currently find yourself behind on SARS payments, addressing the issue promptly minimises penalties and prevents the situation from worsening. There is a solution for every tax problem, and taking action now is always better than continued avoidance.

Checking What You Owe

If you've submitted tax returns but aren't certain whether you owe SARS money, your eFiling profile provides this information. eFiling is SARS's online platform for submitting returns, making payments, and viewing your tax account status.

After logging into eFiling, you can view your account status for each tax type you're registered for. This shows any outstanding amounts, payment due dates, and whether SARS owes you a refund.

Finding Refund Information

If SARS owes you a refund, this information appears in your Income Tax Statement of Account (ITSA). The ITSA shows all transactions on your income tax account, including assessments, payments, and refunds.

Look for the line labelled "Electronic refund" in your ITSA. The transaction value column shows the refund amount, and the date column shows when the refund should be paid into the bank account linked to your eFiling profile.

Refunds typically take a few weeks to process after your return is assessed, though this timeframe can vary depending on SARS's workload and whether your return requires additional verification.

Finding Payment Information

If you owe money to SARS, the amount and due date appear on your Notice of Assessment (ITA34). This notice is generated after SARS processes your tax return and calculates your tax liability.

The ITA34 shows your total tax liability for the year, any payments you've already made (through provisional tax or other payments), and the resulting balance due or refund. The payment due date is clearly indicated in the "Details" section of the ITA34.

You can access your ITA34 through eFiling by navigating to your income tax returns and viewing the assessment for the relevant year.

Understanding Different Tax Types

Businesses may have obligations for several different tax types, each with its own returns, payment schedules, and compliance requirements.

Income Tax applies to the profits of your business. Companies pay corporate income tax, whilst sole proprietors and partnerships pay personal income tax on business profits. Returns are typically filed annually, though provisional tax payments are required twice during the year.

Value-Added Tax (VAT) applies if your business's turnover exceeds the registration threshold (currently R1 million per year) or if you've voluntarily registered. VAT returns are typically filed monthly or bi-monthly, depending on your turnover, with payment due by the return deadline.

Pay-As-You-Earn (PAYE) is employees' tax that you withhold from employee salaries and pay to SARS. If you have employees, you must register for PAYE, submit monthly returns, and make monthly payments.

Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF) contributions are additional payroll-related obligations if you have employees.

Each of these tax types has separate accounts in the SARS system, separate returns, and separate payment obligations. Being compliant requires staying current with all applicable taxes.

Penalties for Late Payment

SARS imposes penalties when taxpayers fail to meet their obligations. Understanding these penalties helps you appreciate the importance of addressing non-compliance quickly.

Late payment penalties are charged when you pay your tax after the due date. These penalties are calculated as a percentage of the outstanding amount and accrue monthly until the debt is paid.

The penalty percentage varies depending on the tax type and how late the payment is, but it can be substantial. Combined with interest charges (discussed below), late payment penalties can significantly increase your total debt to SARS.

Penalties for Non-Submission of Returns

Beyond late payment penalties, SARS imposes administrative non-compliance penalties for failing to submit returns on time. These are fixed-amount penalties that vary based on your taxable income and the type of return.

For income tax returns, penalties range from R250 per month for individuals with taxable income under R250,000, up to R16,000 per month for those with taxable income over R50 million. These penalties are imposed for each month (or part of a month) that the return remains outstanding, up to a maximum of 35 months.

For VAT returns, penalties similarly range from R250 to R16,000 per month depending on turnover, imposed for each month the return is late.

These penalties accumulate quickly. A business with moderate turnover could face penalties of several thousand rand per month for each outstanding return. If you have multiple outstanding returns, the total penalties can become substantial very quickly.

Interest Charges

In addition to penalties, SARS charges interest on late payments. The interest rate is set by the Minister of Finance and is currently 10.25% per year (though this rate changes periodically).

Interest is calculated daily on the outstanding balance and compounds, meaning you pay interest on interest. Over time, interest charges can significantly increase your total debt.

When Penalties Are Imposed

Penalties and interest are applied automatically by the SARS system when returns are submitted late or payments are received after the due date. You don't receive advance warning, the penalties simply appear on your account.

For payments to be considered on time, the funds must reflect in SARS's bank account by the due date. This means you need to make payment with enough lead time for the bank transfer to complete. Making payment on the due date itself may result in late payment if the transfer doesn't complete same-day.

If a payment due date falls on a weekend or public holiday, payment must be made on the last business day before the weekend or holiday. Payments received on the Monday after a weekend due date are considered late.

Income Tax Payment Deadlines

For individual taxpayers and sole proprietors who file through eFiling, the payment deadline for any balance due on your annual income tax return is typically 31 January of the following year (for returns covering the tax year ending February of the previous year).

For taxpayers who file manually at a SARS branch, the deadline is typically the end of the month following the month in which the assessment is issued.

These deadlines apply to the final balance due after accounting for provisional tax payments made during the year. Provisional tax itself has separate deadlines, typically the end of August (for the first provisional payment) and the end of February (for the second provisional payment).

VAT Payment Deadlines

VAT payments are due by the same date as the VAT return submission. For monthly filers, this is typically the 25th of the month following the tax period. For bi-monthly filers, the deadline is the end of the month following the two-month tax period.

PAYE Payment Deadlines

PAYE payments must be made by the 7th of the month following the month in which the salaries were paid. For example, PAYE for salaries paid in January must be paid to SARS by 7 February.

Checking Your Specific Deadlines

Your specific payment deadlines appear on your assessments and in your eFiling account. If you're uncertain about when payments are due, check eFiling or contact SARS for clarification.

If you're behind on returns or payments, you have several options depending on your specific situation. The appropriate approach depends on whether you've submitted returns, whether you owe money, and whether you can afford to pay what you owe.

Scenario One: Returns Not Submitted

If you haven't submitted required returns to SARS, they don't yet know your full tax position. However, this doesn't mean you're safe from consequences. SARS can issue estimated assessments based on available information, and these estimates are often higher than your actual liability.

Immediate action required:

1. Gather your financial information - Collect all documentation needed to prepare accurate returns for all outstanding periods
2. Prepare and file outstanding returns - Submit all missing returns as quickly as possible
3. Pay any resulting liabilities - Once returns are filed and assessed, pay any taxes owed

The longer returns remain outstanding, the more penalties accumulate. Even if you can't pay immediately, filing the returns stops the non-submission penalties from continuing to grow and establishes your actual tax liability.

Professional accounting assistance is valuable in this scenario. Accountants can help you prepare accurate returns quickly, ensure you're claiming all appropriate deductions, and submit everything properly.

Scenario Two: Returns Submitted, Payment Due, Can Pay in Full

If you've submitted your returns and owe money but can afford to pay the full amount, the solution is straightforward: make the payment as soon as possible.

You can make payment through eFiling, at a SARS branch, or via electronic funds transfer (EFT) to SARS's bank account. When making payment, ensure you use the correct payment reference number (PRN) so SARS can allocate your payment to the correct tax type and period.

Even if the payment is late, paying in full stops further interest and penalties from accumulating. You'll still owe the penalties and interest that have already accrued, but the debt won't continue growing.

Scenario Three: Returns Submitted, Payment Due, Cannot Pay in Full

This is the most challenging scenario and the one where understanding your options is most important. If you owe SARS money but cannot pay the full amount immediately, you have two primary options: a payment arrangement or a compromise.

Option 1: Payment Arrangement

A payment arrangement (also called an instalment payment agreement) allows you to pay your tax debt in instalments over time rather than as a lump sum. This makes the debt more manageable whilst demonstrating good faith to SARS.

How payment arrangements work:

SARS will typically require you to pay a substantial portion of the debt upfront (often 30-40% or more) and then pay the remainder in monthly instalments over an agreed period. The specific terms depend on your circumstances and SARS's assessment of your ability to pay.

Applying for a payment arrangement:

To apply for a payment arrangement, you need to demonstrate to SARS that:

• You cannot pay the full amount immediately
• You have the ability to make the proposed instalment payments
• You're committed to compliance going forward

This requires providing detailed financial information, including:

• Financial statements (balance sheet and income statement)
• Cash flow projections showing expected income and expenses
• Bank statements
• Details of assets and liabilities
• Explanation of why you cannot pay in full

The application process is document-intensive and requires careful preparation. SARS will scrutinise your financial information to verify that you genuinely cannot pay in full and that the proposed payment plan is realistic.

Important considerations:

• Interest continues to accrue on the outstanding balance during the payment arrangement
• You must keep up with all current tax obligations while paying off the arrangement
• If you default on the arrangement, SARS can cancel it and demand immediate payment of the full balance
• Payment arrangements typically need to be completed within a reasonable timeframe (usually not more than a few years)

Option 2: Compromise of Tax Debt

A compromise involves offering to pay SARS a portion of your tax debt in exchange for them writing off the remainder. This is essentially asking SARS to accept less than the full amount owed.

When compromise might be appropriate:

Compromises are only considered in situations where:

• The business genuinely cannot pay the full debt
• Attempting to collect the full debt would likely result in business failure
• SARS would likely recover less through liquidation than through the compromise

Requirements for compromise:

Obtaining a compromise is difficult and requires extensive documentation proving that:

• The business is in financial distress
• The distress was not caused by the owner extracting funds from the business
• The owner has been funding business losses rather than causing them
• The business has viable prospects if the tax debt is reduced
• The compromise offer represents the best recovery SARS is likely to achieve

You'll need to provide:

• Detailed financial statements for multiple years
• Cash flow projections
• Business plans showing future viability
• Details of all assets and liabilities
• Explanation of how the financial distress arose
• Evidence that the owner has supported the business financially

Critical warning:

If SARS agrees to a compromise and you subsequently default on the agreed terms, the compromise is immediately cancelled and you become liable for the full original debt plus all penalties and interest. There are no second chances with compromises.

Scenario Four: Disputing the Assessment

If you believe SARS's assessment is incorrect, you have the right to dispute it. This might be appropriate if:

• SARS has made an error in calculating your tax
• You have deductions or credits that weren't properly accounted for
• SARS issued an estimated assessment that doesn't reflect your actual position

Disputes must be lodged within specific timeframes (typically 30 days from the date of assessment for a request for reasons, and then 30 days from receiving the reasons to lodge an objection). Missing these deadlines can forfeit your right to dispute.

Disputing an assessment doesn't suspend your obligation to pay. You must still pay the assessed amount by the due date unless you apply for and receive suspension of payment pending the outcome of the dispute.

Professional tax advice is essential when disputing assessments. Tax disputes involve technical legal and procedural requirements, and mistakes can be costly.

Establishing Proper Systems

The best way to avoid falling behind on SARS payments is to establish systems that ensure compliance happens automatically.

Modern cloud accounting software like Xero helps by:

• Maintaining accurate financial records that make tax return preparation straightforward
• Providing real-time visibility into your financial position so you can plan for tax payments
• Generating reports needed for tax returns
• Integrating with tax preparation software to streamline return filing

Setting Aside Funds for Tax

Many businesses fall behind on tax payments not because they're unprofitable, but because they spend the money before the tax payment is due. Establishing a separate bank account for tax and regularly transferring funds into it helps ensure money is available when payments are due.

A simple approach is to transfer a percentage of revenue into your tax account regularly (weekly or monthly). The percentage depends on your tax rate and business structure, but setting aside 25-30% of revenue is a reasonable starting point for many businesses.

Working with Professional Advisors

Professional accountants help ensure compliance by:

• Preparing accurate tax returns
• Advising on tax planning to minimise legitimate tax liability
• Reminding you of upcoming deadlines
• Helping you understand your tax obligations
• Representing you in dealings with SARS if issues arise

The cost of professional accounting services is typically far less than the cost of penalties, interest, and stress that result from non-compliance.

Understanding Your Obligations

Many compliance failures result from simply not understanding what's required. Take time to understand:

• What taxes your business needs to be registered for
• When returns are due
• When payments are due
• What records you need to maintain
• What deductions and credits you're entitled to

SARS provides extensive information on their website, and professional advisors can explain your specific obligations.

If you're currently behind on SARS payments, the most important thing you can do is take action now. The situation will not improve on its own, and delay only makes it worse as penalties and interest continue to accumulate.

Immediate steps to take:

1. Log into eFiling and review your account status for all tax types
2. Identify all outstanding returns and gather information needed to prepare them
3. Calculate what you owe including penalties and interest
4. Assess your ability to pay - can you pay in full, or do you need a payment arrangement?
5. Seek professional help if the situation is complex or you're unsure how to proceed
6. Take action - file outstanding returns, make payments, or apply for a payment arrangement

The stress of tax non-compliance is significant, but it's a solvable problem. Thousands of businesses have successfully addressed SARS debt and returned to compliance. With the right approach and professional support, you can do the same.

If you're behind on SARS payments and need help addressing your tax situation, we invite you to book a consultation with our team. We specialise in helping South African businesses resolve tax compliance issues, negotiate with SARS, and establish systems to prevent future problems.