What Happens If You Owe SARS Money
Where a tax debt is rightfully due to SARS, the Debt Management Division will formally engage the defaulting taxpayer. The usual methodology followed is the issuance of a Final Letter of Demand, setting out the amount owed and providing only 10 business days for the taxpayer to pay-up, or face the collection consequences.
If a taxpayer fails to comply, SARS can appoint third parties to recover the tax debt from the taxpayer, whether through civil judgments and execution, or deductions made directly from the taxpayers’ bank accounts – yes, you read that correctly. Third-party appointments force the appointed parties to recover the tax debt on behalf of SARS, including banks and financial institutions.
The Letters of Demand, however, do make mention of certain mechanisms available to a taxpayer to resolve their tax debt and, while some may be comfortable to explore these avenues on their own, this is where a steady and experienced hand is recommended to guide the taxpayer through the process and assist with taking the best steps available to them.
What Options Are Available To Resolve Tax Debt
Where a taxpayer simply cannot afford to settle their tax debt, it is crucial that the taxpayer approaches SARS in the legally correct manner, to successfully request the appropriate debt relief from SARS.
Taxpayers who find themselves in this situation, anticipating only coal in their Christmas stockings, do have solutions available to them, but none so favourable as an application for a compromise of tax debt (“the compromise”), which SARS have, in recent times, become more amicable toward, showing great compassion for the financially constrained taxpayer.
Compromise of Tax Debt
To successfully compromise on the tax debt, the taxpayer needs to show current financial hardship, together with an estimation of their net worth. It must, however, be borne in mind that prior lavish spending could be a kink in the armour SARS needs to decline the initial proposal and request quite a drastic increase in the settlement amount, including the write-off of interest and penalties which have been attributed to the capital amount owed. The taxpayer then offers to settle (in part or in full) the capital amount owed to SARS, either by lumpsum or instalment payments. This proposal, when accepted by SARS, must be reduced to writing.
It is also important to note that a compromise can be applied to any form of tax debt and across all tax types, be it Personal or Corporate Income Tax, VAT and/or PAYE, and regardless of whether it is for an individual, trust or company. There is relief available to all taxpayers who qualify for the compromise of tax debt.
Payment Arrangements With SARS (Deferral of Payment)
Taxpayers that do not satisfy the requirements for a compromise but cannot afford to settle a tax debt in a lump sum payment, still have the option to apply and enter into a payment arrangement with SARS, which is known as a deferral of payment. This is where the taxpayer applies to SARS, subject to certain conditions, for a payment agreement in which the taxpayer can settle the outstanding amount over monthly instalment payments over time.
This is an attractive option to many taxpayers, as it lessens the burden and reduces a large number that is expected to be settled immediately, to one that is manageable and paid in monthly instalments which are convenient to the taxpayer and SARS.
With a payment arrangement, most notably, there is no write-off of interest and penalties, and the entire amount is settled with monthly instalments.
Be Proactive – Not Reactive
Through these carefully negotiated solutions, there is the possibility of a fresh start — a fair and balanced outcome that recognizes the taxpayer’s situation and provides the breathing room necessary to regain financial stability. Approaching SARS correctly and legally can make all the difference, turning a seemingly insurmountable tax debt into a workable and mutually beneficial settlement for both parties.
As a rule of thumb, any and all correspondence received from SARS should be immediately addressed by a qualified tax specialist or tax attorney. This approach will not only serve to safeguard the taxpayer against SARS implementing collection measures, but also being specialists in their own right, the taxpayer will be correctly advised on the most appropriate solution to ensure their tax compliance.
It is recommended that a request for compromise be made in a proactive manner, even before a Letter of Final Demand is received, rather than waiting for SARS to come knocking at your door.
