SARS warning for these companies in South Africa

 ·9 Mar 2023

SARS has implemented late-submission penalties to all registered companies, including those that are dormant and not trading, says Neil Hobbs, the CEO of Hobbs Sinclair.

Hobbs warned that directors and entrepreneurs that continue to ignore the tax compliance of a dormant company would result in an unwelcome surprise from the South African Revenue Service (SARS).

A dormant company is a business entity registered with relevant authorities but not actively trading, generating income, or engaging in significant business operations.

According to Hobbs, last year, the taxman issued a notice stating that from 1 December 2022, administrative penalties will be charged for late submissions of income tax returns which are outstanding from 2007 to 2020.

“The additional consequence is these non-compliance penalties will continue to re-occur until the submission of the unpaid tax returns.”

“The penalties accrue monthly and are based on the estimated taxable income available to SARS, ranging from R250 to R16,000 per month and remain due to SARS for payment even after the submission of the tax returns,” said Hobbs.

He said that for any dormant company that has not traded for a handful of years and is behind on submitting tax returns, the tax authority would likely implement a penalty based on the most recent tax return received.

A best-case scenario could lead to a R250 per month fine, back-date and accumulated.

“A quick calculation shows that a company that has been dormant for 35 months (as per the penalty) and has not submitted income tax and VAT returns will have incurred minimum administration penalties of R18,000 for income tax and R120,000 for VAT, respectively,” Hobbs said.

These penalties can vary heavily; the CEO said that in one case, a new client of theirs received a notification from the revenue service that a penalty for a dormant company that they neglected had reached over R175,000.

“De-registration of the company will not cancel the tax obligation, and the longer you wait, the worse it’s going to get,” he said.

Hobbs said that directors and business owners should check with the Companies and Intellectual Property Commission (CIPC) about which companies they are directors of and instruct their tax practitioners to conduct a tax status compliance check to ensure that such companies’ tax affairs are in order.

Obtaining a tax clearance certificate would confirm this, he added.

SARS has been ramping up its measures to crack down on non-compliant taxpayers, and the proof is in the pudding, with tax revenue collections up from R1.2 trillion in 2017.18 to R1.56 trillion in 2021/22.

During his latest budget speech, finance minister Enoch Godognwana said: “The improvement in revenue is due to the higher collection in corporate and personal income taxes and in customs duties. This partially offset the lower value-added tax estimates.”

Hobbs said that the “writing is on the wall and a complete scrubbing of the decks is required” for a taxpayer to ensure that they are fully compliant.

Read: Not even your bank account is safe from SARS

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