Resolving SARS Debt

Resolving debt with SARS can be stressful and overwhelming. Our immediate response is to ignore the problem. But this quickly escalates the concern. In this article, are some steps that can help you solve those Final Demand letters and engage with SARS to resolve the debt.

Understand what caused the debt

Look at your SARS letter, notifying you of outstanding debt. Identify the tax number referred to in the letter. Is it for income tax, PAYE or VAT? Once the tax type is identified, request a SARS statement. Ask your tax practitioner to print out the statement for the tax type. Identify the period that caused the problem from the statement.

SARS Assessments

Check if a SARS Assessment was raised in the period. SARS sometimes rejects your submission or raises additional assessments. Print the report where the assessment was raised. Try to understand why the assessment was raised. If you can’t see the reason, or the SARS reason supplied on the assessment is limited, ask your tax practitioner to help identify the reason.

Request SARS Reasons

If the reason for an assessment cannot be determined, go to the tax return and Request Reasons. A taxpayer cannot object or accept a SARS assessment if the reason is not understood. The taxpayer normally has 21 days to Request Reasons. Identify the concern as early as possible. If you receive an email from SARS, check it as early as possible.

Object

You will either solve the reason, by submitting to the next period or if the reasons for assessments are incorrect, then object. Don’t rush into an objection. Identify the concern. Seek advice from a tax practitioner or a lawyer specializing in tax. Prepare Objection in a letter. Make sure you have all the supporting documents. Make sure the Objection is reasonable. Step back and consider the reasonableness of what you have written. Make sure it is not a desperate attempt remove the debt but that it agrees to credible accounting and is supported by proper records, including source documents. Then submit the objection. During the objection process, request a suspension of payment.

Establish the actual debt

We have often had SARS call stating that double the amount of debt is owed to them. On closer examination the actual debt to SARS is far less, and they are extrapolating future amounts due. Check the tax type statement and establish the real debt to SARS.

Liquidity

Liquidity is the biggest factor to consider when assessing SARS debt. In fact, when considering any debt, a business owner should always consider the liquidity of the business. If there are not enough current assets to settle the debt to SARS, you need to consider carefully the repayment terms. Current means paid within one year. If SARS is requiring you to settle the debt in three months, what current assets are available to settle the debt? Entering into a payment arrangement with SARS for a short period with insufficient current assets to settle that debt is negligent on the part of the owners/directors of the business. This could force the business into liquidation putting the employees, and other creditors both current and long term at risk. Consider sureties. Does the bank hold first surety on the business? This means the bank should be paid first. The implication of maximizing your overdraft to settle SARS debt, without the support of current assets to support the overdraft, is negligent.

If current assets cannot settle the SARS debt, one needs to consider a long-term strategy. Can assets be realized to resolve the debt without compromising the business’ ability to trade? How will these impact your existing sureties? If not, then a long-term payment plan needs to be considered.

Communicate with SARS

Communicating effectively with SARS is very important. Notify SARS as soon as reasonably possible. Acknowledge SARS letters as soon as possible. Let them know you are attending to their query.

Payment Plan

When you have determined the validity and accuracy of the debt and have confirmed the ability of the business to settle the debt, request a payment plan. The payment plan needs to be reasonable. It needs to sustain the liquidity of the business. The term of repayment must be as short as possible, allowing for any interest and penalties to be limited, but it must be affordable. Telling SARS you will settle the debt in three months when it is not possible to do so, is not helpful to either party. SARS needs to consider the liquidity of the business, as much as the owner. The National Credit Act demands reasonableness in settling debt.

Request a Compromise

A compromise will not absolve you from your duty to pay debt to SARS. A compromise is a reasonable request to SARS to reconsider the debt in the light of the liquidity of your business and the existing surety obligations of your business. Watch the SARS video below to understand better the compromise process.

Remember the best way to not be in debt to SARS, is to save and manage your business funds wisely. Pay SARS as and when debt is due. Query assessments early. Pay debt to SARS early. Ask your tax practitioner for help as early as possible.