With SARS on the brink of appointing external debt collectors, it is just a matter of time before these skilled professionals find the errant taxpayers and start collection proceedings on their terms. It would be wise to avoid this and approach SARS with the intention of working with them to settle any debt.
There are two options available to taxpayers that are indebted to SARS and who cannot settle the debt in its entirety. The first is a deferred payment arrangement and the other is a compromise. Either way, both options are certainly better than ignoring the debt and hoping it will go away.
Deferred payment
This is an arrangement that a taxpayer enters because they do not have the cash flow to immediately pay SARS in full. Instead of just not paying and incurring penalties and interest, the taxpayer signs an agreement with SARS to extend the payment period so that it is more manageable. The repayment usually takes the form of equal monthly instalments for a certain period until the debt is repaid. It is important to note that the debt is not waived, but that the taxpayer has a longer time to pay it off.
For a deferral agreement the taxpayer must show:
- They suffer from a lack of assets or liquidity which is expected to be remedied in the future
- Future revenue sources that can be used to satisfy the tax debt
- Prospects of immediate collection activity are poor or uneconomical or unlikely to improve
- That any collection activity would jeopardise the taxpayer’s chances of economic survival
Additionally, the taxpayer will be required to submit all outstanding returns in order to meet compliancy requirements, and possibly provide security.
If the taxpayer defaults on a deferral agreement SARS will consider the contract null and void, and will reinstate the penalties and interest, with immediate collection processes implemented.
Compromise
On the other hand, a compromise is an agreement where SARS waives some or all the tax debt owed by the taxpayer. This option is only applied under rare circumstances and a compromise agreement is only entered into when a taxpayer is in a dire situation, or SARS believes they may not get any of the debt if they do not strike while the iron is hot. If a compromise agreement is reached, SARS will ordinarily waive the penalties and interest.
For a compromise the taxpayer must show:
- The fair value of their assets
- Description of any prospects and transactions
- The monetary value of any future right they will forgo
- Details of any connected parties to them as the taxpayer
SARS will also consider both the taxpayer concerned and whether a person in their fiduciary capacity could be liable for such taxes (directors beware).
If a compromise agreement is a suitable arrangement, a senior SARS official and the taxpayer / public officer will enter into an agreement setting out the following conditions:
- The amount payable by the taxpayer in full settlement of the tax liability
- An undertaking by SARS to cease recovery proceedings of the tax owing
- Any other terms and conditions of the compromise
It is imperative that taxpayers make detailed and honest disclosures to SARS during the negotiation process. This is a once-off opportunity to compromise with SARS and any perceived dishonesty or non-disclosure could result in cancellation of the agreement. This will have dire consequences for the taxpayer as the full debt plus penalties and interest would immediately be reinstated.
Taxpayers owing SARS money have options, so there is no excuse for burying your head in the sand. These options have their pros and cons, and it would be prudent for the indebted taxpayer to consult with an experienced tax practitioner to walk through the options to see what the best fit is. Once in the spotlight, the taxpayer is at the mercy of SARS, so it is imperative that the right option is chosen from the beginning.
Chat to one our tax experts today for more information.