My Company Cannot Pay SARS – What Are My Options?
When a company cannot pay SARS, it does not necessarily mean that the business must immediately close or be liquidated. The first question is whether the company is experiencing a temporary cash-flow problem or whether it has reached the point where it can no longer realistically pay its debts.
A business that is still viable may be able to negotiate its SARS debt, enter into a payment arrangement or, in certain circumstances, apply for a compromise.
However, if the company cannot pay SARS together with its other creditors and there is no realistic prospect of recovery, continuing to accumulate debt may simply make the problem worse. Understanding the available options early can make a significant difference.
What Should I Do If My Company Cannot Pay SARS?
The first step is to establish exactly what the company owes. Check that all tax returns and reconciliations have been submitted and determine whether the SARS balance is correct. This may include VAT, PAYE, income tax or other registered tax obligations.
It is important not to ignore SARS correspondence simply because the company cannot afford to pay the amount demanded. Once the actual liability has been established, the next question is whether the company can realistically repay it.
Can My Company Make a Payment Arrangement With SARS?
If the business is fundamentally viable but experiencing temporary cash-flow difficulties, a payment arrangement with SARS may be an option. This allows qualifying taxpayers to repay outstanding tax debt over an agreed period rather than settling the entire amount immediately.
A payment arrangement makes sense where the company can continue paying its normal operating expenses and current tax obligations while also making the agreed payments towards the outstanding SARS debt. The important word is affordability.
Agreeing to a payment arrangement that the company cannot realistically maintain may only postpone the problem while interest and other liabilities continue accumulating.
Can SARS Reduce or Compromise Company Tax Debt?
In certain circumstances, a company may be able to apply to SARS for a compromise of its outstanding tax debt. A compromise is different from simply asking for additional time to pay. SARS will consider the financial circumstances of the taxpayer and requires detailed information before deciding whether a compromise is appropriate. It should therefore not be viewed as an automatic way of reducing SARS debt. Where the business remains viable but historic tax debt has become difficult to resolve, it may nevertheless be worth investigating whether a compromise or structured repayment arrangement is available.
What If the Company Disagrees With the SARS Debt?
There is an important difference between a company that cannot pay SARS and a company that believes the SARS assessment itself is incorrect. If the amount is disputed, the appropriate solution may involve the SARS objection or dispute process rather than insolvency.
Depending on the circumstances, it may also be possible to apply for a suspension of payment while a dispute is being dealt with. Before deciding how to deal with the debt, you therefore need to establish whether the problem is affordability, the correctness of the assessment, or both.
What Happens If My Company Simply Ignores SARS Debt?
Ignoring SARS debt is rarely a solution. Outstanding tax debt does not disappear because the company cannot afford to pay it. SARS has various collection mechanisms available to recover outstanding amounts, and continued non-payment can place increasing pressure on the company.
This is why directors should address the problem while there are still options available.
If the business can recover, the objective should be to find a sustainable way of resolving the SARS liability. If it cannot recover, the focus should change to resolving the company's insolvency rather than continually trying to keep an unsustainable business alive.
When Should I Consider Liquidating a Company That Owes SARS?
Liquidation may become appropriate when the problem extends beyond a temporary shortage of cash. For example, the company may owe SARS, suppliers, landlords, employees, banks or other creditors and no longer generate enough income to meet these obligations.
At that point, entering into another payment arrangement may simply move the problem from one month to the next.
Liquidation provides a formal process through which the affairs of an insolvent company can be brought to an end. A liquidator is appointed to administer the company, deal with creditor claims and attend to the outstanding affairs of the insolvent estate.
SARS is then dealt with as part of that formal insolvency process together with the company's other creditors. Where significant SARS liabilities exist, it is particularly important that the liquidation is properly structured and that the appointment of the liquidator is dealt with correctly.
Payment Arrangement or Liquidation – Which Is Right for My Company?
The correct solution depends on why the company cannot pay SARS. If the business is profitable and the problem is temporary, a SARS payment arrangement may provide the breathing room needed to recover.
If the SARS assessment is incorrect, the appropriate dispute process should be investigated.
If the company remains viable but is carrying historic tax debt, a payment arrangement or compromise may be worth considering.
However, if the company can no longer pay SARS together with its other debts and there is no realistic prospect of recovering financially, liquidation may provide a structured way to resolve the company's liabilities and bring the business to an end. The important thing is not to wait until SARS or another creditor makes the decision for you.
Get Clarity Before You Decide
If your company owes SARS and you are unsure whether the business can recover, Solvendi can assess the company's financial position and explain the available options. The objective is not to liquidate a business that can reasonably be saved. It is to determine whether the debt can realistically be resolved or whether continuing to trade will simply increase the company's liabilities.
Contact Solvendi for a confidential assessment of your company's financial position and a clear explanation of the options available.
Disclaimer: This article is intended for general informational purposes only and should not be regarded as legal advice. The appropriate solution will depend on the company's particular financial position, tax affairs and liabilities. Professional advice should be obtained regarding your individual circumstances.
Contact us to discuss your current situation and receive a free detailed assessment of how the process works and what your costs will be. We have legal experts with 20 years experience that can guide you through the process. Our main aim is to be as informative as possible. Let's Chat.
If you require advice with regards to Sequestration, Business Liquidations, Insolvency, Bankruptcy or Credit Rehabilitation kindly contact SOLVENDI as follows:
National: 087 220 0710
Head Office: 010 880 7589
Email: consultations@solvendi.co.za
Website: www.solvendi.co.za
Comments