Can SARS Hold a Director Personally Liable for Company Tax Debt?

When a company owes money to SARS, one of the first concerns may be whether a director can be personally liable for company tax debt. The starting point is important: company tax debt does not automatically become the personal debt of a director. A company is a separate legal entity.

Businesses can experience genuine financial difficulty for many reasons. They may lose important clients, suffer bad debts, experience declining turnover or simply reach a point where there is no longer enough money to pay SARS, employees, landlords, suppliers and other creditors.

A director who honestly cannot pay company tax because the business has become financially distressed is very different from a director who deliberately removes assets, hides money, diverts funds or structures transactions to prevent SARS from recovering tax. However, South African tax and company legislation does provide circumstances in which SARS, a liquidator or a court can investigate the conduct of directors and other parties and, in appropriate circumstances, pursue personal or third-party liability. This is why obtaining professional advice before liquidating a company that owes SARS money can be extremely important.

The examples below identify circumstances that could potentially create personal liability or require further investigation. They do not mean that personal liability will arise in every case. The facts, intention, timing and applicable legislation must be considered individually. If you are uncertain about your position, obtain advice from a reputable insolvency practitioner, law firm or corporate attorney before moving money, assets or business operations between companies.

When Can SARS Hold a Director Personally Liable for Company Tax Debt?

Section 180 of the Tax Administration Act provides for personal liability where a person controls or is regularly involved in managing the overall financial affairs of a taxpayer and that person's negligence or fraud resulted in the failure to pay the tax debt.

This means the enquiry is not simply: Does the company owe SARS money?

The circumstances surrounding the non-payment and the conduct of the people controlling the company's financial affairs are important. There is a significant difference between a director who cannot pay SARS because the company has genuinely run out of money and a director who consciously manipulates the company's financial affairs to prevent SARS from recovering what is due.

PAYE Deducted From Employees but Not Paid to SARS

PAYE deserves particular attention because the company deducts employees' tax from remuneration and is required to pay the amount deducted or withheld to SARS. A financially distressed company may reach a point where it simply does not have enough money to meet all of its obligations. The existence of PAYE arrears does not, by itself, establish that a director should be personally liable.

The position becomes more serious where PAYE continues to be deducted from employees but those funds are consciously not paid to SARS and are deliberately diverted elsewhere, particularly where this continues over an extended period. The director's conduct, the financial circumstances of the company and the reasons for the non-payment would therefore need to be considered.

Moving Company Assets Before Liquidation

Directors sometimes believe that because they own or control a company, they can move its assets somewhere else before placing the company into liquidation. That can create serious problems.

For example, Company A owes SARS a substantial amount. Before liquidation, its equipment, stock or other valuable assets are transferred to Company B, which is controlled by the same director or a family member.

A legitimate sale at proper market value where the proceeds remain available to Company A is very different from deliberately transferring assets for little or no consideration so that SARS and other creditors cannot recover against them.

The Tax Administration Act contains specific provisions dealing with assets transferred to connected persons for no consideration or below fair market value, as well as people who knowingly assist in dissipating assets to obstruct collection of tax debt. The important distinction remains why the transaction occurred, what value was received and what happened to that value afterwards.

Loans Between Companies Can Also Be Assets

A company does not need to physically possess cash, property or equipment for an asset to exist.

Consider this example: Company A lends Company B R500,000. Company A later becomes insolvent and owes SARS money.

The R500,000 owed by Company B remains an asset of Company A. A liquidator may investigate and potentially recover that loan for the benefit of Company A's creditors. A problem may arise where the people controlling the companies consciously attempt to make that asset disappear before liquidation. This could include improperly writing off the loan, transferring the claim, forgiving the debt without a legitimate commercial reason or deliberately structuring transactions so that Company B retains the money while Company A is left with the SARS debt. This is not merely theoretical.

In Commissioner for SARS v Wiese and Others, SARS pursued a claim under sections 183 and 184 of the Tax Administration Act involving the alleged dissipation of a loan claim worth R216.6 million. SARS alleged that the defendants knowingly caused or assisted in causing the taxpayer to dissipate the loan claim in order to obstruct the collection of tax debts.

The facts of every case are different, but the principle is useful: an inter-company loan can be a valuable company asset and cannot simply be ignored because the company is going into liquidation.

Liquidating One Company and Continuing Through Another

Starting another company after a business has failed is not automatically unlawful. A director may legitimately start another business, work for another company or become involved in the same industry again. The concern arises where a company owing SARS is deliberately emptied of its value and the viable part of the business is moved elsewhere.

For example: Company A owes SARS substantial tax. Before liquidation, its equipment, stock, customer contracts, debtors or other valuable assets are moved to Company B for little or no proper consideration. Company B operates from the same premises, provides the same services and continues the business, while Company A is liquidated with the SARS debt left behind.

The fact that two companies have the same director, related directors, similar names or operate from the same premises does not automatically establish wrongdoing. What matters is what was transferred, why it was transferred, what consideration was paid and whether the transaction was deliberately structured to place assets beyond the reach of creditors.

A director should therefore obtain advice before transferring a financially distressed company's assets or operations into another entity.

Can SARS Pierce the Corporate Veil?

The principle of separate corporate personality normally protects directors and shareholders from automatically becoming responsible for company debts. However, that protection is not absolute.

Section 20(9) of the Companies Act allows a court, in appropriate circumstances, to disregard a company's separate juristic personality where the use of that juristic personality constitutes an unconscionable abuse. This is commonly referred to as piercing the corporate veil.

South African courts have made it clear that this is not something that happens merely because a company has failed or owes creditors money. The enquiry concerns much more serious misuse of the company structure.

The Constitutional Court considered section 20(9) in Centaur Mining South Africa (Pty) Ltd v Moodliar N.O. and Others in 2026. The case reinforces that the remedy concerns unconscionable abuse of separate corporate personality and depends on the facts of the particular matter.

SARS also has specific remedies under the Tax Administration Act and does not necessarily need to rely upon piercing the corporate veil to pursue another person for liability.

Shareholders or Connected Persons Receiving Company Assets

Directors are not the only people who may face scrutiny. The Tax Administration Act also contains provisions dealing with shareholders receiving company assets in certain winding-up circumstances and connected persons receiving assets without consideration or for less than fair market value. This becomes particularly important in owner-managed businesses where the director, shareholder, spouse, family members and related companies may all be connected. Again, being related to the director does not itself create liability. The concern is where company value is consciously transferred away while the company is left unable to satisfy its tax obligations.

What About UIF That Was Deducted From Employees?

UIF requires contributions from both employer and employee. The employee contribution is deducted from remuneration and, together with the employer contribution, must be paid to the UIF or SARS, depending on the applicable payment arrangements. Failure to pay UIF can therefore create consequences beyond the company's ordinary commercial debts.

It should not, however, simply be treated as another example of SARS pursuing a director personally for company tax. UIF involves its own statutory and enforcement framework, and matters may also involve the Department of Employment and Labour and the Unemployment Insurance Fund. Where employee deductions have been made but not paid over, directors should obtain advice rather than assuming liquidation automatically resolves every possible consequence.

Genuine Financial Failure Is Different From Deliberate Conduct

This distinction is perhaps the most important part of the discussion. A company may owe SARS substantial amounts and still have reached that position through genuine financial difficulty. The existence of SARS debt does not automatically mean that the director acted fraudulently, negligently or improperly. Directors who are concerned about other circumstances in which company debt may become their personal responsibility can also read Can a Creditor Claim Company Debt From a Director Personally?

The questions become more serious where there is evidence that a director or another person consciously:

• removed or concealed company assets;

• transferred assets for substantially less than their proper value;

• diverted funds or assets to connected companies or family members;

• caused legitimate company loans or debtors to disappear;

• knowingly assisted with dissipating assets to obstruct SARS;

• deliberately withheld PAYE or other statutory amounts; or

• used another company or corporate structure to conceal assets or frustrate legitimate recovery.

Even then, the precise facts and the applicable statutory requirements must be established. Personal liability should not simply be assumed.

Get Advice Before Liquidating a Company That Owes SARS

Directors sometimes wait until liquidation has already become unavoidable before seeking advice. Where SARS is a significant creditor, earlier advice can be particularly valuable. Transactions between related companies, director or shareholder loan accounts, asset transfers, PAYE arrears, VAT obligations and payments to connected persons should be properly considered before liquidation documentation is submitted.

The purpose is not to frighten a director whose company has genuinely failed. It is to identify potential problems before decisions are made that may unnecessarily expose the director or another person to investigation or personal liability.

A company that cannot pay SARS is not the same thing as a director deliberately preventing SARS from being paid. Understanding which situation applies to your company is an important part of deciding how and when to proceed with liquidation.

Contact Solvendi for a confidential assessment of your company's financial position. Solvendi can assess the circumstances surrounding the company's financial distress and explain the liquidation process and the issues that should be considered before proceeding. This information is provided for general informational purposes and should not be regarded as legal advice. Where personal liability, disputed transactions or potential director misconduct may be involved, appropriate legal advice should be obtained.

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.

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