Short answer
If you owe SARS, interest and penalties are added to the debt and SARS can take steps to collect it — including instructing a third party, such as your bank, to pay over funds. Acting early, checking the debt is correct and engaging SARS with a realistic proposal gives you the most options.
How a SARS debt arises
A tax debt arises when tax is assessed but not paid by the due date. It can come from income tax, VAT, employees’ tax or other taxes, and from assessments issued after a return, a verification or an audit.
Debts often build up gradually — a missed payment during a difficult month, a VAT return filed without the payment, or an additional assessment the business was not expecting.
How interest and penalties add up
Once a payment is late, the debt usually grows through:
- Interest on the outstanding balance, which continues to run until the debt is paid.
- Penalties for late payment and, in some cases, for late or missing returns.
This is why a debt left unattended can become significantly larger than the original tax.
What SARS can do to collect
SARS has strong collection powers. Depending on the circumstances, these can include:
- Issuing letters of demand with short deadlines.
- Instructing a third party, such as your bank, an employer or a client, to pay money owed to you over to SARS.
- Offsetting refunds due to you against the debt.
- Taking legal steps to recover the debt.
Important: a non-compliant tax status caused by debt can also stop you obtaining a TCS PIN for tenders and contracts.
Your options
Businesses that owe SARS usually have more options than they expect, especially if they act early:
- Check the debt is correct. Errors happen, and part of the debt may be open to objection.
- Pay in instalments. A payment arrangement may allow you to settle the debt over time.
- Request a compromise. In limited circumstances, SARS may accept less than the full amount through a debt compromise.
- Get compliant. Filing outstanding returns strengthens any proposal you make.
What to do now
- Do not ignore SARS correspondence — note every deadline.
- Get your latest statement of account and check it against your records.
- File any outstanding returns.
- Work out what the business can realistically afford.
- Speak to an advisor before responding, so your proposal is realistic and complete.