Most business owners don’t set out to become tax non-compliant.
It usually happens gradually.
A VAT return is missed because records are not up to date. A corporate income tax return is delayed because the accountant left. PAYE submissions fall behind during a busy period. Before long, the company finds itself in a difficult position with SARS.
Many directors only realize there is a problem when they need a Tax Compliance Status (TCS) Pin, apply for funding, submit a tender, or receive a letter from SARS.
So, what actually happens when a company becomes tax non-compliant?
The answer may surprise you.
What Does Tax Non-Compliance Mean?
A company is generally considered tax non-compliant when it fails to meet one or more of its tax obligations.
Examples include:
- Outstanding Income Tax Returns
- Outstanding VAT Returns
- Outstanding PAYE Returns
- Unpaid tax liabilities
- Incorrect tax submissions
- Failure to register for taxes when required
- Failure to respond to SARS correspondence
Tax compliance is not simply about paying tax. It is about meeting all of your company’s obligations under tax legislation.
The First Consequence: Loss of Tax Compliance Status
One of the earliest consequences of non-compliance is the loss of your company’s tax compliance status.
This may seem insignificant at first, but it can have a major impact on your business.
Without a compliant tax status, your company may struggle to:
- Apply for tenders
- Secure government contracts
- Obtain business funding
- Enter into supplier agreements
- Demonstrate credibility to stakeholders
For many companies, this is the first warning sign that something is wrong.
SARS May Impose Penalties and Interest
When tax returns are submitted late or tax liabilities remain unpaid, SARS may impose penalties and interest.
These charges can accumulate over time and significantly increase the amount owed.
A relatively small compliance issue can become a major financial burden if it is not addressed promptly.
The longer the problem remains unresolved, the more expensive it can become.
SARS May Issue Estimated Assessments
If SARS does not receive the required tax returns, it may issue estimated assessments.
These assessments are based on information available to SARS and may not accurately reflect the company’s actual financial position.
As a result, businesses can find themselves assessed for taxes that exceed their true liability.
Correcting estimated assessments often requires professional assistance and the submission of outstanding returns.
Increased Risk of a SARS Audit
Non-compliant companies may face greater scrutiny from SARS.
While any taxpayer can be audited, businesses with compliance issues often expose themselves to additional risk.
During an audit, SARS may request:
- Financial statements
- Accounting records
- Bank statements
- VAT documentation
- Payroll records
- Supporting documentation for deductions and expenses
Businesses with poor record-keeping practices often struggle during this process.
SARS May Begin Debt Collection Processes
Where tax debt exists, SARS has legal mechanisms available to recover outstanding amounts.
These processes may include:
- Final demand notices
- Third-party appointments
- Collection actions against bank accounts
- Other debt recovery procedures permitted by law
Many business owners underestimate how quickly a compliance problem can become a collection problem.
Non-Compliance Can Affect Business Growth
Tax compliance is often viewed as an administrative requirement.
In reality, it is a business growth requirement.
Many opportunities require proof of compliance, including:
- Government tenders
- Corporate supplier registrations
- Business loans
- Investor funding
- Strategic partnerships
A company that is not tax compliant may find itself locked out of opportunities that could help it grow.
Directors Face Additional Pressure
Directors are responsible for ensuring that the company meets its legal obligations.
Tax non-compliance can create significant operational and financial risks for the business.
For this reason, compliance should not be treated as an afterthought. It should be a core part of the company’s governance and financial management processes.
How to Check Whether Your Company Is Tax Compliant
If you are unsure about your company’s compliance status, consider reviewing:
- Outstanding tax returns
- Outstanding tax debt
- VAT obligations
- PAYE obligations
- SARS correspondence
- Tax Compliance Status (TCS)
Many businesses discover hidden issues during a comprehensive compliance review.
How to Restore Tax Compliance
The good news is that most tax compliance issues can be corrected.
The process typically involves:
1. Identifying Outstanding Obligations
Determine which returns, registrations, or payments are outstanding.
2. Updating Accounting Records
Ensure financial records are complete and accurate.
3. Submitting Outstanding Returns
Bring all required tax submissions up to date.
4. Addressing Tax Debt
Review available options where tax liabilities exist.
5. Implementing Ongoing Compliance Systems
Create processes to ensure future compliance obligations are met on time.
Prevention Is Better Than Correction
Restoring compliance is possible.
Maintaining compliance is far easier.
Businesses should implement systems for:
- Monthly bookkeeping
- Tax compliance monitoring
- Payroll administration
- Record keeping
- Annual tax planning
These systems help prevent small issues from becoming costly problems.
How Next Generation Accountants Can Help
At Next Generation Accountants, we help South African companies get compliant and stay compliant with SARS.
Our services include:
- Tax Compliance Reviews
- Outstanding Tax Returns
- VAT Compliance
- PAYE Compliance
- Tax Debt Assistance
- Bookkeeping Services
- Tax Compliance Status Restoration
If you are unsure whether your company is tax compliant, now is the time to find out.
The earlier compliance issues are identified, the easier they are to resolve.
Need a Compliance Health Check?
Contact Next Generation Accountants today and let us help you assess your company’s tax compliance status before SARS identifies the problem for you.
