Tough times? You must still pay your Vat!
Tax Bulletin | 9 April, 2009 | Hot Topics:
When times are hard, small businesses are often tempted to hold back their Vat returns (VAT 201) and not pay the Vat due to SARS - my advice is don't do it. It's far too costly!
Firstly, if your Vat is due on the 25th or at the end of the month, you incur a 10% penalty for being late – like interest at the rate of 120% a year. You can ask SARS to let you off, but once you've been late a few times, they won't!
Secondly, once the new month starts, you’ll be charged interest at about 1.2% per month for the month, or part thereof. So if your Vat is due on 25 March, and you pay it on 2 April, you’re still charged a 10% penalty plus 1.2% interest. On a R20 000 Vat payment, that’s a whopping R2 240 for a 6-day loan!
What makes matters worse is that SARS doesn’t consider penalties and interest on the late payments of taxes a business expense that qualifies as a deduction for income tax purposes.
Tip: If you arrange an overdraft with your bank to overcome your cash flow difficulties, you will pay far less and not have the tax deduction denied. Using a R20 000 facility with your bank for 6 days will cost you only R49 - a saving of R2 191.
Finally, once you make a number of late payments, you build up a bad record with SARS which it will use you in an audit.
4 tips to help you if you’re late with your Vat payments:
1. Pay the Vat for the current tax period (avoiding the 10% penalty) and then pay off the arrears. Make a different arrangement with SARS.
2. If you are late, don't pay at the beginning or in the middle of the month - pay just before month end. Interest on Vat is calculated per month
3. Remember, if you don't send the Vat returns in, you could be summoned to court and fined.
4. If you’re really in the fix, set out your problem in a letter, and go and see SARS before the Vat is due - you might get off the penalty.
Remember: There are circumstances in which SARS won’t charge you penalties or interest even where you’re late. For a list of these exceptions, turn to page P01/09 of your Practical Vat Handbook.
Peter Franck
Editor in Chief
The Practical Vat Handbook
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Editors note
Fulvia Stoltz
Tax Bulletin Editor
The Tax Bulletin is packed full of tax tips, commentary on changes to the tax landscape and is also an interactive tax forum which aims to help you efficiently manage your taxes and avoid all the traps. It is also a handy reminder of the deadlines which taxpayers have to meet.