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Help! Our provisional tax debit bounced... How can I avoid paying the penalties?

by , 05 August 2016
Help! Our provisional tax debit bounced... How can I avoid paying the penalties?We received this call for help a few weeks ago, from a company (we'll call them XYZ Trading).
XYZ's financial and tax year end is the last day of December each year.

In December 2015, XYZ Trading's Financial Manager - Ted Jones - sat with the bookkeeper, to finalise the arrangements for the payment of the company's VAT and its provisional taxes. He wanted to make sure that everything would run smoothly while he was on leave. But it didn't.

Here's what happened

How XYZ Trading got into trouble with SARS


The provisional tax amount of R3 million would be placed into the company's cheque account, so SARS could debit this amount by the due date of 31 December 2015. The VAT due, an amount of R350 200, would also be paid over to SARS.

What he and his bookkeeper hadn't realised is the company's VAT would be debited from the cheque account before 31 December 2015. Which means there were insufficient funds left for the debit of provisional tax….

It was only when Mr Jones came back to work on 10 January 2016, that he picked up the error. SARS had considered the provisional payment unmade. And slapped XYZ Trading with a penalty of R300 000! PLUS interest of R2 342.46!

Here's how they got out of paying the penalties…

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What you can learn from the advice we gave Mr Jones

XYZ had intended to pay the VAT AND the provisional tax to SARS. But it was a transaction error that landed them on the wrong side of the taxman!

We advised XYZ to pay up the interest (tough luck!) that same day. And then write SARS a detailed letter, explaining the error and proving that it had both intended to make payment and had made the funds available.

It worked! SARS scrapped the penalty amount! 

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