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Do you owe SARS money and can't afford to pay? Here's how to get out of it

by , 27 November 2014
In these hard economic times, you may not be able to cover all your expenses. And this means you might not have the money to pay over your taxes to SARS for a few months. Before you know it, you have a massive tax debt and no hope of recovering from it.

Since you know you can't afford to pay SARS that money, what do you do?

The good news is there's a way to make a deal with SARS that takes the pressure off your business in this situation. It's called a tax debt compromise and it could save your company from devastating tax issues.

Here's how it can help you...

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Here's everything you need to know about a tax debt compromise

A tax debt compromise means SARS treats your debt as no longer due and payable. SARS might treat all or part of your debt in this way depending on your financial situation.
If you have an outstanding tax debt you can apply for a tax compromise. This applies to individuals, companies, close corporations, trusts, partnerships, co-operatives and non-profits.
But  SARS will give you the tax compromise if you  legitimately can't pay your tax debt, and won't be able to pay it in the near future (within 12 months). You can't use it to get out of paying their taxes just because your bank account is on the empty side this month. Or you need to spend money they do have on other things like pay your employees.
If you legitimately can't pay your tax debt, you can apply for a tax compromise at any time during a tax year. You should do so as soon as you realise you can't pay any outstanding tax debt to SARS.
The compromise can cover:
1) Actual tax you owe SARS;
2) Penalties you owe SARS; and
3) Interest you owe SARS.
But there are only two situations when SARS will actually consider and grant you the compromise.
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Here are the two situations when SARS will grant you a tax debt compromise

1) The outcome of the compromise will result in SARS securing the highest net return on recovery of the tax debt.
The highest net return is SARS' way of ensuring it gets as much money into its bank account as possible.
This means SARS won't just look at the monetary value on the date it receives your application, it will also look at:
Possible detrimental economic consequences (e.g. If SARS denies you the compromise and liquidates your business, then 50 of your employees will be unemployed);
Potential for future tax being paid (e.g. You've had a tough four years, but have a number of lucrative contracts that will bring in a lot of money over the next five years, and your business will pay a lot of income tax);
Costs of the other options available to recover the tax debt (e.g. SARS could liquidate your company to try and get its money that way, but it realises the costs of liquidation will exceed the benefit from liquidation);
Timeframe of collection (e.g. SARS will collect some of the debt sooner through a compromise than if it undertook a lengthy court battle); and
Abandonment of tax benefits (e.g. Instead of fighting for payment, SARS can abandon an assessed loss you might have so you can't deduct this from future taxable income).
2) The compromise, if SARS agrees to it, is consistent with good management of the tax system and is administratively efficient. 
So apply for a tax debt compromise if you can't pay your tax debt and prove that these two situations apply. It might save your company from financial disaster and liquidation.
For more information on applying for a tax debt compromise, check out the Practical Tax Loose Leaf Service

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Do you owe SARS money and can't afford to pay? Here's how to get out of it
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