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If you're battling with tax debt, you need to know these four things about a tax debt compromise

by , 19 September 2014
The tough economy is taking its toll on companies.

The reality is that many companies are battling with debt and can't afford to make payments.

If you're one of these companies and you owe SARS money, there's a silver lining: A tax debt compromise.

Here are four things you need to know about a tax debt compromise if you're in financial distress.

Four things you need to know about a tax debt compromise

#1: A tax compromise is a request to SARS asking it to 'park' any outstanding tax debt, if you're in financial distress.

By parking the debt, SARS will agree not to demand payment, it treats your debt as no longer due and payable. Whether SARS will park everything or only part of a tax debt will depend on your financial situation and how much SARS can realistically recover.

#2: You can apply for a tax debt compromise at any time during a tax year and you must do so as soon as you realise you can't pay any outstanding tax debt to SARS.

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Imagine SARS calls you and says they will be doing an audit of your business, you're not worried as you know your accountant has paid all your taxes on time and your finances are up to date.

Following the audit you get an assessment saying you owe penalties of 200% and interest on all the money you owe, which means you will have to liquidate your business!

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If you know your rights and what you should be checking every month you can prevent this situation from happening to you. Here's how

#3: Any taxpayer with an outstanding tax debt can apply for a tax compromise. This means individuals, companies, close corporations, Trusts, partnerships, cooperatives and non-profits can apply.

#4: There aren't any prescribed SARS returns or forms you must use for a tax compromise. You must send SARS a letter to apply for a tax compromise.

You'll find a sample letter you can use in your copy of the Practical Tax Loose Leaf Service.

After your application, SARS will review your financial information to see if the compromise is the best way to deal with the outstanding tax debt. If so, it will grant the compromise.

Here's the bottom line: A tax debt compromise is your lifeline if you're battling with tax debt.

Use it to your advantage to minimise the risk of the debt coming back to haunt you in future.

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