What is a tax compromise?
This is a request to SARS asking it to 'park' any outstanding tax debt, if you're financially distressed.
By parking the debt, SARS will agree not to demand payment. SARS treats your debt as no longer due and payable. Whether all, or only part, of a tax debt is parked will depend on your financial circumstances, and how much SARS can realistically recover.
You can also use the tax compromise if you just can't afford to pay SARS an outstanding tax debt. SARS would rather consider compromising an outstanding tax debt than shutting down your business and liquidating or sequestrating it.
Read on to find out the process for tax compromise.
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How to make yourself invisible to SARS
Four steps to a tax compromise
The key to reducing how much tax you pay is staying off SARS' radar.
SARS conducted 1.8 million audits. It's added 100s of new tax collectors and auditors to its payroll and each one has his own collection targets to meet.
The process itself is very simple, but the challenge comes in when you prepare for the execution. Here's the process:
Step#1: If you can't pay your tax debt, send SARS a letter applying for a tax compromise. You'll make an offer to SARS for a settlement amount.
Step#2: SARS then reviews your financial data to see if the compromise is the best way to deal with the outstanding tax debt. If so, SARS grants you the compromise.
Step#3: SARS reviews the settlement amount and either agrees to the amount or demands a higher amount. If it disagrees, you'll have to negotiate until both you and SARS agree.
Step#4: Once you agree on the settlement amount, you'll pay SARS the amount and it will remove the remaining tax debt from your tax account.
Let's use an example to make it simpler to understand.
ToughTyres is struggling for the past three years to pay their Vat. They are in debt of R4.5 million.
The directors of ToughTyres applied for a tax compromise. After a month of providing SARS will all the necessary documents, numerous meetings and hours of negotiations with the SARS official, SARS and ToughTyres agreed on a settlement amount of R1.5 million.
ToughTyres paid SARS the R1.5 million after receiving written confirmation that the tax compromise was granted, and SARS parked the remaining R3 million.
If your tax compromise is successful, it doesn't mean you're off the hook!
If you break any tax law or obligations in the future like forgetting to submit one return, SARS will withdraw the tax compromise and put the entire tax debt on your account for immediate collection!
So you have the responsibility to ensure you're always compliant at all times!
Even though there's no limit to the number of times you apply for a tax compromise, SARS might not be very understanding the second time around!
Get 31 different tax breaks you can implement today to save your business thousands of Rands! Here's how to enjoy the savings!