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Tough Tyres's story will help you understand the tax debt compromise process

by , 15 September 2014
A tax debt compromise is a request to SARS asking it to 'park' your outstanding tax debt, if you're financially distressed.

By parking the debt, SARS agrees not to demand payment. It basically 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.

Because this process is a bit complicated, we recommend you check out Tough Tyres's story below. It will help you understand exactly how the tax debt compromise process works so you can take advantage of it and avoid penalties if you're battling with tax debt.

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Use Tough Tyres's story as a guideline if you're unsure how the tax debt compromise process works

Tough Tyres (Pty) Ltd has been having a difficult time for the last three years. They haven't been able to pay their Vat and although their returns have shown the correct figures, they weren't able to pay the Vat over to SARS. They have a tax debt of R4.5 million.

The directors at Tough Tyres decide to apply for a tax debt compromise, as cheap imports from China, has put their business with very little future prospect of ever being able to settle the outstanding debt with SARS. They can continue to trade, but the volumes are so low now that their turnover has dropped by 90%. The business scaled down for the smaller revenue and is still profitable.

They made their application and, after a month of giving SARS all the information they needed, numerous meetings with SARS officials and hours of negotiations, SARS and Tough Tyres finally agreed on a settlement amount of R1.5 million, which Tough Tyres could afford to pay after raising finance secured over their machinery.

Tough Tyres paid SARS the R1.5 million after receiving written confirmation that the tax debt compromise had been granted and SARS parked the remaining R3 million.

So will Tough Tyres ever have to pay this debt back?

According to the Practical Tax Loose Leaf Service, the only time Tough Tyres will ever have to pay this debt back is if they break any tax laws in the future.

So if SARS agrees to a tax debt compromise, you have to be the perfect taxpayer from that point onwards. If, for example, you don't submit your Vat returns, make your Vat payments late, etc, SARS will withdraw the compromise and bring back the debt!

Now that you know how the tax debt compromise process works, take advantage of it if you're battling with tax debt.

PS. Find out how to save R26 983 by keeping an accurate logbook

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