Navigating Tax Penalties in SA: leveraging business loans to stay ahead

Understanding company tax is a crucial part of running a business in South Africa. In an ideal world, staying on top of your taxes is a must, but we know that can be difficult as an SME with loads on your plate. Nobody wants to drop the ball on taxes, especially because it can lead to some hefty penalties, but the reality is it happens to the best of us. Understanding the intricacies of tax penalties, is essential for businesses to navigate the tax landscape effectively. In this article, we delve into the realm of administrative penalties in South Africa and explore how leveraging business loans can help SMEs stay ahead of their tax obligations. Why? Well, because instead of continuously getting slammed with tax penalties month after month, opting for a business loan to cover the tax penalty is a more cost-effective choice.

What is the SARS admin penalty for companies?  

An administrative penalty, commonly referred to as an "admin penalty," is a penalty imposed under section 210 of the Tax Administration Act (TAA). The TAA outlines various types of non-compliance subject to fixed amount administrative penalties. For companies, they fall under Corporate Income Tax, and penalties are imposed for failure to submit income tax returns as required under the Income Tax Act.

According to SARS guidelines, penalties are levied when a company fails to submit an income tax return within the stipulated timeline, typically within 21 business days from the issuance of the final demand. These penalties are recurrent, occurring monthly for up to 35 months, with amounts ranging from R250 to R16 000 per month, depending on the taxpayer's taxable income.  

Companies may also encounter other penalties, such as:

• A 10% penalty for late filing of a VAT return (if VAT registered).
• A 10% penalty for late filing of employees' tax return (if registered as an employer).
• A 10% penalty for late filing of a provisional tax return.
• A 20% penalty for inaccuracies in submitting a provisional tax return.
• Penalties ranging from 5% to 200% in cases of taxpayer understatement.

How can I manage tax penalties as a business?

Regardless of stance on your administrative penalty (i.e. if you want to dispute it), it is advisable to submit outstanding returns promptly to halt further penalties. Failure to address non-compliance can worsen your financial situation, as penalties accumulate over time. To mitigate these penalties, taxpayers can explore various payment channels offered by SARS this includes deferred arrangements.

For SMEs facing cash flow constraints or if they weren’t given the option to defer payments , paying off tax penalties promptly may not be an option right now. This is where alternative financing options, such as business loans, come into play.

How can I use a business loan to pay off my tax penalty?

Applying for a loan through FundingHub is a great short-term solution for businesses grappling with tax penalties. By providing accessible funding options, we ensure businesses are able to address their tax repayment obligations effectively. The benefit of this is that you don’t need to worry about the recurring payments, which often accumulate interest at a much higher rate than any business loan through our platform.  

When businesses incur large tax penalties, which they have no way of paying right now, that’s when securing immediate funding becomes imperative. The 30-day window provided by SARS for tax payment leaves little room for delay. Failure to pay within this timeframe incurs additional penalty fees, ranging from R250 per month per Director to potentially higher amounts based on assessed losses.

Understanding the urgency of tax repayment, FundingHub offers businesses the opportunity to obtain loans promptly, bridging the gap between tax obligations and available capital. By leveraging business loans, companies can avoid escalating penalties and maintain compliance with tax regulations.  

What are the pros and cons of using a business loan to pay off my tax penalty?  

Pros of using a business loan to pay off tax penalties:

• Immediate resolution: business loans enable prompt payment, preventing further penalty accrual and legal issues.
• Cash flow management: a business loan can help stabilise cash flow, allowing businesses to allocate funds strategically to other parts of the business.  ‍
• Lower overall cost: business loans often come with lower interest rates compared to cumulative penalty amounts from SARS for late payments.  

Cons of using a business loan to pay off tax penalties:

• Debt obligation:  a business loan can add to existing debt burdens, potentially straining finances if they aren’t managed effectively.  

As a platform that interacts with thousands of SMEs daily, we understand the concerns that arise when faced with tax penalties. It's easy to feel overwhelmed by the initial notification, but remember, it's important not to sweat the small stuff. Opting for a business loan to address tax penalties in the short-term can be a savvy financial move. However, before making any decisions, it's crucial to grasp the full implications of non-compliance and explore alternative financing options to mitigate financial risks.  

Rest assured, we're here to support you every step of the way. Our team is available to provide guidance and assist you in understanding how our loans are structured to facilitate the payment of tax penalties. Let's navigate this together and ensure your financial well-being remains intact.