Compromise Archives

Who should be reading this article?

Anyone whose business is no longer trading and wishes to wind it down
Anyone who wants to liquidate their business
Anyone who has lost interest in their registered business and now wishes to discontinue it

KEY TAKE AWAY POINTS:

Pay all outstanding creditors
Collect from all debtors if any
Cancel all contracts (ensuring that all the conditions and terms of doing so are understood and taken care off)
Inform all employees and customers of the intention to close down the business
Sell your business assets (including the cars) and stock (if any) or write off any assets or inventory no longer – S basically liquidate the business
The last step would be to distribute any cash or assets that remain in the business
Deregistering at the CIPC
Deregistering with SARS (all tax numbers)

Why may you consider closing a business off?

There are many reasons for this. But, you may consider closing off your business because of any of the following reasons (not limited to this list:)

The business was negatively affected by COVID and there is no possibility of the business doing well again in the future
The business has become unprofitable and it no longer makes sense to continue operating
Your focus or passion has changed and you would like to focus on something else
The project for which the business was designed has ended and will not be resuming again in the future
The most profitable clients of the business have left and you do not see the business attracting any new clients
Changes in technology that drive your product or business out of the market
You no longer have the cash flow or working capital to keep the business going

If you are considering closing down your business, the following steps and considerations are important:

1. Have an exit strategy:

Truly speaking, this should happen before there is a need to close down a business. This is because we will all exit from our business one way or the other. Some of the exit reasons are what we have already highlighted above. But, it could also be due to health reasons, death, new investors, a merger or sale of the business or part of the business. Whatever the reason, every business should have an exit and succession plan in place.

Your goal here is to formulate a plan of how you will close down the business or exit from the business. Without a plan, things usually go wrong and you may be caught unaware along the way.

2. Notify your employees:

After your customers, your employees are an important asset to the business. Besides, they have families to feed and lives to live. Leaving it until late may place an unnecessary mental burden on them and leave them with little time to look for alternative employment. As an alternative, use your relationships to find then alternative employment.

But, the important point here is to keep the employees in the loop, not in the dark, about what is going on. Also, decide on who will handle the communications with the employees. It is also important to decide and communicate their terminal benefits and how these will be paid.

3. Notify your clients

It is important to notify your clients in time so that they have time to look for alternative suppliers. Also, you may need to collect anything that they still owe you. It is important that you decide how you will collect and how they will be notified.

4. Collect your outstanding debts

Plan your business closure around your existing collection policies and avoid giving new credit lines to existing or new clients.

You also want to collect any outstanding debts before you close the business because it may become difficult to get payments once you have already closed off the business. Some businesses’ financial policies do not allow payments to individuals.

Avoid announcing that you want to close off your business before you collect outstanding debts because some clients may just stall on payments hoping it will all go away.

You can offer settlement discounts to encourage customers to settle their accounts. An alternative is selling these accounts to a collecting agency.

5. Notify your creditors and pay outstanding debts

Inform your creditors of your decision to close and ensure you have a plan to handle the outstanding debts.

SARS may be one of those creditors. Ensure that you have filed all your returns and that every return is paid for. If you are unable to pay them, there are processes you can follow to ask for a compromise or a repayment plan (Click here to read more about compromises and repayment plans here.)

There may be specific laws on how you may pay your creditors. Ensure you are familiar with these and follow them in settling your creditors. If you are not sure, enlist the services of a lawyer.

6. Sell your business and operating assets

If you can, package some of the cash-generating units that are still functional and profitable and sell these to interested parties. If this is not possible, you may want to sell the assets in the business including all the inventory, vehicles and other operating assets you may still have if there is a market available for them.

7. Deregister the business

Once you are satisfied that all processes are complete, it is now time to deregister your business with the CIPC. This is to inform the CIPC that your business is no longer in existence.

After this is done, inform SARS that you have deregistered the business. Also, apply to have all tax types (numbers) deregistered. This is to clear you of future tax compliance burden since your business is no longer in existence.

You may contact us if you need help with:

Company registrations
Tax and VAT registrations
Closing off your business
Accounting and Tax
Business mentorship and advisor

If you follow my posts, you would have come across one of my articles that dealt with the approach SARS has taken to deal with the non-submission of a tax return. This is a follow up to this article.

So now you read that SARS will prosecute you for non-submission and charge you an R5 600 fine if convicted (of course, you will be convicted because there is overwhelming evidence against you/your company that you did not submit a few tax/vat returns.) You then went on to submit all your outstanding returns but you now owe SARS large sums of money.

Taxpayers are required to be fully compliant in all their tax matters by submitting and paying their taxes on time. If taxpayers are not compliant or have outstanding tax debt the SARS Debt Management department is committed to assisting businesses and individuals to become fully compliant. There are a few avenues that SARS uses to assist in this regard.

How much do I owe?

If you are not 100% certain how much you owe SARS, you will need to contact their call centre to enquire about your outstanding balances. If you stay not far away from a SARS branch, a visit to the SARS branch would not kill you. When you visit, just ensure you have all your particulars with you to avoid being turned away. Lastly, if you were registered for e-filing, run a statement of account to see how much you owe SARS. Your next step is to make the outstanding payment to SARS. Contact SARS or your tax practitioner to help you load a payment that can then be released from your bank account.

What if I can’t pay the outstanding amount now?

Every taxpayer must be aware that it is best practice to always file a tax return on time in order to avoid penalties and interest. But, if you are currently unable to pay your taxes, please contact SARS without delay. The following options may be available to you:

Payment arrangements:

Under certain circumstances, SARS can reach an agreement with a taxpayer to defer a tax debt for later payment or for payment by instalments. A deferred payment arrangement is s when a taxpayer can not settle the full amount owing to SARS immediately and want to apply for a payment plan to settle the debt. Under this option:

SARS has the option to decline the request.
Interest will accrue on any unpaid debt.
If you don’t adhere to the conditions of the payment arrangement the payment agreement will be terminated and normal collection proceedings will resume.
The taxpayer must suffer from a deficiency of assets or liquidity, which is reasonably certain to be remedied in the future.
Notwithstanding this deficiency, the taxpayer must anticipate that there will be income or other receipts which can be used to satisfy the tax debt.
At the time of concluding the agreement, the prospects of collecting the tax debt must be poor or uneconomical, but likely to improve in the future.
Moreover, the deferral should not prejudice the collection of the tax debt

2. Compromise agreement:

In certain circumstances, a compromise may be requested on taxpayers’ outstanding tax debt. A SARS Debt Compromise is a process whereby a taxpayer requests that SARS permanently “write-off” a large portion of their debt, with the balance being paid in full by the taxpayer immediately on the condition that the taxpayer complies with any conditions as may be imposed by SARS.

A compromise cannot be considered if the taxpayer disputes the debt. Therefore while a matter is under objection or appeal, a compromise cannot be considered. If the taxpayer wants to compromise he has to withdraw his objection or appeal.

What if you do not agree with the debt?

If you are not in agreement with your tax debt, you may lodge a dispute. To lodge a dispute please go to objections and appeals. Even though you are disputing the tax debt you remain under obligation to pay the debt whilst your dispute is being handled.

Why you should consult Eva Financial Solutions if you need a debt arrangement or compromise

We deliver on our promise
Compromise solutions are difficult to obtain
For this reason, it is important that it is handled by qualified and dedicated tax practitioners.
We have a team of experts who will always work to get the best result.
Click here to contact us

How to close a business in South Africa