What happens if I am late with VAT payments or cannot submit my VAT return?

Introduction:

The past few months and weeks have been difficult for businesses in terms of cash flow management. This is due to the COVID-19, the lockdown and the uncertainty around the whole thing. When does the lockdown end, will it be extended again? How long will the COVID-19 pandemic last and what is the impact on a business’ cash reserves?

As month-end approaches, some businesses are wondering if they should pay their VAT obligations or if they should delay these a bit until their businesses have recovered cash wise.

In terms of the VAT Act, a registered vendor is required to submit their VAT returns and to pay their VAT taxes by the 25th of the month if they are submitting manually or the last day of the month if they are submitting online on eFiling. If these dates fall on a weekend or public holiday, the submission and payment have to be made on a day before the weekend.

As far as we all know, the government has not introduced any relief measures in as far as VAT is concerned. This means that SARS is expecting your VAT returns at the end of the month.

 

What happens if you cannot access your VAT records due to lockdown? 

Bearing in mind that there is still no relief on VAT taxes due, the payment and submission of VAT may be a challenge for some taxpayers who cannot access their records or accountants due to the lockdown. In terms of Section 38 (2) of the VAT act, “where the Commissioner is satisfied that due to circumstances beyond the control of the person liable for the payment of the tax the amount of tax due cannot be accurately calculated within the time allowed by section 14 or section 28 or section 29, whichever is applicable, the Commissioner may in his or her discretion and subject to such conditions as he or she may impose, agree to accept a payment of a deposit by such person of an amount equal to the estimated liability of such person for such tax.” Such a deposit will be treated as a provisional payment in respect of the liability of such taxpayer. When the tax is finally determined correctly, any excess shall be refunded to the taxpayer and any shortfall shall be recoverable from him.

There is currently no guidance as to how this estimate can be determined. Our suggestion is that you apply judgement or consult your accountant for guidance on this until such time proper guidance is provided.

 

What happens if you are unable to submit or submit but unable to pay? 

The VAT Act (section 39) and the Tax Administration Act (TAA, Section 187 and Section 4) provides for the interest application and treatment where a taxpayer fails to submit or pay a VAT return.

If you are unable to submit, SARS immediately levies a 10% penalty on the amount that was due.

If you are able to submit, but unable to pay, SARS will levy interest on the outstanding amount from the date the tax debt was due until the date the debt is paid off.

So, if you failed to submit and pay the punishment is two-fold. A 10% penalty and interest that is charged on a daily basis at the prescribed interest rate until the debt is paid off.

A question that arises is what happens should a vendor fail to submit a VAT return and they have a “valid” reason for failing to submit and pay a VAT return?

 What happens if you fail to submit? 

At the onset, we must point out that in terms of Section 234(d) of the Tax Administration Act, it is a criminal offence to fail or neglect to submit a return. So, if a taxpayer is to fail to submit a VAT return, there it has to be proven that there were circumstances beyond the vendor’s control which resulted in him/her not being able to submit or pay a VAT return. In terms of TAA section 187(7) these circumstances are limited to:

  • a natural or human-made disaster;
  • a civil disturbance or disruption in services; or
  • a serious illness or accident.

So, unless you can prove these things your return and payment remains due and payable at the end of the month.

 

Can the penalty and interest ever be waived? 

Section 187(6) provides that the interest can be waived (directed that so much of the interest as is attributable to the circumstances is not payable by the taxpayer) if a senior SARS official is satisfied that interest payable by a taxpayer is payable as a result of circumstances beyond the taxpayer’s control. The circumstances are covered above.

 

What are your options if you cannot pay your VAT taxes when they fall due? 

If your business is in a situation where you do not know if you should pay your VAT or not due to COVID-19 or lockdown, do some scenario planning before your VAT payments become due bearing in mind the penalties and interest that may hit you if you do not submit or pay in time. The three scenarios you can look at are:

  1. What happens to your business’ cash flow for the next three months if you pay the 100% VAt due without delay
  2. What happens if you pay a portion of it when the payment becomes due
  3. What happens if you delay the payment completely and pay in a month or two.

The second option is to submit your return and apply for a repayment plan with SARS.

The third option is to apply for business continuity relief plans the government has unveiled for SMMEs.

The fourth option is to get a VAT payment loan.

 

How to avoid a similar problem in the future: 

It is in your best interests to avoid repeat late submission and payment of VAT. Continually failing to pay your VAT may lead to your business going under. You act as an agent for SARS in collecting the 15% VAT. If your clients are paying you, there is no reason why you should not be able to pay VAT because technically that money does not belong to you. If your clients are paying you late, then you need to be looking at your debtor management systems and processes.

You do not want to make late payment a recurring problem. You may want to consider some of the following general measures:

  • Open a separate business VAT savings account.
  • Whenever an invoice is paid, put aside the 15% into this savings account.
  • Implement cash flow management tools and means that ensures you are always paid on time.
  • If you have retainer clients, switch them over to debit orders instead of waiting for them to do EFT.
  • Include a payment method when sending out invoices. Invoices that have a payment method tend to be paid much quicker.
  •  Do you have any asset that you no longer use or that you are under-utilising? Do you think these can be sold if there is a market for them?

How can we help? 

Contact or call us on 021 823 9684 for:

  • VAT registrations
  • Online VAT registrations
  • Cash flow management
  • SARS debt repayment plans
  • VAT audits
  • VAT submissions

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