You forgot to pay your VAT on time? Or were you in a serious situation that caused you to delay paying VAT on time?
SARS is serious and doesn’t take lightly late VAT payments. SARS automatically charges you penalties and interest each month starting from the first day of the following month after which your payment was due.
The two most frustrating factors about being in bad books with SARS due to late payment is the interest and penalty charges and how SARS decides to allocate your payment when you eventually manage to pay them.
What exactly are SARS penalty and interest charges due to late VAT payment?
Interest – SARS charges monthly interest at *10.5% on VAT obligation for each month the payment is late
Penalty – SARS applies, on top of the interest, a penalty of 10% of your outstanding VAT obligation.
Note: Interest and penalty rates may fluctuate
*Rate as per date of publication. For verification on recent rate: https://www.resbank.co.za/Pages/default.aspx
How does SARS allocate the payments?
When you make a payment to SARS for your initial late VAT payment obligation, SARS allocates it first to the penalty and interest charges. Should you be unaware of your penalty and interest charges, then you will find yourself still owing a portion of your initial VAT obligation which you didn’t pay on time. And what SARS does with the portion you still owe is it charges interest again on that portion as of first day of the following month the payment was made. What exactly are we saying?
Neil, a registered vendor, forgets to submit his VAT return and payment of R70 000 to SARS due on 25 July for his VAT liability for the tax period ending 30 June.
Due to unforeseen circumstances, Neil manages to submit his return on time i.e. 25 July but only made the payment of R70 000 the following week on the 2nd of August.
SARS will charge penalties and interest as follows:
01 August: Penalty on the payment
R70 000 * 10% = R7000
VAT obligation balance = R70 000 + R7 000
= R77 000
Interest on the payment:
R70 000 * 10.5% = R7 350
VAT obligation balance = R77 000 + R7 350
= R84 350
02 August: Neil pays R70 000
VAT obligation balance = R84 350 – R70 000
= R14 350
If Neil doesn’t settle the additional VAT liability of a whole R14 350 due to his slight delay, SARS will continue charging interest and penalties on the outstanding VAT liability each month. After a few months Neil will find it would’ve been a much better idea leaving his VAT compliance to his accountants!
What happens if the delay in submission and payment was not due to my negligence but external factors e.g. Office and therefore all financial records burn in a fire on the day submission and payment is due?
5 steps on how to stay on SARS’ good side if you won’t be able to pay your VAT on time:
#1 Notify SARS in writing explaining what happened and tell them you’ll have difficulty working out your VAT liability and paying it on time.
#2 in your letter SARS, include asking for an extension to submit your VAT return
#3 Make a provisional deposit of the amount of VAT you estimate you’ll owe. This will show your good faith to SARS.
#4 submit the letter and cheque to SARS. Preferably the SARS office where you’re registered.
#5 when you can eventually account for your VAT accurately, refer back to your estimate and depending if less or more, you will have to make an additional payment or SARS will refund you respectively.
Should penalties and interest be charged throughout this process, worry not, you are more than allowed to ask SARS in writing including your full story and present to your nearest SARS office to remit or reduce your penalties depending on reasons why you could not pay your VAT on time. Just remember to include supporting documents should you have any e.g. Bank Account Statements or affidavits.
SARS will then get back to you with a decision within 21 days of receiving your request and within this period SARS can’t institute collection proceedings against you. Should you not like their decision i.e. SARS refuses to remit your penalties, you may lodge an objection and appeal.
