The consequence of non-payment at the end of April
In the next two weeks, many businesses are going to have to make tough decisions on which creditors to pay. Some of these payments are by debit order, even though one might consider them deferrable, they will be paid automatically. In the end, as is common with businesses in a cashflow crunch, the final choices will be between net salaries to staff, PAYE and VAT.
The Government has provided some relief with the extension of the Employee Tax Incentive scheme, which now affords employers a R500 reduction in the amount of PAYE payable for every employee under the age of 65, who earns less than R6500 per month. The effect of this relief is unfortunately limited by the R6500 remuneration cap.
Further relief is seen for certain businesses, in broad terms, with less than R50 million annual turnover will be able to defer payment of 20% of the PAYE due, in respect of the April pay run. There is however no relief for Unemployment Insurance Fund(“UIF”) and Skills Development Levy which are also payroll taxes.
There will be a few businesses who qualify for TERS UIF relief and maybe even SMME funding relief. However, these are all based on qualifying criteria, one of which is Tax Compliance.
The negative consequence of paying your staff as opposed to VAT or PAYE will result in your business being non-compliant. The latter has a further consequence in that the limited tax relief and SMME funding offered to businesses, due to the coronavirus, will no longer be available to your business for the reason that you are no longer tax compliant, and as such your cashflow issues will become exacerbated.
Our firm and various professional bodies have all proposed greater tax relief, including VAT relief at this time. We have made these submissions to National Treasury and SARS and we await their feedback. One must however be realistic that the long-term effect of corruption has drained the Government reserves and the needs at this time seem unlimited. The cash available to the Government is very limited and will be strained even more by both the downturn in the economy and the cashflow pressures on business to meet their tax obligations. Thus, it would be unwise for businesses to bank on additional relief from the Government as their saving grace.
In addition to the denial of any tax relief due to the change in your tax status to non-compliant, your business will no longer be eligible for any tenders that will be adjudicated on after the lockdown.
The non-rendition of the VAT or PAYE return, the omission of output VAT, the inflating of Input VAT or the late or non-payment of the return will all give rise to penalties. If SARS considers the action of the business in manipulating the figures on the return to be intentional tax evasion, the penalty could be 150%. SARS has the power to even impose a penalty of 150% if they argue that you intentionally did not render the return because you had decided you had insufficient funds to pay the VAT liability. If SARS is satisfied that it is merely a late payment then a 10% penalty may be imposed. As with all returns, the necessary care must be taken to ensure that you have the relevant supporting documents to upload.
We have called upon SARS to issue a blanket ruling that the national lockdown is a natural or man-made disaster and as such for SARS to remit all the late payment penalties in terms of the exceptional circumstances we find ourselves in, without the need to request such a waiver and incur all the further compliance costs involved in that process, which might also involve an objection or appeal process. We await their response as part of this legislative process.
We urge you to do all that you need to do to maintain your business, to ensure your staff receive some remuneration and that you remain tax compliant. Whilst we will try to assist you with the consequences of a late payment penalty, we hope that by understanding the consequences you will ensure that you do your best to remain compliant.
We wish you well in the difficult days ahead. We hope that SARS will extend the Disaster Management Tax Relief and deal with the consequences of non-compliance in the spirit of Ubuntu and the need to survive.
Partner at PKF Durban