The South African Revenue Service (SARS) is coming after company directors, holding them personally liable for outstanding business debts.
Tax experts have flagged new cases that show the revenue service’s intent, including one that shows its pursuit of a director to recover several million rand in outstanding company tax debt.
This shows that SARS regards the individual as responsible for the business’s financial management, including the payment of its tax obligations.
According to Tax Consulting SA, the case unfolded when SARS issued a Notice of Personal Liability to the director.
This shows that the group is actively leveraging its powers under the Tax Administration Act (TAA) to hold representative taxpayers, such as directors and public officers, personally liable for company tax debts.
“For some time, SARS has warned that it would begin holding representative taxpayers in their personal capacity liable for outstanding company tax,” the tax experts said.
“That warning is now translating into real enforcement, as is evident from recent cases where SARS came after directors’ purses.”
The SARS notice stated that the tax liability arose from, amongst other things, non-submission of tax returns, which resulted in estimated assessments, and/or the submission of tax returns with either partial, late or no payment.
The amount SARS is looking to collect includes additional tax, penalties, and/or interest.
Crucially, SARS pointed to information obtained from third parties, Tax Consulting said.
This suggests that tax was withheld but not paid over, and that the company may have had the financial means to legally settle its obligations at the relevant time.
SARS said it may initiate recovery steps directly against the individual as the representative taxpayer.
These could include issuing notices to banks or anyone holding money due to the director, filing certified statements with the relevant court, and pursuing sequestration of the director’s personal estate.
Time for warnings is over
The notices to directors are just the latest in a long line of warnings that are now moving into active enforcement at SARS.
Similar shifts have been seen with the Revenue Service’s approach to trusts and crypto traders in South Africa, where these avenues were once seen as soft tax havens subject to lax enforcement.
With the targeting of directors, SARS is operating from a solid foundation in law.
Section 180 of the TAA empowers SARS to hold third parties personally responsible for a company’s tax debt if:
- The person “controls or is regularly involved in the management of the overall financial affairs of a taxpayer”; and
- SARS determines that the person acted negligently or fraudulently concerning the taxpayer’s tax debt.
This liability extends beyond the core tax amount to include related penalties and interest.
Moreover, personal liability is not limited to individuals formally holding financial roles within the company.
Any person involved in financial decision-making, whether it be a director, shareholder, or financial officer, may be held accountable if their conduct contributes to non-compliance.
In addition, sections 153 to 155 of the TAA impose liability on a representative taxpayer, referring to anyone responsible for managing the company’s tax affairs.
Beyond financial recovery, SARS also has the authority to pursue criminal proceedings in appropriate circumstances, further raising the stakes for non-compliance.
Tax Consulting warned that those in the taxman’s crosshairs have limited room to move and a short window to respond.
In the latest case, the director was given an opportunity to make representations as to why he should not be held personally liable. However, the burden of proof placed on him was substantial.
SARS required:
- A detailed written explanation for the non-payment of taxes;
- A full account of how company funds were utilised during the period in question; and
- Certified bank statements, financial statements, and management accounts covering up to five years.
“Where any of the requested material was unavailable, a written explanation was required. All submissions had to be made within 10 business days,” the experts noted.
“Failure to do so could lead to SARS proceeding to hold the director personally liable under the relevant provisions of the TAA.”
Tax Consulting said that failing to meet SARS’ deadlines could result in the issuance of a Notice of Personal Liability – Final Demand, which makes the taxpayer fully liable for the outstanding debt.
If the debt is not paid, SARS will commence with collection steps against the director personally, without further notice.
