Reading material on the topic of tax does not make for light, relaxing reading. A reader can easily feel lost if he/she does not keep up to date with the meaning of the new terms and phrases which are introduced constantly by SARS. This article aims to explain the meaning of a few tax terms/phrases that readers might come across in tax-related reading material.
Tax term 1: “Admin penalty”
“Admin penalty” is the shortened version of “Administrative Non-Compliance Penalty”. An admin penalty must be paid by a taxpayer to SARS if the taxpayer does not comply with their responsibilities set out under South African Tax Law. Currently admin penalties are only levied by SARS when a taxpayer submits their tax return late or do not submit a tax return at all.
SARS will charge an admin penalty every month that a tax return remains outstanding. The first thing a taxpayer must do in this case is to submit the outstanding tax return(s) so that SARS will stop charging the admin penalty.
Admin penalties can be a fixed amount as well as based on a percentage and is determined by the amount of a taxpayer’s taxable income.
Tax term 2: “Verification” versus “Audit”
Both these processes aim to ensure that each taxpayer pay their fair share of taxes.
The verification process starts when SARS informs a taxpayer in writing that his/her tax return was selected for verification and requests the submission of supporting documents and/or a correction of the tax return. If the taxpayer does not respond to this letter within 21 business days, SARS will send a second letter.
The audit process will start if the taxpayer does not respond to the second letter either. A SARS auditor will call the taxpayer and request that the taxpayer submit the relevant documents after at least 5 business days.
If the taxpayer does not respond to the auditor’s request, SARS will assess the tax return based on the information in their possession.
Tax term 3: “Deferred arrangement”
If a taxpayer is unable to pay his/her tax debt to SARS, SARS may allow the taxpayer to pay the tax debt later or to pay if off in instalments. SARS will charge the taxpayer interest on the outstanding balance of the tax debt.
The taxpayer must apply for a deferred arrangement and SARS may approve or decline the application.
If a taxpayer does not keep to the deferred arrangement as agreed with SARS, the arrangement is automatically cancelled and the outstanding tax is due as per normal terms.
Tax term 4: “Small business corporation” (SBC)
A taxpayer who qualifies as a SBC may pay turnover tax at reduced tax rates based on taxable turnover if the taxpayer chooses to be subject to turnover tax. Turnover tax replaces, amongst others, the following taxes: income tax, provisional tax, VAT, capital gains tax and dividends tax.
The following are some of the requirements that must be met in order to qualify as a SBC:
- Taxable turnover must be R1 000 000 or less for the year of assessment.
- The taxpayer must be an individual, partnership, close corporation, private company or a co-operative.
- For close corporations, private companies and co-operatives the following additional requirements must also be met:
- All the shareholders or members must be natural persons for the duration of the year of assessment.
- None of the shareholders/members may hold any shares or membership, or have any interest in the equity of any other close corporation, private company or co-operative.
The above terms/phrases are only a few of the many that are used in the media. Staying up to date with tax lingo requires a concerted effort from the reader’s side as new terms are introduced and current terms changed or improved by law constantly.
If you would like more detailed information on the meaning of the above or any other tax terms, please contact your tax practitioner.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.