Certain as death and taxes - SARS demands small business compliance

Only two weeks remain for small business owners who wish to avail themselves of the South African Revenue Services (SARS) small business tax amnesty.

In terms of the offer, SARS will allow these businesses to regularise their tax affairs in return for full disclosure of previous years earnings and an undertaking by the company to pay 2006 taxes in full.

This offer is aimed at businesses which have not previously registered as taxpayers. Small business owners will benefit in that the heavy penalties which could be levied by SARS will be waived and replaced by a smaller penalty based on a sliding scale.

Small business amnesty deadline looms

Small businesses can apply for the amnesty provided their total turnover is less than R10 million in the 2006 tax year. For business purposes, the 2006 tax year is the business year which ends in the period 1 April 2005 to 31 March 2006.

The SARS website declares that "Any small business that has not yet registered for the 2006 tax year can apply for the amnesty." Small businesses which are already registered for tax, but have failed to accurately declare income up to and including the 2006 tax year, will also be able to apply for the amnesty.
 
The application process is simple. Small businesses have to complete a SBA001 form (available from SARS) and submit this form with a complete and accurate 2006 tax return. The return must include a statement of Assets and Liabilities. All applications must be returned to the SARS Amnesty Unit no later than the amnesty deadline, on 31 May 2007.

Get your tax affairs in order - or else

BoE Private Clients, fiduciary specialist, David Knott believes that "the enforcement unit of the South African Revenue Service is eagerly awaiting the close of the amnesty period, as they have identified several obvious businesses outside of the tax net they are keen to make an example of." Referring to small businesses owners, Knott says "there are certainly many that have not registered for tax or whose records do not reflect an accurate turnover."

His views are shared by a number of experts in the field who believe that SARS will be clamping down in coming months on those businesses that remain unregistered for tax. In other words, the amnesty is a last opportunity for companies to get there tax affairs in order. Thereafter SARS will be coming after them with a vengeance.

Small businesses should apply their minds to the tax risk associated with not normalising their tax affairs. Registering for the tax amnesty might be a sensible first step as many small businesses could be badly affected by the cash flow implications of a SARS audit.

Cost worth bearing considering the alternative

In a BoE Private Clients press release, Knott said that the cost borne by small businesses who apply for amnesty will be extremely modest. "One must pay the full assessed 2006 tax plus a levy applied on a sliding scale commencing at 2% on the taxable business income above R35, 000, rising progressively to R15, 800 plus 5% once this income exceeds R500, 000 - a pretty modest cost when one appreciates that SARS will not seek to go back into previous tax years."

The SARS website includes a stern warning to businesses should they fail to take advantage of the amnesty. The small business concerned and business owner will always owe the SARS taxes from past years. When the business registers as a tax payer, or if SARS catches the business or the business comes forward voluntarily in the future, the business will have to pay additional taxes, penalties and interest. And SARS may take action against the business and the business owner could be charged with a crime.

A small business that chooses to continue trading under the tax radar will run into far greater trouble when SARS eventually catches up with it. The options are fairly clear. Regularise tax affairs today rather than risk the wrath of the Receiver some time in the future.

Editor's thoughts:
In our previous article on this matter, we mentioned that SARS appeared serious about taking down tax offenders in the coming months. If you were a small business owner, would you be tempted to apply for the amnesty, or would you rather take your chances on SARS catching up with you at some future date? Send your comments to gareth@fanews.co.za