With many businesses being closed and costs continually mounting, the largest challenge for business owners is that of cash flow strains. The Department of Labour has assisted with the TERS claims and these ultimately reduce the total cash burden for payrolls over the directive period.
SARS has also assisted on various levels like payroll claims (with ETI assistance), and by allowing deferments of taxes like PAYE and income tax – “without interest and penalties”.
For many businesses, one of the major cash flow challenges, after salaries is VAT. Particularly for February and March 2020.
It makes sense that should there be no sales, businesses will look to claim refunds in VAT201 returns and SARS are currently fast-tracking such refunds. The challenge, though, is most companies can’t wait up to 90 days, from incurring the expenditure, to receive a cash refund. Further, some companies may not be fully tax complaint due to human error, which complicates the refund process.
A client phoned this morning wanting advice on how to apply for VAT deferment?
SARS have a dedicated page to the LATEST ON THE IMPACT OF COVID-19 ON SARS.
and a document issued, titled EXPLANATORY NOTES ON FURTHER COVID-19 TAX MEASURES. This was updated 27/04/2020.
There is no mention of deferment of VAT.
KPMG under the section of ‘Case-by-case application to SARS for waiving of penalties’
suggest: ‘businesses with gross income of less than R100 million can apply for an additional deferral of payments without incurring penalties. Although this is not as definitive as we would have wished, it seems that this would include the deferral of VAT payments.’
Until processes change, the only way to currently arrange deferment is to default on VAT payment first and thereafter enter into a compromise with SARS-Debtors unit. This traditionally carries penalties and interest. Perhaps SARS might be considering another option? A look at “FURTHER COVID-19 TAX MEASURES” above (updated yesterday), and no mention of this.
KPMG elaborate on their VAT view by saying on their Tax and Legal Flash – April 2020:
‘It is however not clear whether vendors would still need to submit requests for the remittance of penalties since late payment penalties of 10% are automatically applied by the SARS system when VAT payments are not received by the relevant due date or whether it would be remitted automatically. We would suggest however, as a prudent action, that when vendors submit requests for the deferral of payments, they also submit requests for the remittance of penalties as soon as the VAT returns are submitted, and also include a request for the remittance of interest, as this was not specifically included in the relief measures.’
It is unsure how, under the Covid support from Treasury, more specifically the Case-by-case application to SARS for waiving of penalties – we got to deferment of VAT. Further, with regards to VAT, how one submits a request for deferral of payments, without short-paying a tax liability. Here one would need to follow normal debt management rules.
There is no certainty that SARS will waiver penalties or remit interest relating to VAT. In fact, this was a tax specifically excluded from covid relief initially. To the contrary, SARS might enforce penalties and interest on VAT, as it is a ‘true tax’ on companies that are performing – i.e. outputs exceed inputs. Currently, SARS’ only offering with regards VAT is to fast-track refunds.
Please do NOT entertain thoughts of a Covid relief measure allowing for VAT deferral without interest and penalties.
At this point VAT brings in a sizeable amount of tax to SARS and collections are possibly most reflective of industries that are still healthy. From the start of relief, VAT was never a tax to be lessened. Until such time that SARS changes this, one would be reluctant to short pay VAT liabilities and hope that there will be no interest or penalties.
That said, if companies continue to fail, the SARS – Debtors unit will be busier than ever, dealing with deferment compromises and bad debt.
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