11 Mar Tax clearance: Why is it so important?
A tax clearance certificate provides written confirmation from SARS that a taxpayers affairs are in order at the date of issue of the certificate. In many circumstances, these certificates become a prerequisite for the final approval of many business contracts.
They are required by industry for a number of reasons – leasing a property, emigrating, foreign investment allowances and government tenders.
Government will use a tax clearance certificate to determine the Compliance of individuals and organisations. A tax clearance certificate covers ALL taxes (Income Tax, Provisional Tax, VAT, PAYE, UIF and SDL).
Now that we know what a Tax Clearance is, let’s talk about why it is so important.
It has become an integral part of the South African economy, and being compliant with tax laws is essential to keep the system working for all and supports the programs and services that improve lives.
Common Mistakes that taxpayers make
Provisional taxpayers typically repeat the same mistakes each year when it comes to filing their first and second provisional tax returns.
According to SARS
The more common mistakes include:
- Not becoming aware of provisional taxpayer status and obligation to file (EVERY director of a company IS a provisional taxpayer)
- Filing late returns or not filing at all;
- Underestimating taxable income; and
- Making late payment of provisional tax.
Avoid Imposition of Penalties and Interest
Taxpayers who become aware that they may have made a mistake such as any of the above must contact a tax professional to see whether an application may be made to SARS to try and rectify the error, correct the tax filing and avoid penalties and interest.
A 10% late payment penalty is automatically applied to any late payment… this penalty is added on to the tax payable amount, and taxpayers are charged a high interest rate on both, until payment is made.
They can face an additional admin penalty up to 200% of the value of the tax payable.
As per the SARS website; Provisional taxpayers are required to declare to SARS half their estimated taxable income within six months of the tax year (before 31 August) and their estimated total taxable income before the end of the tax year (28/29 February). The tax year for individuals runs from 1 March until 28/29 February of the following year.
It is very important that your final taxable income earned and declared on your personal income tax return be within 90% of the provisional taxable income declared in August and Feb each year. An additional penalty and interest is levied if this is not the case…
Regardless of whether you do or don’t agree with the admin penalty, it is advisable to submit the outstanding return to stop further admin penalties. The penalty will reoccur for every month the return(s) remains outstanding for a maximum of 35 months.
We all need to pay taxes, but nowhere does it say we need to leave a tip!
Contact us for any questions you have on this topic – we are here to help you get, and stay, tax compliant. This will ensure you always have access to opportunities that present themselves to you!