What are the admin penalties in my dormant company from SARS all about.

It has always been the legal and administrative responsibility of directors and company owners to deregister their company at CIPC (or CIPRO) and manage the companies’ tax registration at SARS.

However, industry realised that the South African State Departments maintained a view that they are not going to flog a dead horse and allowed the company to fall off the face of the earth. 

Hence, a culture was born where management of non-trading companies would just leave the companies unattended, this lead to deregistration at CIPC. Then management would explain to SARS that the company no longer existed and SARS would then consequently cancel the tax registration.

From CIPC’s side, not much has changed. If you leave the company long enough, it will go into” Final Deregistration” after 7 years and it will cost you nothing. 

SARS, on the other hand, has changed their point of view. They started to impose penalties on late submissions, in line with the Tax Administration Act (TAA). 

Here is our understanding of the new procedure followed by SARS, the TAA and the importance of these penalties:

SARS is tasked to implement and enforce taxation laws. As such, it is easy to deduce they will use the law to enhance their tax collection efforts.

All companies are compelled by law to appoint a public officer under the section 246(1). 

If a company fails to appoint a public officer, SARS designates either the managing director, director, or the company secretary as the public officer of the company under section 246(3) of the TAA. When SARS has to appoint a designated public officer both the company and the designated public officer is guilty of a criminal offence, due to its non-compliance under section 234(b) of the TAA.

But why is the Act so specific and extreme about appointing a public officer, by making non-compliance criminal? 

The answer lies in section 246(5) of the TAA explaining the public officer’s function and responsibility– 

“(5) A public officer is responsible for all acts, matters, or things that the public officer’s company must do under a tax Act, and in case of default, the public officer is subject to penalties for the company’s defaults.” 

This last bit is what it’s all about - “the public officer is subject to penalties for the company’s defaults.”  

Note, it is not the company being held “subject” or liable for the penalties, but the public officer – in their personal capacity. 

We believe SARS is implementing a system to legally make you, as appointed public officer, personally liable to pay money for your neglected, non-trading company, using the following laws and systems: 

• SARS first established that a public officer does exists for the company, either appointed by the company or assigned by SARS, regardless of whether the company is trading and active, dormant, in provisional deregistration, final deregistration, provisional liquidation or in final liquidation.
• If the company has neglected to submit tax returns, SARS first informs the company of its intention to levy penalties, then levy the penalties on late and non-submission. These penalties are levied against the company’s name under Chapter 15 of the TAA.
• SARS then allows the value of penalties already levied to accumulate, and it accumulates rather quickly.   
• Once value is built up, SARS then attempts to collect the penalties owed by contacting the company and its officials.
•  - We suspect we are at this point of their plan. - 
• With this collection effort we believe they want to either get paid or establish that the company is refusing / unable to pay.
• Once it is established that the company cannot or refuses to pay, we suspect that SARS will enforce section 246(5) of the TA by turning their attention to the public officer in their personal capacity. We believe they will then transfer the late submission penalties to the public officer or create new penalties and hold the company and the public officer liable for payment of late submission penalties imposed.

So now, what does it mean if you are receiving phone calls, SMS’s and e-mails from SARS, demanding money owed by your dead and buried company? 

It seems you are already in trouble and need to do something as soon as possible. The quicker you react the better you will be able to save your hard-earned money. 

Contact us as soon as possible so that we can start cleaning the SARS tax profiles and close the company for good.