SARS is coming after company directors’ personal money

SARS is now actively pursuing the recovery of several million rand in outstanding company tax debt, and using the Tax Administration Act (TAA) to hold directors and other representative taxpayers personally liable for company tax debts.

This is according to Tax Consulting South Africa’s Head of Tax Controversy & Dispute Resolution, André Daniels, who said the South African Revenue Service (SARS) is coming after non-compliant companies.

In its hunt for millions of rands in outstanding tax debt, the revenue service is now pursuing directors in their personal capacity as the company’s representative taxpayer.

“As such, SARS regards the individual as responsible for the business’s financial management, including the payment of its tax obligations,” Daniels said.

From a recent Notice of Personal Liability to the director, it is clear that SARS is now actively leveraging its powers under the TAA.

This Act specifies that representative taxpayers, such as directors and public officers, may be held personally liable for company tax debts.

“For some time, SARS has warned that it would begin holding representative taxpayers in their personal capacity liable for outstanding company tax,” Daniels said.

“That warning is now translating into real enforcement, as is evident from recent cases where SARS came after directors’ purses.”

Daniels explained that, in one such instance, the SARS notice stated that the tax liability arose, amongst other things, from the non-submission of tax returns.

This resulted in estimated assessments and/or the submission of tax returns with partial, late, or no payments. “The amount SARS seeks to collect includes additional tax, penalties, and/or interest,” the notice read.

Crucially, SARS pointed to information obtained from third parties, which suggested that tax was withheld but not paid over.

This third-party information also suggested that the company may have had the financial means to legally settle its obligations at the relevant time.

In response, SARS said it may initiate recovery steps directly against the individual as the representative taxpayer. These could include issuing notices to banks or anyone holding money payable to the director.

SARS may also file certified statements with the relevant court, which has the effect of a civil judgment, and even pursue sequestration of the director’s personal estate.

Broad legal powers allow SARS to pursue individuals for company tax debt

Daniels explained that section 180 of the TAA empowers SARS to hold third parties personally responsible for a company’s tax debt.

The taxman can only do so if the person “controls or is regularly involved in the management of the overall financial affairs of a taxpayer”.

In addition, SARS must first determine that the person acted negligently or fraudulently concerning the taxpayer’s tax debt.

“This liability extends beyond the core tax amount to include related penalties and interest,” Daniels said. “Moreover, personal liability is not limited to individuals formally holding financial roles within the company.”

Any person involved in financial decision-making, whether it be a director, shareholder, or financial officer, may be held accountable if their conduct contributes to non-compliance.

In addition, sections 153 to 155 of the TAA impose liability on a representative taxpayer, which is defined as anyone responsible for managing the company’s tax affairs.

“Beyond financial recovery, SARS also has the authority to pursue criminal proceedings in appropriate circumstances, further raising the stakes for non-compliance,” Daniels said.

In the above case, the director was given an opportunity to make representations as to why he should not be held personally liable.

However, Daniels explained that the burden of proof placed on the director was substantial. The revenue service required:

• A detailed written explanation for the non-payment of taxes
• A full account of how company funds were utilised during the period in question
• Certified bank statements, financial statements, and management accounts covering up to five years

Where any of the requested material was unavailable, a written explanation was required, SARS said. All submissions had to be made within 10 business days.

Failure to do so could lead to SARS proceeding to hold the director personally liable under the relevant provisions of the TAA.

SARS turns up the pressure with 10-day demands on company tax debt

“In a separate case, SARS escalated matters further by issuing a Notice of Personal Liability – Final Demand to a director who failed to respond adequately to earlier correspondence,” Daniels warned.

“Despite being given an opportunity to provide reasons why he should not be held personally liable, the director did not satisfy SARS’ requirements.”

As a result, SARS confirmed that it had decided to hold them liable in their personal capacity in terms of sections 155, 157 and/or 180 read with section 184(2) of the TAA.

The director was given just 10 business days to settle the outstanding amount. If they failed to do so, SARS warned that it would commence collection steps against the director personally, without further notice.

“In both cases, SARS imposed limited timeframes within which taxpayers could seek remedies, such as a compromise of tax debt application or a payment arrangement,” Daniels said.

With SARS actively exercising its powers under the TAA to hold individuals accountable where companies fail to meet their tax obligations, personal liability is no longer a theoretical risk.

Instead, Daniels warned that it is now a practical reality which carries serious personal consequences for directors and company representatives.

“The latest SARS notices confirm that non-compliance has become way more risky for those responsible for a company’s financial management, which includes filing tax returns and general tax obligations,” Daniels said.

“Directors and representative taxpayers should ensure that company tax affairs are properly managed, that all returns are submitted, and that any outstanding liabilities are addressed without delay, or risk receiving similar notices.”