How much is your dormant company costing you in tax penalties?

The recent implementation by SARS of late-submission penalties applies to all registered companies, whether actively trading or dormant. Neill Hobbs, tax specialist and CEO of Hobbs Sinclair warns directors and entrepreneurs that the late-submission penalties will apply to non-trading companies and continuing to ignore tax compliance of a dormant company will result in an unwelcome surprise from SARS.

Last year, SARS issued a notice stating that from 1 December 2022 admin penalties will be charged for late submission of income tax returns which are outstanding from 2007 to 2020. The additional consequence is, these non-compliance penalties will continue to re-occur until the submission of the unpaid tax returns. The penalties accrue monthly and are based on the estimated taxable income available to SARS, ranging from R250 to R16 000 per month and remain due to SARS for payment even after the submission of the tax returns.

“If you have had a dormant company, that hasn’t traded for a few years and is behind on submitting tax returns, SARS will implement a penalty based on the most recent tax return received,” says Hobbs. “The best-case scenario is a penalty of R250 per month, even if the company has not made a profit or has an assessed loss. The penalty is back-dated and accumulative,” he explained. A quick calculation shows that a company that has been dormant for 35 months (as per the penalty) and has not submitted income tax and VAT returns will have incurred minimum administration penalties of R18000 for income tax and R120 000 for VAT respectively. “De-registration of the company will not cancel the tax obligation and the longer you wait, the worse it’s going to get,” he says.  He advises directors and business owners to check with CIPC which companies they are directors of and instruct their tax practitioners to conduct a tax status compliance check to ensure that these companies’ tax affairs are in order. A tax clearance certificate will confirm this.

Hobbs says that SARS’ toughened attitude to tax compliance can result in crippling tax penalties. “The writing is on the wall and a complete scrubbing of the decks is required.” Ensuring tax compliance of individual and trust returns is just as important. “We have recently been consulted by a new client who received a notification from SARS with respect to penalties due, having to pay over R175 000 to normalise a situation of a dormant company he had forgotten about.”

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