EP18: Avoiding the Hidden Costs of Non-Compliance: Penalties, Interest & Provisional Tax

Tax penalties aren’t just numbers on a statement—they’re stress triggers that keep entrepreneurs awake at night. In this episode, we break down the different types of penalties from SARS, why they happen, and how to prevent them from derailing your business. From understatement penalties to late payment interest, provisional tax traps, and voluntary disclosure agreements, we cover it all in plain, practical language. If you’ve ever felt blindsided by a notice from SARS, this episode will give you the clarity and confidence to face compliance head-on.

Three Key Takeaways

1. Penalties are behaviour-based — understatement penalties range from 10% to 150%, depending on intent and negligence.
2. Interest is non-negotiable — it compounds monthly at rates linked to repo, and unlike penalties, SARS almost never waives it.
3. Provisional tax is a hidden trap — earning more than R30,000 in non-salary income makes you liable, even if you didn’t “register.”

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Transcript

hi there
and welcome to the Rev Room
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I'm Francois
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let's get into it
Wayne
can you tell us more about understatement of penalties
so understatement of penalties
these apply when a taxpayer makes an error
a mission or misrepresentation in return
that results in an understatement of tax
the percent penalty
percentage depends on the behaviour in case
if the substantial understatement is 10%
where reasonable care is not taken
source can impose 25%
when there's no reasonable grounds 50%
gross negligence
hundred percent intentional tax evasion 150%
these can be reduced or increased depending on the
whether the taxpayer voluntarily disclosed
before or after notification of order
and
what can you tell us about percentage based penalties
so these are
are levied as a percentage of the tax payable
when there's a late payment
everyone knows this with regard to the VAT and Pai
and provisional taxes and this is typically 10% uh
for late payment okay
and we often see that these penalties go with interest
can you tell us more about the interest
yeah so interest is not strictly a penalty
but often applied with them
it's charged on the late payment
interest is compounded monthly at the prescribed rate
which is linked to the repo rate
plus a small percentage and unlike penalties
SARS has little discretion to waive interest
in my experience they never waive interest
but but obviously penalties is a different case
okay uh
if a taxpayer willfully
and knowingly commits tax offences
what can actually happen to them
so in that case source source can
impose a fine or an imprisonment of up to two years
in some cases five years in practice
the most common source penalties that taxpayers face
are fixed
monthly admin penalties for outstanding returns
10% for late payment and and understatement penalties
if SARS adjust an assessment okay
when let's say that uh
I log into SARS as a first time a taxpayer
and I go into my e filing
and I see that there is an SARS notification
to get there
I go to the attachment and I see that I've got uh
debt with us and I don't know where that came from
I don't know what to do with it
what is it that I can do to remit that
okay so you
SARS does allow taxpayers to request remission
if they can show that the non compliance
was due to a valid reason beyond their control
could be illness could be it failures
could be natural disasters
and obviously they need to look at that
because if there are any valid reasons
then they need to
to request a remission of those penalty
and the truth is
most people don't know that they have to actually
they are liable to be taxpayers
because there are many rules when it comes to
who is a taxpayer
who must file returns and who must not
so some people don't understand understand yes
particularly with regard to provisional tax
cause provisional tax is
is not a tax that you register for
yes OK
so provisional tax
you either are a provisional taxpayer
or you're not a provisional taxpayer
and the and the way it is
you could be a provisional taxpayer this year
and not a provisional taxpayer next year
so invariably if you are earning
taxable income in excess of 30,000 rand
that's not P a y
E related so it's for any sort of rental of a property
uh if you're earning interest income
and the taxable income
portion of it is above 30,000 rand
you are then liable for provisional tax in this
in that year
and I think it's important to understand that
because one you might um
don't believe you are a professional taxpayer
and then when you get your R t 3 b from the bank
you see my interest is now 40,000 rand or
or let's say not 40,000
let's say it's 80,000 rand less my exemption
so my taxable income is
50,000 now
suddenly you should have been a provisional taxpayer
and then you decide no well
I'm not gonna submit my return in uh in October
I'm gonna actually submit it later
then you're gonna get penalties
cause you're late to your submission
so it's actually important to understand
when you are provisional taxpayer
and the bottom line is
if your taxable income exceeds 30,000 from non r P
related income you are you are a provisional taxpayer
okay and let's talk about the administrative
non compliance penalties
that are charged on a monthly basis
so these are recurring fixed penalty
is from 250 rand to 16,000 rand per month
the penalty charge how is it determined by us
it's actually determined on your previous return
on the taxable income
so obviously the higher the taxable income you are
the higher the penalty that is
and let's say that I've incurred these penalties
and then I've submitted my tax returns
what am I to do next
according to the to write off these penalties
do I write to SARS you write to SARS and you
and you request remission
and you give them a valid reason
why you think that these penalties
should be waived okay
thank you so much for that
and on late penalties let's say that um
I'm an employer
I am registered for PAYE and the 7th fell on a Saturday
the 7th fell on a Saturday or like the on a Sunday
and I forgot to make an payment on the Friday
can I ask SARS to write that off
typically no OK
because the payments gotta be
gotta be done on the last working day before the 7th
so if the 7th falls on a Saturday
you have to pay by the Friday
but if you can prove to SARS that you made the payment
and it didn't go through the bank
or there's a size error then you can fight it okay
what happens when I make the payment on Friday
but then on eleven PM
I think you can still fight it okay
you can still fight it typically
the banks will tell you what they'll say to you
what their cut off is and normally at 11:00 uh
it's too late
but I know some banks that you can actually
you do the payment
and it's immediately waiting for authorization
but it's not the same for all banks
so typically you should make sure you do the payment
by early afternoon and don't leave it to the last hour
okay thank you so much
and what can you tell us about VDP
well VDP is a voluntary disclosure agreement
and this is where you actually
you've submitted a tax return um
and then you found out all this income that
that you weren't
you didn't know that you were receiving
it could be income from a trust or that it actually
the trust financials were not done yet
so then you can approach SARS and say listen
and you can do what they call a VDP
where you actually approach SARS and say
there's a genuine understatement of and
and give them valid reasons
um why you should not be penalties should be imposed
we recently did one that went back two years
two years and it was in respect of the 2023 tax year
and it's quite an arduous process
uh source weren't
will not uh do a remission for uh interest
but they were for penalties and in this case our
the client that we did there were no penalties
we imposed cause it was a genuine um
uh
he didn't know the income was there until he got the
the trust return so it's
they can see there's a genuine
there's no intentional intent to understand his penalty
to understand his tax okay
then thank you so much wayne for that
and that's it on penalties
thank you Nolo
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