From a recent Notice of Personal Liability to the director, it is clear that SARS is now actively leveraging their powers under the Tax Administration Act (TAA), 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. That warning is now translating into real enforcement, as is evident from recent cases where SARS came after directors’ purses.
SARS Sets Out Its Case
In one such instance, the SARS notice states that the tax liability arose from, amongst other things, non-submission of tax returns which resulted in estimated assessments, and/or the submission of tax returns with either partial, late or no payment. The amount SARS seeks to collect includes additional tax, penalties, and/or interest.
Crucially, SARS points to information obtained from third parties suggesting that tax was withheld but not paid over, and that the company may have had the financial means to legally settle its obligations at the relevant time.
SARS says it may initiate recovery steps directly against the individual as the representative taxpayer. These could include issuing notices to banks or anyone holding money due to the director, filing certified statements with the relevant court, which has the effect of a civil judgment and even pursuing sequestration of the director’s personal estate.
See the excerpts from the SARS notice:
A Strong Legal Framework Behind Personal Liability
Section 180 of the TAA empowers SARS to hold third parties personally responsible for a company’s tax debt if:
- The person “controls or is regularly involved in the management of the overall financial affairs of a taxpayer”; and
- SARS determines 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.
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, 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, referring to 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.
A Narrow Window to Respond
The director was given an opportunity to make representations as to why he should not be held personally liable. However, the burden of proof placed on him was substantial.
SARS 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; and
- 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.
Representative Taxpayers Should Take Note: These Are No Idle Warnings
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. 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, the tax authority confirmed: “SARS has accordingly decided to hold you liable in your personal capacity in terms of section 155, 157 and/or section 180 read with section 184(2) of the Tax Administration Act 28 of 2011.”
The director was given just 10 business days to settle the outstanding amount, failing which SARS would commence with 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.
Excerpt from SARS Notice of Personal Liability – Final Demand:
From Theoretical Risk to Practical Reality with Serious Personal Consequences
With SARS actively enforcing the powers available to it under the TAA to hold individuals accountable where companies fail to meet their tax obligations, personal liability is no longer a risk in theory, but a practical reality carrying serious personal consequences.
The latest SARS notices confirm that non-compliance has become way more risky for those responsible for a company’s financial management, which include filing tax returns and general tax obligations.
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.
