SARS penalties for business.
Unpaid SARS debt rarely stays still — penalties and interest stack up fast, turning a manageable shortfall into a crisis. Here's how SARS penalties work for businesses, and what you can do when they spiral.
Why SARS debt grows so fast
When a business falls behind on its taxes, SARS doesn't just wait quietly. Penalties and interest are added to the outstanding amount — so the longer the debt is unpaid, the bigger it becomes. Many business owners are shocked at how quickly a missed VAT or PAYE payment turns into a debt several times larger.
The main types of SARS penalty
Late payment penalties
If you don't pay a tax debt by the due date, SARS imposes penalties on the outstanding amount. Under section 213 of the Tax Administration Act 28 of 2011, a fixed percentage-based late payment penalty is added — most commonly 10% of the unpaid amount. For taxes like PAYE, the penalty is applied to the amount paid late.
Administrative penalties
SARS levies fixed administrative penalties under Chapter 15 (sections 210 to 220) of the Tax Administration Act for non-compliance such as outstanding returns. These are structured in scales (currently R250 to R16,000 per month depending on the taxpayer's taxable income) and — critically — they recur monthly until the non-compliance is fixed. A return outstanding for a year attracts twelve monthly penalties.
Understatement penalties
If SARS believes income was understated or there was non-disclosure, it can impose understatement penalties under Chapter 16 (sections 221 to 224) of the Tax Administration Act. The percentages are structured in a matrix based on taxpayer behaviour (from "substantial understatement" to "intentional tax evasion") and range from 5% up to 200% of the shortfall. Most disputed cases settle somewhere in the middle of that range.
Interest
On top of penalties, interest runs on the outstanding tax debt under section 187 of the Tax Administration Act, at the prescribed rate published by the Minister of Finance. Interest compounds the problem over time and, unlike penalties, is not usually reduced under compromise applications.
The key takeaway: SARS debt almost never improves by waiting. Penalties and interest mean it grows. Early action is what protects you — the sooner you address it, the more options you have.
What SARS can do to collect
SARS has strong collection powers granted by the Tax Administration Act. Under section 179 of the Tax Administration Act, SARS can appoint a third party (such as your bank, your employer, or a debtor of yours) to pay your tax debt directly from money owed to you — without going to court first. This is known as an IT88a or "third-party appointment" and is one of SARS' fastest collection tools. SARS can also obtain a civil judgment against the company under section 172, and take further steps that escalate quickly. We cover the judgment side in our guide on SARS judgments against companies.
When the debt becomes unmanageable
If your business genuinely cannot pay its SARS debt and there's no realistic recovery, liquidation may be the answer. In a liquidation, SARS is dealt with as a preferent creditor under the Insolvency Act 24 of 1936 — and where the company has no assets, the tax debt is written off when the company is dissolved. We explain this fully in our guide on SARS debt during business liquidation.
There's an important caveat: under section 155 of the Tax Administration Act, PAYE and UIF you deducted from employees but didn't pay over to SARS can create personal liability for directors. SARS raises a personal assessment against directors in these circumstances, which then follows the director rather than the company — meaning the debt survives even if the company is liquidated. This is one of the areas we assess carefully.
Get advice early
SARS penalties are one of the most common reasons businesses come to us. The single most valuable thing you can do is act before the debt spirals further. This article is general guidance and tax rules change — contact us for a free, confidential assessment of your specific situation.
Every case is unique.
This article is general guidance and may change as laws change. Contact us for a free, confidential assessment of your specific situation before you act.
Common questions about SARS penalties
What is the maximum penalty SARS can impose for late payment?
Under section 213 of the Tax Administration Act 28 of 2011, the standard late payment penalty is 10% of the unpaid amount. For understatement penalties under Chapter 16 (sections 221 to 224), the penalty can go up to 200% of the tax shortfall depending on taxpayer behaviour — with the highest percentages applied where SARS finds intentional tax evasion.
Do SARS administrative penalties stop growing after a while?
No. Under Chapter 15 of the Tax Administration Act, administrative penalties for outstanding returns are levied monthly and continue recurring until the non-compliance is corrected. A return outstanding for 12 months attracts 12 monthly penalties. This is why acting quickly on outstanding returns matters — every month of delay adds another penalty.
Can SARS take money directly from my company's bank account?
Yes. Under section 179 of the Tax Administration Act, SARS can appoint your bank as its agent — the bank must then pay funds from your account directly to SARS to settle the tax debt. This is known as an IT88a or 'third-party appointment' and does not require SARS to go to court first. It's one of SARS' fastest and strongest collection tools.
Are directors personally liable for company PAYE that wasn't paid over?
Under section 155 of the Tax Administration Act, directors can be held personally liable for PAYE and UIF that the company deducted from employees' wages but did not pay over to SARS. This is treated differently from ordinary company tax arrears — SARS raises a personal assessment against the director, which then follows the director rather than the company. This is why the 'deducted-but-unpaid' PAYE question is one of the first things to check.
When are SARS penalties written off in a company liquidation?
When a company is liquidated, SARS is treated as a preferent creditor under the Insolvency Act 24 of 1936 and is paid from available assets in statutory order of preference. Any SARS debt beyond what the assets cover — including penalties and interest — is legally extinguished when the company is dissolved. The exception is section 155 personal assessments against directors, which survive company dissolution and remain the director's problem to resolve separately.