Most people know a late tax return carries a penalty. Very few know what it actually costs, or that it keeps charging every month until the return is filed.
The amounts are set out in a published table and are not negotiated. They are determined by your income, not by how much tax you owe.
Here is what a late return costs, how long it runs for, and what you can do if the penalties have already started.
There Are Two Different Penalties
These get confused constantly, and they work differently.
The administrative non-compliance penalty applies because a return is outstanding. It is tied to filing, not to payment. If you are registered for income tax and your income falls below the tax threshold, you are still expected to submit a nil return, and failing to do so can trigger the penalty automatically.
The understatement penalty applies because what you declared was wrong. It is calculated on the tax shortfall, not on the fact of being late.
You can be charged both. This post covers the first in detail, because it is the one most people trigger without realising.
What the Monthly Penalty Actually Is
The administrative penalty is a fixed monthly amount, determined by your taxable income for the preceding year of assessment.
Taxable income or assessed loss, and the monthly penalty:
- Assessed loss: R250 per month
- R0 to R250,000: R250 per month
- R250,001 to R500,000: R500 per month
- R500,001 to R1,000,000: R1,000 per month
- R1,000,001 to R5,000,000: R2,000 per month
- Above R5,000,000 to R10,000,000: R4,000 per month
- Above R10,000,000 to R50,000,000: R8,000 per month
- Above R50,000,000: R16,000 per month
Note the first line. An assessed loss still attracts R250 per month. Making no profit does not exempt you from the penalty for not filing.
The penalty attaches to each outstanding period, which is why a remission request has to list each period and amount separately. More than one outstanding year means more than one penalty.
How Long It Runs
This is the part that catches people.
The penalty is charged for each month the return remains outstanding, up to a maximum of 35 months where SARS has your registered address, or 47 months where it does not.
It does not stop on its own. It stops when you file.
A worked example. Someone with taxable income of R400,000 falls in the R500 per month bracket. If the return sits outstanding for a year, that is R6,000 in penalties, before any tax owed and before any interest.
Left for the full 35 months, the same return reaches R17,500.
The return itself might have taken an afternoon.
Interest Is Separate
If you owe tax, interest is charged on the outstanding amount at the prescribed rate, in addition to the penalty.
The prescribed rate is set by SARS and changes periodically, so check the current rate rather than relying on a figure you read somewhere.
The important point is that interest and the administrative penalty are two separate charges. Settling the tax does not stop the penalty, and filing the return does not remove the interest already accrued.
Understatement Penalties Are a Different Matter
Where the amount declared on a return is wrong and SARS is prejudiced as a result, an understatement penalty may apply under the Tax Administration Act.
This penalty is a percentage of the tax shortfall, and the percentage is set by the behaviour involved.
A genuine bona fide inadvertent error attracts no understatement penalty. Beyond that, the table starts at 25% for a lack of reasonable care and rises to 200% for intentional tax evasion in a repeat case.
SARS has no discretion here. Where a behaviour category applies, the penalty is mandatory, which is why taxpayers are sometimes penalised for errors they considered minor or technical.
If the Penalties Have Already Started
Two things, in this order.
File the outstanding return
The penalty recurs every month until the return is submitted, and every month of delay adds another full month's charge. Filing is what ends it.
Then consider a request for remission
A Request for Remission is submitted on eFiling, or at a SARS branch by appointment, asking for the penalty to be reduced or set aside.
SARS sets out the grounds it will consider. These include a first incidence of non-compliance, or non-compliance that lasted under five business days, where there were reasonable grounds and the non-compliance has been remedied. Exceptional circumstances are also considered, such as a natural disaster, serious illness or accident, a SARS error, or serious financial hardship.
The request must describe the circumstances that prevented compliance and list each period and amount, along with the transaction code from the penalty assessment letter. Each recurring monthly penalty carries its own transaction number.
It is considered on its merits rather than granted automatically, which is why filing the return first still matters.
The administrative penalty is unusual in that it is entirely avoidable and entirely predictable. The amount is set by a published table, it does not depend on how much tax you owe, and it is triggered by one thing only.
It simply starts when a return is late and runs until the return is filed.
Have Outstanding Returns?
We bring outstanding returns up to date, deal with SARS on your behalf, and submit remission requests where there are grounds for one.
Important: This article provides general guidance for South African taxpayers. Penalty amounts and rates are set by legislation and may be amended. Consult a qualified accounting professional for advice specific to your circumstances.