FINANCE: Avoid SARS Penalties
Recent Western Cape Business News
With the end of the year rapidly approaching, many companies, particularly SMME’s, with 31 December year-ends, are set to find themselves under significant cash flow pressure as a result of not having budgeted effectively for their tax liabilities.
According to Gary Palmer, MD of Paragon Lending Solutions, unfortunately many companies do not necessarily maintain even basic monthly financial reporting and are therefore unaware of what their potential tax liabilities are likely to be at the end of the year. “This, combined with a lack of understanding of tax laws, tough economic conditions and unexpected expenses at this time of year, often leads to an under-provision by companies for tax commitments,” he says.
He says that for companies that find themselves in this position, it is critical that they take steps to ensure they are able settle any liabilities with SARS timeously in order to avoid severe penalties, or legal action.
“SARS is becoming increasingly stringent and efficient on tax collections. For the 2010/2011 fiscal year, SARS collected R2bn more than the target of R672,2bn that was announced in the February 2011 budget. With Government under pressure to deliver on job creation and infrastructure commitments, SARS is likely to tighten up even more when it comes to company tax collections. .
He says that even if a company has queries on a tax liability, it is advisable to make the payment within the required period and then settle any questions or present an argument to SARS at a later stage.
However, Palmer explains that for many smaller companies or property developers, settling an unexpectedly large tax bill at short notice could be a major financial challenge due to an unavailability of large cash reserves. “Many companies find themselves in a position of high asset value but low cash flow. With banks increasingly reluctant to grant credit, particularly for non-core activities such as a tax liability, companies may need to look to alternative forms of financing to service their tax liabilities quickly and effectively.”
Palmer says one method of achieving this is by means of asset-backed finance whereby companies can secure finance against the value of a property.
“As banks become more selective with regards to financing, investors are increasingly seeking alternative sources of funding. We are noticing more and more investors moving towards second tier lenders and away from banks,” he says.
According to Palmer, as long as the client has an unbonded property and the exact tax liability can be verified, it’s likely that an asset-backed lender will consider the loan. “Following this and using the asset of the borrower as collateral, the lender will confirm with SARS that there is a facility in place and make a direct payment to SARS,” he says.
Business News Sector Tags:
Fax 2 Email
Study IT Online
Work from Home