Compliance is an essential part of building a successful business. Part of tax compliance for businesses is ensuring that you are up to date with your ITR14 (Income Tax Return for companies) and IRP6 (provisional tax return).
Some SMEs make the unfortunate mistake of confusing ITR14 with IRP6, and when they have completed the IRP6 (provisional tax return), they assume they have completed their tax compliance. However, these two returns are different.
Not submitting your ITR14 or IRP6 on time can have several consequences. These consequences include penalties, difficulty getting tax clearance certificates, blocked opportunities due to non-compliance, loss of income, legal consequences, and more.
In this article, we’ll unpack the ITR14 and how to handle it as an SME.
ITR14 VS IRP6
ITR14
The South African Revenue Service (SARS) requires that all small businesses adhere to tax return deadlines. The ITR14 (Income Tax Return for Companies) and the IRP6 (Provisional Tax Return) serve a different purpose, and also differ in the frequency of submission.
The ITR14 is the annual reconciliation of a company’s total income, expenses, and tax liability for a financial year. This return determines the final tax due to SARS. For most companies, the financial year-end is in February. However, for non-February year-ends, or for those submitting through eFiling, the deadline structure typically requires that they submit returns 12 months from year-end for submission. (This means that you have a year to submit the previous year’s returns, not the one that has just concluded.)
Businesses are required to specify their filing date on their SARS eFiling profile.
IRP6
The IRP6, or Provisional Tax Return, is a mechanism designed to help companies pay their estimated tax liability in advance throughout the year, thus easing the burden of a single large payment and improving government cash flow. Companies are typically required to submit and pay provisional tax twice a year:
- First Period: Due six months into the company’s financial year. This payment covers the first half of the tax year.
- Second Period: Due at the end of the company’s financial year. This is the final estimate before the ITR14.
An optional Third Period payment, also known as a top-up, can be made within seven months of the company’s financial year-end for companies that have significantly underestimated their tax in the first two payments. This gives these companies room to incur interest charges related to underestimation.
Small businesses must proactively manage these deadlines. Failure to submit the ITR14 or IRP6 on time, or under-estimating the provisional tax liability, triggers harsh penalties under the Tax Administration Act. Accurate record-keeping throughout the year is non-negotiable. This ensures timely and precise submissions for both the ITR14 and the IRP6, helping you maintain tax compliance.
What Happens If You Miss the ITR14 and IRP6 Deadline?
ITR14 and IRP6 are deadlines that are often missed by many SMEs. If you happen to miss the deadline for your company income tax return, it is crucial to act quickly. It’s better to suffer less from the consequences of missing the deadline by just a few days or weeks than to wait longer and suffer irreversible consequences.
Consequences of missing the IRP6 deadline include a 10% penalty on the tax you haven’t paid, you can have your profile flagged as non-compliant, accumulating daily interest on unpaid tax, and ruining your tax clearance status. Once flagged as non-compliant, SARS is likely to scrutinise your future filings and activities more closely. Being placed under such scrutiny can result in full-scale audits that are time-consuming.
Similar to the IRP6, when you miss the ITR14 deadline, you can miss out on opportunities such as funding, contracts, and tenders due to a negative tax compliance status (TCS). When businesses ignore these initial repercussions, they multiply the severity of the issue.
A TCS that is non-compliant can derail a business’s operations in South Africa. Without a valid TCS, an SME cannot do the following
- Bid on government tenders
- Receive foreign currency payments from SARS (such as those related to exports).
The effect of non-compliance with TCS leads to a restriction on growth and access to business opportunities. Thus, tax compliance is not merely a box to tick; it is a legal obligation and a necessity for the financial health of an SME.
Manage Your Tax Compliance Status
To manage your tax compliance status and ensure that it is positive, you must start by informing yourself on what being tax compliant entails. To be tax compliant, you must ensure the following:
- You are up to date on all your tax returns.
- You have registered for all the types of tax you are responsible for.
- You have updated your registered particulars.
- You do not owe SARS unless a payment arrangement has been made.
- You have declared all your registered tax reference numbers.
SARS gives you access to digitally view your current compliance status through the My Compliance Profile via SARS eFiling. This allows you to identify tax areas in which you are non-compliant. Once you have identified these areas, you can take the necessary steps to ensure you correct them.
To access your My Compliance Profile, follow these steps:
- Head to secure.sarsefiling.co.za/app/login and login. If you do not have an eFiling profile, head to www.sars.gov.za to register.
- You need to have at least one tax product already activated.
- If you are registered for more than one type of tax, complete the merge entities function. This allows you to view your complete profile of taxes.
- Once you’ve done the activation, you will be able to access your My Compliance Profile.
- View your profile by heading to the My Compliance Profile option in the menu.
You will see a colour-coded profile, which will be an indication of your overall tax compliance status. If it’s red, that means you are not tax compliant. On the other hand, if it’s green, then you are tax compliant.
Take Your Tax Compliance Seriously
The best thing any business owner can do for the health of their business is to ensure their affairs are in order. The last thing you need is to lose funds because of penalties, or even worse, face legal prosecution. Therefore, follow a preventative approach and always ensure your tax returns are up to date.
