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Article by listed Cape Town Attorney: Nanika Prinsloo

  Failure to Pay VAT

What happens if you do not pay over VAT to SARS

Businesses often collect VAT but don’t pay it over to SARS as the money is used for cash flow.  What happens if you not pay over VAT? Can SARS charge you with theft and be successful? This is exactly what happened with the shareholder in the matter of Grayston Technology Investments (Pty) Ltd and Another v S [2016] 4 All SA 908 (GJ).

Not paying over VAT is not theft

Grayston didn’t pay over VAT or PAYE or handed in tax returns to SARS for 8 years.  SARS charged the shareholder with theft and the latter was convicted of theft, but he appealed.  On appeal, the court had to decide whether not paying over VAT to SARS is indeed the crime of theft or not.  Fortunately for Grayston, the appeal court found that not paying over VAT to SARS does not constitute theft.

The court's reasons

The reason for this, the court said, was because the relationship between SARS and any entity/person registered for VAT (VAT vendor) is that of a debtor and a creditor.  As soon as this relationship exists, it is a civil matter and not a criminal matter and the person/company cannot be found guilty of a crime.  Well, of course, if there was fraud committed by the company of person with regards to VAT returns, he/she can be successfully charged with fraud.  In the normal run of business where VAT invoices are issued and the monies paid into the business’ bank account, that is not theft because at the time of receiving the money into the bank account of the business, the money is not owed to SARS yet. 

Not an agent of SARS

The court said further that a business that receives VAT monies is not an agent of SARS in terms of any of the VAT Act (Value Added Tax Act 89 of 1991) or any other laws or common law.   

Civil matter

This means that all that can happen if you fail to pay over VAT to SARS is that SARS must issue summons against you for the outstanding amounts like any other creditor will have to.  Just as owing monies to any other creditor is not theft, but a civil action (they must issue summons), so must SARS issue summons and follow the steps in the collection procedure.

What happens if you don't pay over VAT to SARS

Business owners therefore do not have to fear that they will be criminally charged if they did fail to pay over VAT to SARS.  If the business is in an insolvent state (unable to pay its debt), it is better to liquidate the entity as soon as is possible to get rid of the problems.

Another article of interest would be how to avoid a VAT audit with SARS.

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