Everything You Need to Know About SARS Penalties And Interest | Blu Solutions
Introduction
Dealing with the South African Revenue Service (SARS) can be daunting, especially when you receive a notice about SARS penalties and interest. Whether you’re a first-time entrepreneur in George, a freelancer in Cape Town, or a small business owner in Mossel Bay, understanding how these charges work is crucial for your financial health. At Blu Solutions, we’ve helped countless clients navigate the complexities of tax compliance across the Western Cape. In this guide, we’ll break down everything you need to know about SARS penalties and interest – from how they’re calculated to practical steps you can take to minimise or even avoid them.
1. What Are SARS Penalties and Interest?
SARS imposes penalties and interest to encourage timely and accurate tax compliance. These charges are not arbitrary; they are governed by the Tax Administration Act, No. 28 of 2011. The two main categories are:
- Penalties: Fixed or percentage-based fines for late submissions, underpayments, or incorrect returns.
- Interest: A daily charge on outstanding tax debt, calculated from the original due date until full payment is made.
For example, if you owe R50,000 in provisional tax and submit your return three months late, you could face a late submission penalty of up to R1,000 per month (capped at 12 months) plus interest at the prescribed rate (currently 10% per annum for underpayments).
2. Types of SARS Penalties You Need to Know
2.1 Late Submission Penalty
If you fail to submit your tax return (e.g., ITR12 for individuals or ITR14 for companies) by the due date, SARS will impose a penalty. For individuals, this starts at R250 per month for the first month, increasing to R500 per month from the second month onwards. For companies, the penalty is R1,000 per month. These penalties are capped at 12 months.
2.2 Understatement Penalty
If you understate your taxable income – whether intentionally or due to negligence – SARS can levy an understatement penalty. This ranges from 10% to 200% of the shortfall, depending on the behaviour. For example:
- Substantial non-disclosure: 25% penalty
- Reckless conduct: 50% penalty
- Intentional tax evasion: 100% to 200% penalty
This is why accurate record-keeping is non-negotiable. A simple mistake in your VAT return could cost you thousands of rands.
2.3 Administrative Non-Compliance Penalty
This is a fixed penalty for failing to comply with specific administrative requirements, such as not registering for tax, not issuing tax invoices, or not maintaining proper records. The penalty can be up to R5,000 per month for each instance of non-compliance.
3. How Interest Is Calculated on SARS Debt
Interest on unpaid tax is calculated daily and compounded monthly. The rate is determined by the Minister of Finance and is reviewed quarterly. As of 2025, the rate for underpayments is 10% per annum, while the rate for refunds (if SARS owes you) is 8% per annum.
Example: If you owe R100,000 in income tax and fail to pay on time, you will accrue interest at a rate of 10% per annum. This means you would owe approximately R10,000 in interest for a full year of non-payment, compounded monthly.