What SARS charges when VAT is paid late
The penalty and interest SARS charges a South African vendor that pays VAT late, when a payment counts as received, and how to record the charges.
By Achekam · · 5 min read · For Running a business businesses in South Africa
The VAT return went in on time. The payment went out on the due date, late in the afternoon. A few weeks later the statement of account shows a penalty and interest, and the owner cannot see why: the money was paid, wasn't it?
Late VAT is one of the most avoidable costs a South African business carries, and it often comes from timing and referencing rather than from not having the money. This article explains what SARS charges when VAT is paid late, when SARS treats a payment as received, how a payment without the right reference can end up somewhere you did not intend, and how to record the charges in your own books if they do land.
The penalty, and interest on top
SARS's page on the obligations of a VAT vendor says plainly that late payments of VAT attract penalty and interest.
The penalty is spelled out in SARS's VAT 404 guide for vendors: a vendor that fails to pay VAT within the period allowed is charged a penalty of 10% of the unpaid tax. That is in addition to any understatement penalty included in an assessment, which is a separate matter that arises when a return understated the tax.
Interest is the second charge. Check the current rate with SARS rather than relying on an old figure. The point to hold onto is that the penalty, as the guide describes it, is a percentage of the unpaid tax, while interest is a charge that runs with time. Paying late but soon is better than paying late and later.
The VAT 404 issue quoted is issue 15, up to date as at 17 December 2024.
When SARS treats a payment as received
The afternoon payment in the opening example is where most late payments come from. SARS's payment rules say SARS only recognises a payment once it is received into the SARS bank account, and a payment received after the due date is a late payment. Taxpayers must therefore pay before their bank's cut-off time.
So the question is never "when did we pay?" but "when did SARS receive it?". A payment made at the end of the due date, after the bank's cut-off, can arrive the next business day, and that makes it late, even though it left your account in time by your reckoning.
When the VAT201 is due, and how the due date works for e-filers, is covered in when the VAT201 return and payment are due. The wider rules on timing are in when a SARS payment counts as on time.
How an unreferenced payment can go to an older debt
The second cause is referencing. SARS's payment rules say unreferenced or partial payments may be allocated to the oldest debt first, on a first-in-first-out basis.
Picture a business with an old, disputed amount sitting on its VAT account. It pays this period's VAT in full, on time, but with a wrong or missing reference. SARS may apply the money to the old debt first, which leaves the current period showing as unpaid, and that unpaid current period then attracts the penalty and interest this article is about.
The safeguard is simple: use the correct payment reference for the period every time, and check SARS's statement afterwards to confirm the payment landed where you meant it to. How to make an EFT to SARS with the right beneficiary and reference is covered in paying SARS by EFT with the right reference.
SARS's guide to SARS payment rules explains the payment channels, reference numbers and beneficiary details SARS needs so that payments are accepted and allocated correctly.
Refunds set off against what you owe
The effect of a debt reaches beyond the payment side. SARS says a VAT refund is set off against any outstanding tax debt, with any balance paid to the vendor.
A business that has penalties and interest outstanding, perhaps without realising, can find that its next refund is smaller than expected, because part of it has been used to clear them. That is another reason to look at SARS's statement of account regularly, not just at the return.
Recording the payment, penalty and interest in your books
When the penalty and interest do arrive, they belong in your books as well as on SARS's statement, so the VAT liability in your ledger agrees with SARS.
Match the payment. In Achekam, bank lines are matched by suggestion and a person accepts each match. A line not yet in the books becomes a suggested journal that a person approves, and a reconciliation completes only when no difference is left or every leftover line is explained. The VAT payment to SARS should be matched to the VAT liability it settles.
Post the charges. A business can post manual journals. An unbalanced journal, or one dated in a closed month, is refused, and a posted journal is corrected only by a reversal. Post the penalty and the interest as their own lines, separate from the VAT itself, so they can be seen and questioned rather than buried in the VAT account.
Mind closed months. Months can be soft-closed, hard-closed and locked, and a closed month refuses postings from every source. Reopening a hard close needs a second approver. Penalties often arrive after the period they relate to has been closed, so post them in the month you receive SARS's notice, with a description that names the period they relate to.
| Item | Where it goes |
|---|---|
| The VAT payment | Against the VAT liability for that period |
| The late-payment penalty | Its own expense line, not the VAT account |
| Interest charged by SARS | Its own line, separate from the penalty |
A routine that avoids most of it
Pay VAT at least a business day before the due date, use the correct reference every time, and check the statement of account each month for anything unexpected. If a penalty does appear, find out whether it was timing or referencing, fix that cause, and record the charges openly. One penalty is a lesson; the aim is to make sure there is not a second.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
