Most business owners assume that, because they trade through a company, the company’s tax debts stay with the company. That assumption is becoming expensive.
SARS has made clear that it is targeting the individuals behind companies with tax arrears. Directors and others who manage a company’s finances are receiving letters giving them as little as 10 business days to explain why they should not be held personally liable for millions of rand in company tax. If they do not respond properly, SARS can collect from their personal bank accounts, attach their assets and, ultimately, apply for the sequestration of their estates.
The legal basis
The Tax Administration Act 28 of 2011 gives SARS several routes to recover a company’s tax debt from individuals.
Section 180: persons involved in financial management. A person who controls, or is regularly involved in the management of, the overall financial affairs of a company may be held personally liable for its outstanding tax debt, to the extent that the person’s negligence or fraud resulted in the failure to pay. This is not limited to formally appointed directors. A shareholder who runs the business, a financial manager or a “silent” partner who signs off on payments may fall within it.
Sections 153 to 155: representative taxpayers. Every company must have a representative taxpayer, usually its public officer. A representative taxpayer may be personally liable for tax payable in that capacity where, while the tax remained unpaid, they disposed of or parted with company funds that could have been used to pay it.
Other provisions. SARS may also pursue shareholders who received assets from a company being wound up (section 181), persons who assisted in dissipating assets to avoid tax (section 183), and transferees of assets from connected persons for no or inadequate consideration (section 182). Separately, employers who deduct PAYE but fail to pay it over, or who collect VAT and do not remit it, face personal and even criminal exposure.
When SARS is most likely to act
SARS tends to pursue personal liability where:
- the company withheld PAYE from employees or collected VAT from customers but did not pay it over;
- the company stopped filing returns, leading to estimated assessments;
- the company kept trading and paying other creditors, or the owners, while SARS went unpaid;
- director loans were repaid or dividends declared while tax was outstanding; or
- the company was deregistered, liquidated or left dormant with tax debt in place.
SARS uses third-party data, including bank and supplier information, to assess whether the company could have paid its tax when it fell due. If the money was there and was used for other purposes, the risk of a negligence finding is high.
What the process looks like
Typically, SARS sends a letter of intended personal liability setting out the company’s debt and the grounds on which it believes the individual is responsible. The individual is invited to make representations, often within 10 business days, and may be asked for:
- a detailed explanation of why the tax was not paid;
- an account of how the company’s funds were used during the relevant period; and
- bank statements, financial statements and management accounts, sometimes going back five years.
If the response is inadequate, SARS may issue a final demand holding the person personally liable. The individual is then treated as a taxpayer for that debt and SARS may use its full collection powers: appointing banks or debtors as third-party agents, filing a certified statement that has the effect of a civil judgment, or applying for sequestration.
How to respond to a letter from SARS
- Do not ignore it, and do not miss the deadline. If more time is needed to gather records, request an extension in writing before the deadline expires.
- Get advice before you respond. Your representations are evidence. A poorly drafted response can make the case against you.
- Challenge the elements. SARS must show that you were involved in the company’s financial management and that your negligence or fraud caused the non-payment. Directors who were not involved in financial decisions, or whose company could not have paid because of factors beyond their control, may have a defence.
- Consider the alternatives. A deferred payment arrangement or a compromise of the company’s tax debt may resolve the matter before personal liability is imposed. Each has its own requirements and timing.
- Use your remedies. Decisions by SARS can be challenged through internal processes, the Tax Ombud and, where appropriate, the courts.
Protecting yourself before it gets that far
- Pay over trust money first. PAYE and VAT are not working capital. Treat them as funds held for SARS.
- Keep returns up to date, even when the company cannot pay. Non-filing leads to estimated assessments that are often higher than the real liability.
- Document board decisions about which creditors are paid during cash-flow difficulties.
- Act early. If the company is in financial distress, consider a payment arrangement or business rescue before the debt grows.
- Do not strip the company through loan repayments, dividends or asset transfers while tax is outstanding.
How O’Reilly Law can help
We act for directors, shareholders and business owners facing personal liability claims by SARS, including drafting representations, negotiating payment arrangements and compromises, and challenging decisions. We also advise boards on managing tax risk during financial distress. If you have received a letter from SARS, contact us immediately. The deadlines are short.
Related reading: Directors’ personal liability · High-stakes commercial litigation: a strategy guide for businesses and directors
This article is general information and not legal or tax advice. Correct as at October 2026.