SARS charges interest on late or underpaid tax at 10.25% per annum from 2 March 2026. On top of that sit specific penalties: a flat 10% for late payment of VAT or PAYE, 20% for underestimating your second provisional tax payment, fixed monthly administrative penalties for outstanding returns, and understatement penalties of between 0% and 200% where a return was wrong.
Interest is compensation and is rarely negotiable. Penalties are punitive and can sometimes be remitted. Knowing which is which determines whether it is worth writing to SARS.
TL;DR
| Charge | Rate | Applies to |
|---|---|---|
| Interest on late or underpaid tax | 10.25% p.a. | All tax types |
| Late payment penalty | 10% flat | VAT, PAYE |
| Provisional underestimation penalty | 20% of the shortfall | Second provisional payment below 80% of actual |
| Late provisional payment | 10% | Provisional tax |
| Administrative non-compliance penalty | Fixed monthly amount by taxable income | Outstanding returns |
| Understatement penalty | 0% – 200% | Incorrect returns, by behaviour |
| Interest on overpaid provisional tax refunds | 6.25% p.a. | Paid by SARS to you |
Interest: 10.25% and it does not stop
From 2 March 2026, SARS interest rates are:
| Rate | |
|---|---|
| Late or underpayment of tax | 10.25% p.a. |
| Late payment of VAT | 10.25% p.a. |
| Refund of VAT after the prescribed period | 10.25% p.a. |
| Refund after successful appeal or SARS concession | 10.25% p.a. |
| Refund of overpaid provisional tax | 6.25% p.a. |
| Official rate on interest-free or low-interest loans (from 1 Dec 2025) | 7.75% p.a. |
These apply across tax types including corporate income tax, VAT, PAYE and customs unless a specific exception applies.
Interest runs until the debt is settled. On R250,000 outstanding, that is roughly R2,135 a month, every month, until it is paid.
The asymmetry is worth noticing. SARS charges you 10.25% but pays you 6.25% on overpaid provisional tax. Deliberately overpaying to be safe costs you 4 percentage points.
The 10% late payment penalty
Applies to VAT and PAYE paid after the due date. It is a flat 10% of the outstanding amount — not a daily accrual.
That structure produces a harsh outcome: being one day late and being thirty days late cost exactly the same.
| Amount due | 10% penalty |
|---|---|
| R25,000 | R2,500 |
| R80,000 | R8,000 |
| R180,000 | R18,000 |
| R400,000 | R40,000 |
The practical implication: if you are going to be late anyway, being a further week late costs only the interest, not another penalty. But if you can pay on the day, the 10% is entirely avoidable — which makes paying a day early, every time, one of the highest-return habits in small business finance.
The 20% provisional underestimation penalty
Where your second provisional estimate comes in below 80% of your final taxable income, a 20% penalty applies to the shortfall.
Worked example. A company estimates taxable income of R900,000 for its second provisional payment. Final taxable income assessed at R1,500,000.
80% of actual: R1,200,000
Estimate of R900,000 is below that → penalty applies
Tax on R1,200,000 at 27%: R324,000
Tax on the R900,000 estimate at 27%: R243,000
Shortfall: R81,000
Penalty at 20%: R16,200 — plus interest on the underpayment
How to avoid it: base the second estimate on real management accounts to month ten or eleven, not on the prior year and a feeling. And because the penalty is asymmetric — 20% for underestimating, only 4 percentage points of lost interest for overestimating — err slightly high.
Administrative non-compliance penalties
These are fixed monthly amounts imposed for outstanding returns, and they recur every month the return remains unfiled.
The amount is set on a scale based on the taxpayer's taxable income, running from a modest monthly figure at the bottom to a substantial one for large taxpayers. Penalties can be imposed for up to 35 months per outstanding return.
Two things make this dangerous:
It compounds across returns. A company with three years of unfiled VAT201s, EMP201s and IRP6s has a very large number of penalty-bearing returns.
It runs on nil returns too. A dormant company that stopped filing is accruing penalties on returns that would have shown zero.
Note for trusts: trusts with both 2024 and 2025 income tax returns outstanding face administrative penalties from 2 March 2026.
Understatement penalties
Where a return understates your liability, SARS may impose an understatement penalty on a percentage scale determined by your behaviour and whether the disclosure was voluntary.
The scale runs from 0% for a substantial understatement with a reasonable interpretation, through reasonable care not taken, no reasonable grounds for the tax position, gross negligence, and up to 200% for intentional tax evasion.
Two factors reduce the percentage significantly:
Voluntary disclosure before notification of an audit — the largest reduction available
Voluntary disclosure after notification — a smaller but real reduction
Whether the taxpayer is a repeat case
This is why the Voluntary Disclosure Programme matters so much. Applied for before SARS opens an audit, inquiry or investigation, the VDP gives 100% relief from understatement penalties where there was no intention to evade. Interest remains payable. Once an audit notice is issued for that period, the relief is gone.
Getting penalties remitted
Interest is compensation for SARS being out of its money and is rarely remitted. Penalties are punitive and can be.
Request for Remission (RFR). Submitted through eFiling. You explain the circumstances and ask SARS to reduce or cancel the penalty.
What actually works:
Genuine exceptional circumstances — serious illness, death, natural disaster, civil disturbance, or a SARS system failure
A first-time error where compliance has otherwise been consistent
Evidence. A medical certificate, a police report, a screenshot of the eFiling error, a bank confirmation showing payment was attempted
What does not work:
"Cash flow was tight"
"My accountant did not tell me"
"I did not know about the deadline"
A pattern of repeated late filing
The sequence: Request for Remission first. If refused, a Notice of Objection (ADR1), within 80 business days of the decision. If still refused, appeal.
Fix the underlying non-compliance first. A remission request from a taxpayer with returns still outstanding is very unlikely to succeed.
What happens if you simply do not pay
SARS has deployed substantial additional debt collection capacity, and the escalation path is well established.
Statement of account, then a letter of final demand, then enforcement.
Third-party appointment (AA88). Under section 179 of the Tax Administration Act, SARS can instruct any third party holding money on your behalf — a bank, an employer, a debtor — to pay your tax debt directly to SARS. No court order is required. This usually follows a letter of final demand.
Civil judgment. SARS is working more closely with banks and has hired additional legal professionals to pursue civil judgments.
The context: as at 31 January 2026, total outstanding tax debt stood at R646 billion, with R518.2 billion undisputed. SARS has deployed 1,500 new debt collectors and reduced overdue balances on payment plans from R14.6 billion to R6.8 billion. Enforcement capacity is going up, not down.
Your options if you cannot pay
Four routes, all better than silence:
Payment arrangement (instalment agreement). Agree affordable instalments with SARS. Apply via eFiling or call 0800 00 7277.
Compromise of debt. Where full payment would cause undue financial hardship, SARS may settle for less than the full amount.
Suspension of payment. SARS must suspend collection of disputed debt while an objection or appeal is in progress, provided the requirements are met.
Voluntary Disclosure Programme. For undisclosed income contributing to the debt, with reduced penalties.
Engaging proactively before an AA88 is issued always leads to better outcomes than being found. That is SARS's own stated position, and it matches what happens in practice.
Frequently asked questions
How much does SARS charge for late payment? Interest on late or underpaid tax runs at 10.25% per annum from 2 March 2026. VAT and PAYE paid late attract an additional flat penalty of 10% of the outstanding amount, regardless of how late the payment is.
What is the SARS interest rate in 2026? 10.25% per annum on late or underpaid tax from 2 March 2026. SARS pays 6.25% on refunds of overpaid provisional tax, and 10.25% on VAT refunds paid after the prescribed period.
What is the penalty for submitting a tax return late? Administrative non-compliance penalties are imposed as a fixed monthly amount based on taxable income, and recur for each month the return remains outstanding, for up to 35 months per return.
Can SARS penalties be reduced or cancelled? Penalties can be remitted through a Request for Remission on eFiling where there are genuine exceptional circumstances, supported by evidence. Interest is compensation rather than a punishment and is rarely remitted. If a remission request is refused you can lodge a Notice of Objection within 80 business days.
What is an understatement penalty? A penalty imposed where a return understates your liability, on a scale from 0% to 200% depending on the behaviour involved and whether the disclosure was voluntary. Voluntary disclosure before an audit is notified attracts the largest reduction, and the Voluntary Disclosure Programme can give 100% relief where there was no intention to evade.
Can SARS take money from my bank account? Yes. Under section 179 of the Tax Administration Act, SARS can issue a third-party appointment instructing your bank to pay your tax debt directly. No court order is required. It typically follows a letter of final demand.
What is the penalty for underestimating provisional tax? 20% of the shortfall where the second provisional estimate is below 80% of final taxable income, plus interest on the underpayment.
Should I pay SARS or file the return first if I cannot do both? File. Late filing and late payment are separate failures with separate penalties. Filing on time limits the exposure to the payment penalty and interest, and makes a payment arrangement considerably easier to obtain.
The penalties that never happen
Almost every penalty on this page arises from a missed date rather than a disputed position — a return nobody filed, a payment released too late in the day, or a provisional estimate made from memory.
Smartbook files every return on time, prepares provisional estimates from current management accounts rather than guesswork, and tells you what is payable in time to fund it.
Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Administrative penalty amounts are set on a published scale by taxable income — confirm the applicable figure with SARS. General guidance, not advice on your circumstances.
Primary sources: SARS — Budget 2026 Frequently Asked Questions · SARS — Short Guide to the Tax Administration Act · SARS — Voluntary Disclosure Programme · SARS — Interest Rates