Major changes are imminent in the way SARS addresses employee tax non-compliance, and most companies are likely to be ill-prepared for them. As a result, from 4 June it may cost many companies more than 10% of their annual PAYE (Pay As You Earn) deductions in penalties and interest.
Payroll tax compliance has been tightened over each of the past few years, but in each year SARS gave employers an extension of deadline to file their annual reconciliations and IRP5s. Previous years’ submissions showed that more than 80% of employers submit reconciliations without balancing them. This year SARS has stated that there will be no extension of the 3 June 2011 deadline, which, in the case of larger delinquent firms, could cost millions of rands. Ruaan van Eeden, director: tax department at Cliffe Dekker Hofmeyr, explains that SARS’ strategy over the last couple of years regarding payroll tax has increasingly been to tax as many benefits as possible upfront (for example travel allowances, company cars and the recently proposed changes to retirement fund contributions which will be taxed as fringe benefits from next year) and then require the individual taxpayer to claim a deduction in his tax return.
Marelize Loftie-Eaton, head of employee tax and benefits at FirstRand Banking Group, says: “Not only is a 10% penalty to be levied on the annual PAYE deductions in the event of late submission or filing of the EMP 501 but also in the event of incomplete data provided on the IRP5s, or where the monthly EMP 201 declarations do not balance with the monthly payments made and the amount of employees’ tax declared on the IRP5s. It seems that the focus of employers has been on getting the submissions in before deadline rather than on the correctness and accuracy of the submission.”
Loftie-Eaton offers the following summary of changes:
The policy for the raising of penalties on employers for the ‘defaults’ in the submission of tax certificates for February 2011, as announced on 12 April, is as follows:
- The administration penalty of a minimum of R250, and a maximum of R16 000 per tax certificate will no longer be raised.
- Instead a 10% penalty will be raised on the employer calculated on the total EMP 201 tax values for the full 2010/11 year of assessment. This is done in terms of paragraph 14(6) of the Fourth Schedule
- The 10% penalty will be raised under three circumstances:
- Late submissions received after 3 June 2011
- Incomplete/ inaccurate submissions (ie all the tax certificates were not submitted, or mandatory data such as the employee’s income tax number was missing from one or more of the tax certificates)
- Inaccurate submissions
- Provision has been made for employers to request a remittance (RFR) of the penalty amount. SARS has made it clear they do not intend to penalise employers who have made every effort to comply with the tax certificate submission requirements, and were prevented from doing so by circumstances beyond their control.
- For late submissions, the 10% will be reduced to 1% if the submission is made one month late, 2% if two months late, etc. This will be considered on receipt of an RFR. The penalty remission can only occur once, whereafter the normal processes of objection and appeal are available.
- For incomplete submissions, employers will be able to submit mitigating circumstances to SARS to justify the reduction or even the cancellation of the penalty. Procedures will be put in place to facilitate the submission of mitigating circumstances by employers to SARS.
- For incomplete submissions (which can include inaccurate data), the position is more complex:
- Only those tax certificates that are incomplete will be penalised — the employer must request mitigation of the penalty by stating the facts and requesting relief
- There are circumstances under which the employer cannot be reasonably expected to have income tax numbers for all employees (such as employees who were terminated during 2010/11 and can’t be contacted, and ‘asylum seekers’)
- The penalties will only be raised after the employers’filing season has closed on 3 June 2011.
- SARS will recover unpaid penalties after three months through the use of the ITA88 process. In these instances the employer’s bank will be appointed as an agent on behalf of SARS.
Cash is a vital ingredient in the health, vitality and growth of any business – but the lack of cash can cause serious problems as well. Ensuring that cash comes in – and is spent wisely – is at the heart of good financial management. Kuben Pillay, head of sales for debtors finance at FNB Commercial offers these tips for making sure customers pay in full, and on time.
1. Always make sure your paperwork is up-to-date.
You need to be able to prove you have delivered products or services if an invoice has not been paid, and to do that you need to have an organised filing system.
2. Make sure your paperwork is correct.
Dot all the i’s and cross all the t’s. If your paperwork is messy or incomplete your customers might find it difficult to pay you.
3. Be professional.
Any company, large or small, immediately comes across as more professional and reliable if their paperwork follows the correct form.“Ending up with cash flow issues because your clients can’t pay you due to incorrect or incomplete invoicing is poor financial management, particularly because it is such a simple thing to always get right,” says Pillay. He adds that these points are particularly important when dealing with governmental departments or tenders. “Government will always pay on time, but they can’t when there are any problems with the paperwork. Make sure everything is right first time round.”