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.”
Can Your Words Be Used Against You?
Yes, they most certainly can. Here’s what the RICA Act has to say about recordings.
“This call may be recorded for quality control and records purposes…” Anyone who has been on hold with insurance companies would be familiar with these words — but what are the implications of a recorded conversation and when is it legal?
In essence, the Regulation of Interception of Communications and Provision of Communication-Related Information Act of 2002 (mercifully shortened to ‘RICA’) permits any person, who is a party to a conversation to record that conversation, provided that it is direct communication — which is defined as oral communication between two or more persons that occurs in the immediate presence of those persons.
Section 4 of the RICA Act governs this aspect of our monitoring law. What is unclear, however, is the degree to which this extends to legal persons, such as a company that monitors a call centre agent’s performance, for example.
Related: Understanding Shareholder Agreements
Evidence in legal cases
While limited to direct communications and not covered by third party interception, such as an eavesdropper, the lesson here remains pretty stark — you could legally be recorded during any conversation you have.
The implications of this are significant — just ask former Springbok player Luke Watson, who had a conversation recorded during a function in 2008 that was subsequently leaked to the media.
Furthermore, with the widespread use of smartphones, together with applications freely available on the relevant app stores, designed to record cellphone calls, the likelihood of you being recorded — whether you know it or not, is ever increasing.
Beyond the moral or ethical ambiguity of this, the legal ramifications of what is recorded are more certain — the recording may be used against you as evidence in any criminal proceedings, or equally as possible, in civil proceedings where, for example, agreement to a contract or term thereof is in question, or in the insurance company’s case, whether or not to repudiate a claim based on the information you provide to them.
Related: Protect Your SME From PoPI
Know the business exception
Section 6 of the RICA Act contains a course of business exception that allows the interception of indirect communication:
- a) By means of which a transaction is entered into in the ordinary course of business
- b) Which relates to that business
- c) Which otherwise takes place in the course of that business.
While there has not, to my knowledge, been a reported case that deals with this aspect of the RICA Act, the implications regarding the use of this information to evidence the valid conclusion of a contract or as to the intentions of the parties to a contract are significant, particularly given that the scope is relatively broad, although limited.
The matter has, however, come before the Constitutional Court in the 1999 criminal case of S v Kidson, where the court held, per Justice Cameron, that unless a “reasonable expectation of privacy exists” it would be difficult to prevent the recording or interception falling within the ambit of the RICA Act.
Where to from here?
From both a commercial and criminal perspective, this should serve to remind us all of our wise grandmother’s words — if you have nothing nice to say, rather say nothing at all (especially because you never know whether you are being recorded).
Why You Shouldn’t Be Sweating The Fine Print
Signing a contract is a big deal, and you never want to sign anything you don’t fully understand.
While it is almost always a grudge purchase, ensuring that you have had a legal eye cast over a contract you intend to conclude means that you are protected, that you understand the nature of the obligations you are taking on and perhaps, an even better deal for you.
Given that legal agreements are an important aspect of commerce, we have distilled key points for you to consider, before engaging with external counsel. This will make the process more efficient and, hopefully, less expensive.
Reviewing a contract is a tricky business, not entirely different from asking a builder to finish building a half built house. However, there are some useful techniques to ensure you get the most out of the exchange with your lawyer.
Always create a timeline
You have lived and breathed your business and this transaction, while your attorney is possibly hearing about the matter for the first time.
Setting the scene correctly puts your attorney in the picture and explains what you want out of the exchange. Print this out for your attorney.
It will help an attorney identify key areas of risk which you might not have anticipated. Be sure to also tell your external counsel how quickly you need the review to be done. Setting expectations means there is less chance of disappointment later.
Provide supporting documents
It wastes your time and money when your attorney has to come back to ask you for supporting documentation.
Try to anticipate which documents will be relevant to your transaction and bring copies of them to the meeting for your attorney to consider. If you have previous versions of the agreement, for example, bring those too.
Remember, the more background work you do, the simpler and more efficient the process will be.
Understand your needs
Are you looking for a high level overview of your document to highlight some key contractual risks or are you looking for a thoroughly sanitised document reviewed from every possible angle?
I recently had to look over Jim’s Sale of Business Agreement for the potential acquisition of his Technology Company. He came to me with limited areas of risk which he had identified and wanted me to look at these clauses.
I was able to advise him to push back on certain clauses he had already negotiated and the resulting document placed him in a stronger legal and financial position. It was easy to justify the costs associated with the review.
This is not always necessary though — where there is limited legal exposure, or you have no bargaining power, the role of the attorney can be restricted, but still worth the investment since you have assurance that your legal exposure is as restricted as possible.
Be guided by the relative value of the document and the ensuing legal responsibilities — is this a standard supply agreement with a strange payment clause or a multi-national acquisition of intellectual property? The type of expert you engage with will vary, as will the cost of the review.
Areas of concern
Directly related to knowing your business and understanding your needs, is your responsibility to communicate specific areas of concern to your attorney.
A recent client’s business processed a lot of personal information, in accordance with the Protection of Personal Information Act, but, the contractor they were about to sign a service supply agreement sought to have access to some of this personal information.
Seen alone, there was little risk, but within the context of this business, we were able to avoid this. A trusted and qualified expert will help you navigate the complex commercial world.
Are You Protecting Your Customer’s Data?
The collection, usage and sharing of personal information is regulated primarily by the Protection of Personal Information Act 4 of 2013. The Act was recently promulgated and is yet to be implemented. The Act seeks to give expression to the right to privacy provided for in the Constitution.
At the time of writing, the primary enforcement arm contemplated by the Act, the Information Regulator, has yet to be appointed. Once appointed, all businesses will be required to register with the Information Regulator to make public what personal information is being collected, and what it is being used for.
The Information Regulator will be empowered to enforce compliance with the Act, and able to investigate whether an entity is lawfully processing the public’s personal information.
Related: Protect Your SME From PoPI
How are privacy policies affected?
The Act defines the term ‘processing’ broadly, and includes “the collection, receipt, recording, organisation, collation, storage, updating or modification, retrieval, alteration, consultation or use of a person’s personal information”. To process a person’s personal information, the prior consent of the person (data subject) is needed.
The Act restricts a company’s ability to store personal information outside of the country by requiring that it be transferred only to countries in which comparable security laws and data protection measures exist.
A situation such as this arises more easily than expected. Consider the example of the humble contact form: Your website, with its local server situated in Midrand, utilises a plugin to create custom contact forms.
Although your server may be in Midrand, every person who completes the contact form on your website has their personal information transferred and stored on servers in the home jurisdiction of your plugin creator, which may be in the US. But the plugin creator may also make use of third-party service providers based in Vietnam. An in-depth investigation of all third-party plugins and processes of a website is therefore required to ensure that you comply with the Act.
Access by a data subject to personal information
A data subject is entitled to request a full disclosure of any personal information held by the company.
As the procedures governing access to personal information overlap, companies should also ensure compliance with the processes outlined by the Promotion of Access to Information Act 2 of 2000 (‘PAIA’).
In terms of PAIA, all companies are required to compile a manual that needs to be registered with the South African Human Rights Commission. This manual sets out the company’s contact information, what records are available for inspection, the identity of the leadership of the company, as well as the manner in which a person may request access to information held by the company.
However, the Minister of Justice and Correctional Services has exempted private bodies from complying with this requirement for a period of five years, starting from
1 January 2016.
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