Employment Tax Incentive

Employment Tax Incentive – Claiming when not reported in a specific month.

The Income Tax Act allows employers to claim Employment Tax Incentive (ETI) until the end of each six-month cycle. As each six-month cycle ends with the EMP501 employer reconciliation process it seems obvious employers should be able to claim ETI up until their EMP501 is submitted. Not so according to the e@syfile software.

Assuming an employer has not submitted an ETI claim on the EMP201 for a particular month the obvious ways to claim during the six-month cycle would be to either add the additional valid claim on to the EMP501 or to amend the EMP201 for the month where the ETI should have been claimed (had all info been available at the time).

  1. Adding to the EMP501 – when one tries to do this e@syfile records an error stating that one cannot claim ETI on an EMP501 that is not reflected on the EMP201;
  2. Amending the EMP201 – e@syfile no longer allows the amendment of the EMP201 for ETI claims when the filing period to which it relates is finished.

E@syfile therefore prevents one from claiming the ETI within the six-month cycle. The best solution we understand is to use the Automated PAYE Dispute Management Process, but this is still to be tested fully.

UIF – As Applied to Learners

For a couple of years the Department of Labour has been talking about changes to the benefits to be provided to qualifying employees. These proposed changes have been widely published and discussed in payroll forums and at seminars.

The changes to the Unemployment Insurance Act, signed into law on 19 January 2017, have yet to be made effective. This Act deals with the payment of benefits, with changes to the ‘application’ of the Unemployment Insurance Act being introduced. Indications are the effective date will be 1 March 2018, but this remains to be seen.

The 2017 Bills make related changes to the ‘application’ of the Unemployment Insurance Contributions Act, which deals with contributions.

For both Acts, the provisions that excludes learners in terms of the Skills Development Act from contributing and being eligible to claim benefits, have been deleted. Once effective, the result of these changes is that all learners must contribute, and consequently be eligible to claim benefits.

Note however that both Unemployment Insurance Acts define an employee as per the Fourth Schedule of the Income Tax Act and exclude common law independent contractors, even if paid deemed remuneration (income reflected against IRP 5 code – 3616). The Fourth Schedule also defines the remuneration on which the contribution must be calculated, with some special exclusions. In my understanding, these exclusions do not apply to the learnership situation, and all learners will have to contribute.

To conclude, all learners will have to contribute, unless they are not an employee as defined, and contributions must be made unless the remuneration value is zero.

SARS Text Reminders – Pay your Tax

In early November, shortly after the 31 October mid-year employer filing season SARS “mistakenly” sent out thousands of text messages to individual taxpayers telling them their accounts were in arrears and they needed to act now to prevent legal action.

A very successful tactic I should imagine as there is little doubt this triggered many individuals to pay their taxes well before their due date. As a result, I would not be surprised if this “mistake” becomes a more regular practice.

Timing of payment of personal taxes:

The Income Tax Administration Act provides the following deadline for paying one’s personal taxes:

The taxpayer has until the ‘Second Date’ on their annual tax assessment to pay any Assessed Tax liability raised by SARS. After this date SARS will levy interest at a rate of 10.5% per annum until the liability is settled.

Taxpayers are usually granted a period of at least six weeks in those cases where assessments are finalised before the 15th of the month in which to pay the assessed tax due. Where assessments are finalised after the 15th of the month, taxpayers are usually given until the end of the second month, that is, a period of up to 10 weeks within which to pay the tax due.

In the majority of the cases where SARS has issued the above-mentioned text messages, the Second Dates are only 31 January 2018. Taxpayers are therefore within their rights to hold on to their money until 31 January 2018 without fear of interest being raised.

Tax Ombudsman Report on SARS Delaying Payment of Refunds

In September the Tax Ombudsman released their report on their investigation as to whether there was evidence to support the view that SARS were intentionally delaying the repayment of refunds to individuals.

The Tax Ombudsman’s report concluded that there was sufficient evidence to suggest SARS were delaying refund payments on purpose.

This is not a surprise. Over the past twelve to eighteen months we have received a number of complaints from clients. The reasons provided for late payments have been similar to those outlined by the ombudsman and include:

  1. The taxpayer or tax practitioner submits all the supporting documentation required by SARS via e-filing. The case is resolved after a couple of weeks and a ‘completion’ letter received. The taxpayer expects to receive their tax refund within a week or two but this does not happen. Contact is made with SARS and the taxpayer / tax practitioner is told that there is a ‘special stopper’ on the account. The taxpayer is told they must come in personally with their proof of address, ID, banking details and all the supporting documentation used to complete their return. The reason provided for this is the high probability of fraud on the taxpayer’s account.
  2. Tax returns are submitted with there being no request for verification. Taxpayers then receive a verification request some weeks later. Supporting documentation has then to be uploaded to SARS and in the process delaying the release of a potential refund by 3-4 weeks.
  3. Taxpayers after meeting all compliance requirements find that they do not receive their tax refund. After enquiring with SARS they are told that their banking details need to be validated. The taxpayer then must personally go into SARS to perform this process. This is particularly irksome where banking details have not changed and have been on the system for many years.

We wish there were a simple way to fix this. Alas the only way is to go into a SARS branch and try and address this directly.

Employee vs Independent Contractor? When to deduct employee’s tax.

SARS Interpretation Note 35 and SARS Interpretation Note 17 give guidance on the tests to be passed to distinguish between an independent contractor and an employee and in which circumstances employees tax (PAYE) should be deducted.

IN17 contains a flow chart illustrating the decision making process. In summary, the tests are as follows:

Question Deduct Employee’s
Tax (PAYE)?
Is the person a labour broker or are they remunerated by a labour broker? Yes
Is the person a personal service provider? Yes
Does the person meet all of the below criteria (if the answer is no to any of these questions then PAYE needs to be deducted)?

  • Are they resident in South Africa?
  • Do they have more than three employees of their own?
  • Can you confirm the person does not have to deliver the service mainly at the client’s premises and that control and supervision by the client is not present?
  • Is the dominant impression that of an independent contractor?
No

SARS – Employment Tax Incentive Guide

In September SARS issued a draft guide to claiming Employment Tax Incentive (ETI). This is well worth reading. While ETI is a valuable tool for employers it is also one of the highest risk areas. If an employer makes a mistake then suddenly they can face a big bill for the PAYE they should have paid plus 10% penalties and interest. By the time a bill is received the amount can be significant and has the potential to cause liquidity issues.

The challenge with ETI is that systems (SARS and third party) have had their challenges and employers are sometimes faced with a bill even when they believe they have followed the rules correctly. It is important in these situations for employers to have kept proper records and to have confidence they can defend their claims.

Postponement of Annuitisation Requirement for Provident Funds to March 2019

In 2015 amendments were made to the Act regarding the tax treatment of provident funds in order to enhance preservation of retirement fund interests during retirement. As a result, provident funds will be treated like pension and retirement annuity funds and will be required to annuitise benefits. This implies that on retirement, members of the provident fund will be permitted to take up to a third of the retirement benefit as lump sum and annuitise at least two thirds. However, this will only be applicable for contributions made to a provident fund after the implementation date. All contributions made before the implementation date, and growth on those contributions, may still be taken as a lump sum on retirement.

The above-mentioned amendments were supposed to come into effect on 1 March 2016. Government came under pressure from the unions regarding this proposal and in February 2016 postponed the annuitisation requirements for provident funds for two years until 1 March 2018. The reasoning behind this postponement was to provide sufficient time for the Minister of Finance to consult with the various interested parties. These included the National Economic Development and Labour Council (NEDLAC), who would be consulted regarding the annuitisation requirements for provident funds after the publication of the comprehensive policy document on social security. The Minister of Finance would also need to report back to Parliament on the outcome of those consultations no later than 31 August 2017.

Several changes have taken place since the postponement of these amendments and the discussions on the comprehensive paper on social security are still underway in NEDLAC. In view of the above it is proposed that the provisions relating to the annuitisation requirements for provident funds be postponed for 1 year from 1 March 2018 to 1 March 2019.

The proposed amendments will come into effect on 1 March 2019 and apply in respect of years of assessment commencing on or after that date.

2017 Draft Taxation Laws Amendment Bill

On 19 July 2017, National Treasury published the following amending legislation:
1. Draft Taxation Laws Amendment Bill (TLAB)
2. Draft Tax Administration Laws Amendment Bill (TALAB)

While the draft legislation still needs to be approved, the following items in the legislation are most relevant to payrolls.

TLAB Main Proposals

1. Bargaining Councils PAYE non-compliance.
Some bargaining councils have for many years not withheld PAYE from members for holiday, Sick leave and end-of-year payments. It is proposed that a levy is introduced as form of limited recovery of the taxes owing. At this stage, the impact on payrolls is uncertain, although there is a strong likelihood that payrolls will have to assist non-compliant councils with calculations going back over 5 years.

2. Introducing further changes to the anti-avoidance rules for certain share schemes, mainly to do with trusts.

3. Removing the 183/60 day tax exemption for South African tax residents earning income from services provided outside of the borders of South Africa.
The purpose of this change is to prevent double non-taxation, but it is certainly not going to be popular.

4. Increasing the tax exemption threshold for bursaries granted in respect of the education of those employees (or their relatives) with disabilities.
Various forms of tax relief for different circumstances are proposed.

5. Clarifying the rules relating to the taxation of employee-based share schemes, and introducing more anti-avoidance rules.

6. Making a number of changes to the taxation rules regarding retirements funds, including the postponement of the annuitisation requirement for provident fun payouts to 1 March 2019.

7. Clarifying that the hours used for the ‘160-hour’ determination for section 4(1)(b)(ii) of the Employment Tax Incentive Act are the hours defined as “ordinary hours” by the Basic Conditions of Employment Act (which would then exclude ‘premium’ hours).

TALAB Main Proposals

1. Spreading the R350 000 pa monetary cap that limits the deduction allowed in respect of contributions to retirement funds over 12 months.

2. Including only the portion of the travel reimbursement that is calculated at a rate per kilometre that exceeds the prescribed rate per kilometre in remuneration.

Note, the 2017 budget proposal to reduce or remove medical tax credits (as discussed in the recent NHI White paper) to help fund the National Health Insurance project, has not been taken forward in the draft Amendment Bills.

SARS Portal Problem – Code 4582 – Personal Income Tax

Editor’s Note: We sent a separate communication on this issue this month. However, we thought it worth re-publishing as it has the potential to frustrate employees if it is not fixed and they do not have the background.

Please note this is a SARS issue. It is not an issue with your software or your administrators, even though you need the support of these parties to help fix it.

A problem has arisen on the SARS portals (where income tax returns are submitted) that displays the employees IT12 annual return. This only became evident to SARS after the 1st July, and they have spent until yesterday urgently trying to fix it.

The portal is automatically populated with the IRP5 data that we uploaded to e@syfile during employer filing season. However, a SARS programming issue results in an error in the totals in the IRP 5 code 4582. This code represents the total remuneration that is used for the purposes of the allowable deduction for pension, provident and retirement fund contributions. SARS limits the deductions allowed to any retirement funds to 27.5% of this value (per the changes in March 2016). If this code is incorrect it will impact on the allowable SARS deduction for the individual concerned.

More specifically, as currently programmed, code 4582 excludes the totals for travel allowances (3701), travel reimbursements (3702) and company car fringe benefit totals (3802 and 3806). The impact of an understated total will be an under payment of tax. This has to therefore be corrected before a return is assessed by SARS.

This problem does not affect the format of IRP5s as printed and distributed to employees. This is not a payroll problem, it is a SARS problem, but the implications of this will potentially affect all employers in South Africa.

SARS have since corrected their programme and have requested that employers upload all the certificates again on their updated software.

We would therefore recommend you work with your payroll department to do the following:

  • Analyse whether the situation impacts your employees
  • Communicate with your employees (where you think they might have already submitted their income tax assessments); and
  • Arrange to re-upload your certificates to the SARS portal (where it has an impact)

If employees have already submitted their return, and been assessed, they will need to request an assessment “Revision” on eFiling. To ensure that the information is updated correctly they will need to do an IRP5 ‘refresh’ to ensure that the corrected certificate is pulled through and that they are reassessed using the correct information.

Personal tax filing 2017 opens on 1 July

The tax filing season officially starts on 1 July 2017 for the 2017 tax year (1 March 2016 to 28 February 2017). It is anticipated that the closing date for e-filing submissions will be the end of November 2017 for normal taxpayers and the end of January 2018 for provisional taxpayers.

Pricing
Our charges for completing tax returns will depend on when we receive your information. Premium pricing will kick in for last minute returns to try and avoid the challenges we face every year. Contact us about our introductory offers.

Information Received By Cost (incl. VAT)
15 October 2017 (15 December for provisional taxpayers) R750
After 15 October 2017 (later than 15 December for provisional taxpayers) R1,500

Please note we reserve the right to charge a surcharge on the completion of tax returns that require the drafting of additional schedules.

The cost of completing these tax returns will include the following services:

  • Collection and collation of supporting documentation necessary to complete your tax return.
  • Completion and filing of the tax return.
  • Checking of assessment and notifying you of the result thereof.
  • Submitting any additional information requested by SARS via e-Filing.

Process
Returns that are submitted via e-Filing are generally assessed within a couple of minutes and the assessment will be forwarded to you in cases where payments to SARS need to be made. If you are due a refund, please keep an eye on your bank account and notify me if you have not received it within 30 days. Due to the volume of returns submitted it is not possible to monitor the progress of each refund payment. SARS no longer sends out notifications where they experience bank account problems; and due to Call Centre congestion and the risk of fraud they are loathe to assist with refund verifications.

If you have all the necessary documentation to complete your tax return and would like to be one of the ‘early birds’ please can you get this information through to me as soon as possible and the work will be processed on a first come, first served basis.

Provided you are on my e-Filing profile we will endeavour to lodge your return within 72 hours. For new clients your details will need to be loaded onto my e-Filing profile. Once loaded into e-Filing it takes approximately 48 hours for the profile to be activated. Please note that the information that you provide in this regard must be exactly that which is reflected on e-Filing, otherwise the request will be rejected.

In the event of SARS making an error on the assessment the tax return completion fee includes a maximum of 30 minutes consulting with SARS on your behalf. Any interventions that exceed this period will be billed at an hourly consulting rate of R 650 plus VAT. This approach is necessary due to the ever increasing errors made by SARS. Should you wish to take up the issue personally we will forward you all the necessary supporting documentation to do so.

Once all the information requested above is received the tax return will be prepared to the point where it is ready to be submitted to SARS. You will receive a confirmation and an invoice before you file. You need to sign this confirmation and submit payment before we can file your return. Your tax return will then be lodged via e-Filing. It has unfortunately become necessary to operate in this manner as the Tax Division has recently been saddled with a significant amount of bad debt.

Information requirements

To complete your tax return accurately and timeously we require the following information:

  • IRP5 certificate / s (Please request a copy from your employer so that we can verify that the IRP5 agrees to the IRP5 on the pre-populated tax return).
  • IT 3(a)’s relating to untaxed income, IT 3(b)’s for interest and dividends and IT 3(c)’s for any capital gains received.
  • Sale of any capital assets.
  • Details of any other income that you may have received from any sources (e.g. if earning rental income we would need the total income earned in the year and a schedule of the expenses incurred in generating the rental income (i.e. interest paid on bond, levies, management fees, repairs and maintenance, electricity / lights and water etc.).
  • Medical aid tax certificate.
  • Retirement annuity tax certificate.
  • Travel details: opening and closing mileage, business / private km’s, total km’s travelled, car make and model and original cash purchase price. You are required to maintain a detailed logbook if you want to claim business mileage against your travel allowance. This detail includes the clear separation of the business and private mileage undertaken and the listing of the clients visited daily. Please email this logbook to me.
  • Should you have use of a company car please note that you are required to maintain a detailed logbook. In the event of a SARS review / audit this detailed logbook will need to be sent to them. Please email this logbook to me.
  • If you earn mainly commission (more than 50% of total remuneration) then we require a schedule listing the expenses that you incurred during the tax year to earn that commission. Please retain the supporting documentation for 5 years as SARS may audit you at any time.

If any of the details listed below have changed please notify me so that we can make the necessary changes on the tax return:

  • Marital status (kindly advise if you are married in / out of community of property). If you are married in community of property and receive investment or rental income in addition to your salary please send through your spouse’s name and ID number.
  • Residential and postal address.
  • Telephone / cell phone numbers / email address.
  • Bank details: account number / holder, branch code and type of account (very important). If these details change you will be required to take a certified copy of your ID, proof of residence and original current bank statement (with bank stamp on it) to your nearest SARS office in person. SARS requires you to do this in person due to recent occurrences of fraud.