Employer Filing Season – Open 17 April and Closed 31 May 2019

Editor’s Note: For customers using Sage VIP, HRTorQue offers a service to either prepare these on your behalf, or to assist in the preparation.

SARS Moves to New Hosting Platform

As part of its plans to upgrade its Information Technology (IT) systems, SARS will be migrating to a new electronic service hosting platform in April. Taxpayers may experience intermittent downtime from 17h00 on Friday 12 April 2019 to 06h00 on Tuesday 16 April 2019.

The migration will impact the following SARS systems:

  1. SARS eFiling and SARS eFiling app (including registrations, filing, payment and the functionality to upload supporting documents)
  2. SARS [email protected] Employer
  3. SARS website.

Taxpayers can go to any SARS branch or contact the SARS Contact Centre on 080 000 7277 / +2711 602 2093 (during normal operating hours) for assistance during this time.

Please note that SARS eFiling payments cannot be made during the period of downtime, but alternative payment methods will be available.

Employer Filing Season Dates

The employers filing season for tax certificate submissions in respect of the 2018/19 year of assessment normally opens on 1 April and closes on 31 May of each year. Last year, the opening date was delayed to mid-April 2018, and due to the above migration, will this year only open after the migration on 17 April 2019.

It will close on 31 May 2019 as normal.

The SARS PAYE BRS tax certificate specification for February 2019 tax certificates is unchanged from the specification for the August 2018 mid-year tax certificate submissions.

Income Tax Number Application Service

“My employees don’t need an Income Tax number as they earn below the tax threshold and do not pay tax.”

This is a statement that we often hear in the payroll environment. The most recent SARS Business Requirements Specifications (BRS) however clearly states that an Income Tax number for EVERY employee is mandatory. This means that IRP 5 submissions to SARS are rejected if all employees do not have Income Tax numbers. Such rejections cause bottlenecks for us and that could result in the client’s IRP 5 disk not being accepted by the 31 May deadline. 

A late submission carries a 10% penalty calculated on the total PAYE liability for the year. This would be a disaster for any company, particularly considering the fact that such Income Tax numbers could be obtained electronically by registered tax practitioners at a low cost. Using this approach will also mean that employees are not required to visit SARS to hand in manual applications, thereby saving time and effort and improving productivity.

HRTorQue Outsourcing can assist you with the registration of your employees for Income Tax purposes. We can manage the process from start to finish. Our consultant will obtain the employees personal information from your payroll administrator and do the necessary applications. The turnaround time for this process is 24 hours and the cost per application is R 240 plus VAT*. A volume discount of R 150 plus VAT per application will be applied to requests that involve more than 15 applications at a time. 

Should you need assistance in this regard please do not hesitate to contact Dave Beattie on 031 582 7410 or [email protected].

*Prices valid as at 31 March 2019.

Non-compliant Bargaining Councils – Taxable Levy

Bargaining Councils provide various funds for their members including, but not limited to, sick, holiday and retirement funds. Employers contribute to these funds on behalf of those of their employees who are members of the Bargaining Council, and in some cases, the employee-members also contribute to the fund or funds.

For many years, the contributions to, and the pay-outs by, some bargaining councils have not been taxed correctly. After a lengthy investigation, amendments were made to the Income Tax Act, referred to as “Bargaining Council Tax Relief”, in order to give a measure of tax relief to these councils for their historical non-compliance with the intention of turning them into compliant taxpayers in the future, and to provide new taxation rules from 1 March 2019.

Prior to 1 March 2019:

Non-compliant Bargaining Councils must pay a levy of 10% of the total PAYE that should have been deducted from all payments made by them to their members during the period from 1 March 2012 to 28 February 2017.

Post 1 March 2019:

Employer-paid premiums to Bargaining Councils in respect of a scheme or fund as contemplated in section 28 (1) (g) of the Labour Relations Act, as well as payments by Bargaining Councils to members, are now aligned with the principles of the tax rules that govern employer-paid contributions to retirement funds.

In line with this principle, the taxation rules for contributions to funds administered by Bargaining Councils are as follows:

  1. Employer-paid contributions for the benefit of employees will constitute a taxable fringe benefit.
  2. The value of the taxable fringe benefit will be the value of the employer-paid contribution.
  3. Employee-paid contributions are not tax deductible.
  4. If these rules are complied with, payments made by the funds to their members are tax free.

These rules are effective from 1 March 2019.

Note that if the fund administered by the Bargaining Council is a retirement fund, the taxation rules for retirement funds that are effective from 1 March 2016 (and that provide for a tax deduction to reduce the taxable benefit value), must be applied.

Tax Certificates:

The employee-paid contribution is not used for PAYE calculations and is not reported. The employer-paid contribution and the taxable benefit must be reported as follows.

CODECODE DESCRIPTIONSTATUS
4584Employer-paid Contributions to a Bargaining Council FundOld
4584Employer contributions to a Bargaining Council FundNew
3833Taxable benefit iro Employer contributions to a Bargaining Council FundNew

Employee New PAYE Business Reporting for Employer Filing Season

Effective September 2019

SARS published the tax certificate specification document on 21 January 2019.

The document specifies the requirements for the generation of an import tax file for the annual as well as the interim submission. The requirements in this version of the BRS will become effective from September 2019 PAYE interim reconciliation period.

The details of the changes are highlighted in green in the BRS.

To access the new BRS, follow the link.

2019 Budget and Tax Highlights

We will be going through the budget in more detail and will hold our annual tax seminars in due course (dates to be announced) when we have had time to consider the practical application of new rules on payrolls and employers.

In the interim, the key highlights and overview of tax changes are obtainable from Treasury using the following links:
•  Budget Highlights
•  Tax Guide 2019
•  Tax Legislative Changes

One of the positive things to see is that SARS intends resurrecting the large business centre with a hope to start this again in April 2019. They have also emphasised their commitment to improving their IT infrastructure.

Other relevant highlights are the following:

Employment Tax Incentive
In 2018, Government extended the employment tax incentive by 10 years. In addition, the eligible income bands will be adjusted upwards to partially cater for inflation. From 1 March 2019, employers will be able to claim the maximum value of R1 000 per month for employees earning up to R4 500 monthly, up from R4 000 previously. The incentive value will taper to zero at the maximum monthly income of R6 500.

Medical Tax Credits
To generate additional revenue of R1 billion in 2019/20, there will be no change in the monthly medical tax credit for medical scheme contributions.

Fuel Taxes
South Africa has three main fuel taxes that apply to petrol, diesel and biodiesel: the general fuel levy, the customs and excise levy and the RAF levy. These levies fund general government expenditure, support environmental goals and finance the RAF. From 5 June 2019, a carbon tax of 9c/litre on petrol and 10c/litre on diesel will become effective. Diesel refunds cannot be claimed against this tax. The general fuel levy will be increased by 15c/litre for petrol and diesel from 3 April 2019. The increase is slightly below inflation. Government also proposes to increase the RAF levy by 5c/litre from 3 April 2019.

Employment Tax Incentive and Special Economic Zones

This article looks at the practicalities of ETI as it relates to clients of HRTorQue and then looks at the practical implementation of ETI as it relates to SEZs.

A number of employers have not yet taken advantage of the Employment Tax Incentives “(ETI)” initiative on offer by SARS. There are a number of challenges and risks around activating this incentive, but if managed properly significant, real benefits can flow to the employer.

The Employment Tax Incentives (ETI) was designed to encourage employment of young individuals and is a valuable tool for employers to recover funds from the state. It has been extended a few times already and we have recently heard it has been extended further (to be confirmed).

If you are a client of HRTorQue’s and you have activated ETI you should be aware of the following:

  • If you do choose to have ETI activated, you will receive a monthly report with your test reports showing who the current calculation on your payroll. It is very important that you note that you can only claim ETI for your organisation if you are currently in good standing with SARS, in all your tax types.
  • We cannot access your current standing with SARS, this can only be done by the person that holds the efiling “Income Tax” profile. We only have access to the PAYE profile in most circumstances, so we are completely in your hands when it comes to knowing if you are in good standing.
    If you are currently NOT in good standing with SARS, you must tell your payroll team to remove the ETI from your payroll before you run live, for the current month payroll. Your payroll team will then move the ETI calculated for the current month to a “calculated but Unclaimed status” for our payroll administration team to reserve these funds with SARS via the EMP201 submission for future use, if possible, within the relevant tax seasonal time frames, (as explained on the refund document below).

It is important to note that it is extremely difficult and a significant risk to your organisation to attempt to withdraw the ETI post submission and payment to SARS. Please make note of this important issue and help us keep you safe in this regard.

Here is a link from SARS that explains how to claim, post the current period, if you are not in good standing, and the process that is followed.

The 1st August 2018 brought us more changes in this process as SARS finally gazetted the Special Economic Zones for ETI.

Designated Special Economic Zones and ETI Act

On 6 July 2018, the Minister of Finance published Gazette No 41759 designating six Special Economic Zones (SEZ’s) for the purposes of section 6 (ii) of the employment Tax Incentive Act, No-26 of 2013 (the ETI Act).

With effect from 1st August 2018 and for the purpose of the ETI act the 6 designated zones are:
1. Coega (PE AREA)
2. Dube Transport (KZN)
3. Industrial Development Zone (East London)
4. Maluti-a-Phofung (Bethlehem area)
5. Richards Bay (KZN)
6. Saldanha Bay (Western Cape)

Boundaries and other details of these SEZ’s can be found in Gazette number 41758.

One of the criteria that must be satisfied before an employee can qualify to generate an employment tax incentive for the employer is that the employee must be not less than 18 years old and not more than 29 years old at the end of the claiming month.

However, section 6(a) (ii) of the Employment Tax Incentive Act provides as follows: “6. Qualifying employees. – An employee is a qualifying employee if the employee –

(a) (ii) is employed by an employer operating through a fixed place of business located within a special economic zone designated by notice by the Minister of Finance in the Gazette and that employee renders services to that employer mainly within that special economic zone; or”

The age requirement for ETI therefore does not apply where:

  1. The employee provides services mainly to an employer in a designated SEZ, and
  2. The employer operates through a fixed place of business located within that SEZ.

Fixed Place of Business

The six SEZ’s designated by the Minister of Finance have clearly defined boundaries, to comply with the first requirement, the employer must operate through a fixed place of business located within the defined boundaries of the SEZ.

If the employer has branch offices, the employer satisfies the first requirement if one or more of the branch offices operate through a fixed place of business within one or more of the six designated SEZ’s. A branch office is not a separate legal entity from the business under which it operates, therefore it is irrelevant whether the branch office or the business is regarded as the employer for purposes of section 6 (a) (ii), as both form part of one legal entity.

Note that an employee’s residential home will not constitute a fixed place of business for the purpose of section 6(a) (ii) of the ETI Act.

Rendering of Services Mainly within an SEZ

The word “mainly” in the income Tax Act means ‘more than 50%’, and this principle is applied to section 6 (a) (ii) of the ETI Act. This would be measured per month (ETI is administered on a monthly basis). Secondly, the employee must render more that 50% of his or her services per month physically within a designated SEZ where the employer has a fixed place of business (as discussed above).

Application of the Section 6(a) (ii) Requirements

In practical terms, the following three criteria must be met by an eligible employer in order to satisfy the requirements of section 6(a) (ii):

  1. The employer must operate through a fixed place of business, and
  2. The fixed place of business must fall within a designated SEZ, and
  3. The employee must render services to the employer mainly with that SEZ

The result is that the ETI claimed under section 6(a) (ii) is ultimately ‘ring fenced’ to the employees rendering services mainly within that designated SEZ.

The same principles apply if the branch office is registered separately for PAYE from the business.

Tax Certificate Codes for SEZ’s

While the Government Gazette that designated the six SEZ’s was published on 6 July 2018, the effective date is 1 August 2018. Employees who qualify in terms of section 6(a)(ii) in the month of August 2018 must be reported on tax certificate for the August 2018 mid-year tax certificate submissions.

What do you do if you want to claim ETI?

HRTorQue has considerable experience in managing ETI calculations and applications. We are experts at reducing client stress by managing these types of administrative tasks on their behalf.

For the maximum benefit in relation to claiming ETI, we recommend contacting your payroll team leader who will guide you through the process.

Directives and Severance Benefits

In simple terms, and dealing with employees only, a “severance benefit” is defined in the Income Tax Act as a payment of a lump sum by an employer (i.e. not paid by a retirement fund or from the proceeds of an insurance policy) to an employee in respect of the relinquishment, termination, loss, or variation of the employee’s employment under circumstances where:

  1. The employer is 55 years of age or older
  2. The employee cannot continue working due to sickness, accident, injury or incapacity through infirmity of mind or body
  3. The employer discontinues the trade in which the employee was employed or makes the employee redundant by reducing staff.

Severance benefits are also described as ‘Voluntary Severance Packages’.

Taxation Rules

Severance benefits are taxed using the same tax table as used for retirement fund lump sums.

Table: Retirement Fund Lump Sum Table (including Severance Benefits):

Taxable Income Percentages and Brackets
0 – 500 000 R 0 + 0% of each R1
500 001 – 700 000 R 0 + 18% of the amount above R500 000
700 001 – 1 050 000 R 36 000 + 27% of the amount above R 700 000
1 050 001 and above R 130 500 + 36% of the amount above R 1050 000

This table must be applied on a cumulative basis by taking into account severance benefits and any retirement fund lump sums paid previously. Payrolls cannot apply this table because the payroll does not have a record of these prior lump amounts paid to the employee.

Only SARS have the records to be able to apply this table correctly and employers must apply for a tax directive from SARS to be able to withhold the correct employees’ tax amount.

Directive Rules – IRP3 (a)

SARS have confirmed the following directive application procedures for the taxation of a payment by an employer of a severance benefit.

Prior to September 2017, when an employer selected “Severance Benefit – Voluntary Retrenchment” on the IT3 (a) directive application, the normal income tax table was incorrectly used to determine the employees’ tax to be withheld from severance benefit lump sums. This was corrected by the final income tax calculation on assessment where the severance benefit tax table is used for severance benefits reported as code 3901 on the tax certificate.

From September 2017, the Tax Directive system was amended and the severance benefit tax table is now used to determine the employees’ tax amount stated on the tax directive if the reason “Severance Benefit – Voluntary Retrenchment” is selected.

If the employer used the reason “Other” and in the description field entered ‘Voluntary retrenchment’ instead of using the correct box (historically we saw people doing this because they were worried that under the old practice they would not get the R500,000 exemption), these directives must be cancelled and resubmitted with the reason “Severance Benefit – Voluntary Retrenchment” to ensure that the assessment calculation is correct.

The following ‘Reason’ options can be selected on the IRP3 (a) directive application form:
1. Severance benefit – Death
2. Severance benefit – Retirement (age of 55 or older)
3. Severance benefit – Retirement due to ill health
4. Severance benefit – Involuntary retrenchment
5. Severance benefit – Voluntary retrenchment

Tax Certificates

The following codes must be used to report the severance benefit amount and its related employees’ tax amount on tax certificates:

  • Code 3901 (Gratuities / Severance Benefits (PAYE))
  • Code 4115 (Tax on retirement lump sums and severance benefits).

Note:
If the employer has incorrectly used code 3907 for the severance benefit the amount will be treated as normal income and taxed using the income tax table on assessment without the R500 000 exemption allowed by the severance benefit tax table.

The employees’ tax withheld in accordance with the directive must be reported on the tax certificate as code 4115 and not as normal PAYE (code 4102).

Personal Income Tax Filing – HRTorQue Tax Team

The tax filing season officially starts on 1 July 2018 for the 2018 tax year (1 March 2017 to 28 February 2018). The closing date for e-filing submissions will be the end of October 2018 for normal taxpayers and the end of January 2019 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.

Information Received By Cost of Return incl. VAT
15 October 2018
(15 December for provisional taxpayers)
R810.00
Later than 15 October 2018
(later than 15 December for provisional taxpayers)
R1,625.00

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. (Note this is SARS’ first request for information and additional charges will apply where further information is required, or a dispute is necessary.)
  • Further charges will apply where SARS first query extends to additional queries, and possibly an audit. Fees will be billed at an hourly consulting rate of R750 plus VAT or part thereof. This approach is necessary due to the ever-increasing queries made by SARS. These extended queries require further collation of the necessary documentation and hence our fee covers our time spent. Should you wish to take up the issue personally we will forward you all the necessary supporting documentation to do so.

Process:

Due to the volume of work anticipated during this filing season and the need to maintain the high standards required by the South African Institute of Tax Professionals I will once again be assisted this year by a broader team, so please don’t be surprised if you receive correspondence from Erin, Gina or Megan.

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 R750 plus VAT or part thereof. 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.

Information Requirements:

To complete your tax return accurately and timeously we require the following information:
PLEASE NOTE ALL DOCUMENTATION TO BE SENT TO [email protected]

  • 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.

Should you have any questions regarding this process please do not hesitate to contact the team on [email protected].

Exemption from Income Tax on Foreign Employment Income

With more and more companies opening operations in Africa and around the world it is imperative that they are au-fait with the Employees Tax legislation on sending employees off-shore. SARS Interpretation Note 16 (issue 2) was published on 2 February 2017 to provide an explanation of the legislation and particularly the requirements that need to be met for the employee to qualify for the applicable exemption. All employers are requested to read the legislation to ensure that they are familiar with the qualifying criteria as SARS clearly places the onus on the employer to make the correct interpretation of any particular deployment / transfer.

In order to qualify for the exemption, a taxpayer must:

  • earn certain types of remuneration (remuneration earned for services rendered);
  • in respect of services rendered by way of employment (there must be an employment relationship and an employment contract);
  • outside the Republic (the landmass of SA and its territorial waters – 22.2 km);
  • during specified qualifying periods (for a period or periods exceeding 183 full days in aggregate during any period of 12 months, a person must also have rendered services outside the Republic for a continuous period exceeding 60 full days in the same period of 12 months); and
  • not be subject to an exclusion (holding of public office).

In summary, and to ensure that employers are fully aware of their obligations in these situations, it is important to confirm the following.

An employer that is satisfied that the provisions of section 10(1)(o)(ii) will apply in a particular case may elect not to deduct employees’ tax in a particular case. In the case where the exemption was not applicable, the employer will be liable for the employees’ tax not deducted as well as the concomitant penalties and interest. It is the employer that bears this risk and it is therefore very important that they ensure that the circumstances of each case are carefully evaluated and that the correct tax treatment is applied.

Should you have any doubts regarding the interpretation process or require assistance working through this evaluation please do not hesitate to contact Dave Beattie on [email protected] or 031 582 7410.