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| Editor's Note |
In this edition, we spend a bit of time looking at the Employment Tax Incentive as this is causing employers a number of challenges, both with the interpretation of the rules and the SARS system which is still not working properly.
We then consider the taxation of employees employed to work offshore (prior to 183 days rule being met).
Finally, we look at the recent amendments to UIF benefits and whether they are practically in operation or not.
We also thought you should know that HRTorQue's Durban office is moving on the 1 September. We will provide regular updates on the move. Clients should not experience any service disruptions.
As usual, should you require any further detail on any of these topics, please feel free to contact us. |
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| Table of Contents |
1. Employment Tax Incentive - Non Binding Private Opinion
2. Employment Tax Incentive - SARS Challenges Continue
3. Taxation of employees employed to work offshore (prior to 183 days rule being met).
4. UIF Changes - are they effective yet?
5. HRTorQue is Moving
6. Contact HRTorQue |
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| 1. Employment Tax Incentive - Non-Binding Private Opinion |
| Author: Dave Beattie |
Editor's Note: The guidance below is useful in interpreting ETI which continues to be a challenge for employers given the problems with SARS systems. However, please be aware that where the article refers to PAGSA these are opinions only and not binding.
It has been a tumultuous 12 months in terms of ETI. There have been many queries regarding this incentive and one wonders whether all the effort that is going into the interpretation of the law is worth it considering it will only be valid until 2019.
Directly after the promulgation of the amendments to the Employment Tax Incentive Act on 19 January 2017, the Payroll Authors Group of South Africa (PAGSA) requested guidance from SARS to assist payroll suppliers and employers to implement and apply the new requirements correctly. SARS issued a Non-Binding Private Opinion dated 7 February 2017 in response to the queries.
In summary, the following interpretations have been forwarded by SARS:
SARS will refund unclaimed ETI if:
• The PAYE was less than the ETI
• The employer was not tax compliant, but later became tax compliant
No refunds will be made for any other reason.
The term employed and paid remuneration' hours (if less than 160) must be used to:
• 'gross up the 'wage' paid (to be checked against the monthly minimum wage)
• 'gross up' the 'monthly remuneration paid (to be checked against R6 000 per month)
The wording of 'employed and paid remuneration' was clarified by SARS to be:
• 'employed' hours, less
• 'Unpaid' hours, plus (this reduces 'wage')
• 'Premium' hours (this increases 'remuneration')
The PAGSA has summarised this to mean:
• 'Employed hours' for 'contracted' employees is the average working hours per month
(173 hours or 195 hours) and for wage employees the weekly hours of 160 hours for a
4 week month and 200 hours for a 5 week month.
• For casuals these hours will be the actual hours worked.
• 'Unpaid' hours are hours that are not worked and not paid.
• 'Premium' hours are hours worked that exceed the ordinary hours of work.
The clarity on these issues will go some way to assisting payroll administrators with the interpretation of the ETI legislation and its application in payroll. Like any relatively new legislation though we will continue to have teething problems that will only be rectified by organisations like the PAGSA raising concerns with SARS. We will continue to keep you abreast of any changes or interpretations as we receive updates from SARS and the PAGSA. |
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| 2. ETI - SARS Challenges Continue |
| Author: Jonathan Aitken |
Editor's Note: The issue below is causing real difficulty for employers and outsourcers alike. For the outsourcer, it is sometimes difficult to explain to a client that despite submitting everything correctly, SARS systems are rejecting ETI claims. This is particularly difficult when ETI claims are usually material and the first time the client finds out about it is when they get an assessment for a large sum of PAYE plus penalties and interest.
ETI submissions to SARS in August 2016 were a nightmare for employers. Incorrect validation checks in the SARS E@syFile system resulted in multiple ETI submissions being rejected and assessment notices sent to employers to repay millions of rands in ETI plus penalties and interest.
SARS assured us these had been resolved for the February 2017 submissions and we hoped this would be the case. Alas this was not to be.
Feedback from our own experience and those of the Payroll Authors Group Members give the following examples of challenges experienced:
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Validation checks that were supposed to be removed have continued to throw up some rejections of submissions; |
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If employees are included with wages below the threshold e.g. R1,900 compared to R2,000, even if no ETI is claimed the submission has been rejected; |
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Where employees turn 18 near the end of the month and ETI should be validly claimed the whole ETI claim has been rejected because the birthday is "too late in the month" (sic); |
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ETI has been rejected for unallocated payments on statements of accounts going back as far as 2003 tax returns. This has been made more difficult by SARS local branches inability to help with allocations. |
The rejection of the claim is accompanied by an assessment for the full PAYE (against which the ETI was claimed) together with interest and penalties. Even when corrections to the issues above are submitted the employer still needs to go through the separate, arduous process of appealing the interest and penalties. |
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| 3. Taxation of Employees Employed to Work Offshore |
| Author: Jonathan Aitken |
Taxation of Employees Employed to Work Offshore (prior to 183 days rule being met)
A client of ours employed someone who will work offshore for longer than 183 days/60 days consecutive days (this is clear in his employment contract). Until he reaches the 183 days how should they tax him - i.e. withhold tax each month and then give it back to him once the 183 days or deduct and pay to SARS and let the employee claim at assessment time?
Should an employer be satisfied that an employee that is ordinarily a resident in the Republic, but stationed outside of the Republic, rendering services for a resident employer complies with the exemptions set out by section 10(1)(o)(ii) of the Act it is possible for the employer to stop deducting employees tax. It must be noted that an employee must spend 183 full days in aggregate outside the borders of South Africa, the 183 days need not be continuous, however the employee must spend at least 60 continuous days outside South Africa for this exemption to apply. Proof of these travels must be kept and all travels must be in service of the employer.
The potential exemption under Section 10(1)(o)(ii) of the Act does not automatically exempt the employer from their liability to deduct and pay over employee's tax in accordance with the Fourth Schedule of the Act. The liability of deducting PAYE will always lie on the employer, and should there be any under payment the employer will be held liable for the outstanding taxes and interest.
In the SARS document 'Guide for Employers in respect of Employees' Tax', SARS provides the following advice:
"The question of whether an employee will qualify for the exemption or not is a question of fact that can... be answered [only] once the requisite number of days has been met. Directives are therefore not issued for such taxpayers. Where the employer is satisfied that the employee will meet the necessary criteria for the exemption to be granted, the employer is at liberty not to deduct employees' tax provided that a copy of each page of the employee's passport and a copy of the relevant contract for the services to be rendered in a foreign country are kept. Should it transpire that the employee does not qualify for the exemption, the employer will be held personally liable for any losses that SARS may suffer due to the non-deduction of the full amount of employees' tax."
The ultimate question of how the employer should treat the individual situation depends on the individual circumstances. If the employer is risk averse, the exemptions provided in Section 10(1)(o)(ii) of the Act should only be applied when the employer is fully satisfied that the employee meets all the necessary requirements and not before, and that the employer fully understands that should SARS find the employee does not meet all the requirements, that the employer will be held liable. |
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| 4. Are the new UIF limit and rules operational yet? |
| Author: Jonathan Aitken |
In May 2017, the UIF Amendments Bill was signed into Law. This amendment improved the benefits available to those on maternity, for dependents of those deceased and for those not working due to illness. In addition, the UIF limit increase was published by the Minister of Labour in Government Gazette No. 40691 dated 17 March 2017, which relates to unemployment benefits in terms of the Unemployment Insurance Act, 2001 (Act No. 63 of 2001).
However, the above amendments only applied to changes in benefits and there were no official changes under the UIF Contributions Act and as such the payroll limit should not be increased. Further, those responsible for making payments under UIF do not believe the amendments are implemented.
From a practical perspective therefore until further notice, the limit on payroll should be set to the legislated value of R178 464.00 per annum or R14 872.00 per month (maximum deduction R 148.72 per month). In addition, those expecting to receive the enhanced benefits are unlikely to find much joy when trying to claim (one should also remember that UIF benefits are only available to those who contribute to UIF so where no contributions have been made no benefits are claimable). |
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| 5. HRTorQue is Moving |
| Author: Jonathan Aitken |
You may see the "for sale" signs up at our offices at 163 Umhlanga Rocks Drive.
On 1 September HRTorQue's Durban offices are moving to 6 Pencarrow Crescent in Pencarrow Business Park, La Lucia Ridge, Umhlanga.
We will notify all clients of these details closer to the time of our move. |
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| 6. Contact HRTorQue |
Durban
Phone: 031 564 1155 • Email: [email protected] • Website: www.hrtorque.co.za
Address: 163 Umhlanga Rocks Drive, Durban North, KwaZulu-Natal
Johannesburg
Ground Floor, West Wing, 6 Kikuyu Road, Sunninghill, 2191 |
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