Employment Tax Incentive – Significant Risk for Employers for April and May 2020

Employment Tax Incentive – Significant Risk for Employers for April and May 2020

Business, Payroll / eTorQue, Tax

On the 19 May the national treasury released the second draft of the Disaster Management Tax Relief Bill. We want to highlight a critical issue for employers that may pose significant risk to them where they claim Employment Tax Incentive.

The 19 May amendment followed the first amendment published on the 1 May. While the Amendment covers a variety of relief measures our concern is with the Employment Tax Incentive (ETI) measures.

Specifically, the challenge we have is that the 19 May amendment changes some parts of the ETI calculations and backdates these to 1 April. The backdating is problematic because it means the calculations apply to April payrolls which are already closed and EMP201s have already been submitted and also to May payrolls most of which are closed (albeit EMP201s for May might have not been submitted as these are due on the 5 June).


The two specific challenges are:

  1. The re-introduction of the minimum wage/wage regulatory measure/R2,000 pro rata minimum validation check. This excludes some employees from claiming depending on their pay and hours worked for the month;
  2. The introduction of a new tranche in the new category (people older than 29, past their 24 month claims period, employed prior to 2013) of ETI claimants. For calculations below R2,000 these are now done on a sliding scale where previously it was a fixed amount below R4,500)


What is the problem?

The problem is that many employers will have incorrectly claimed ETI in April and May and more importantly, because of the latest changes, over claimed. We don’t yet know SARS’s position but there is a risk that they charge penalties and interest for these overclaims.

There is an additional risk at the end of the recon period in August that individual tax certificates don’t tie up to payments made each month and fail SARS validation checks.

There is a further risk that depending on the EMP201 submitted, SARS refunds carried forward ETI, the payroll systems don’t know this and then this ETI is claimed again resulting in further overclaims.


Software Developers Position

In most cases employers are unaware of this risk and reliant on payroll software providers. However, it is impossible for software developers to predict the future. There is no way they could design software to look at the 19 May changes and then back date them for periods already closed. All they can potentially do is provide guidance to clients to correct it themselves, but this will probably not be available before the 5 June and even if available soon thereafter will not solve the problem.


What Can be Done?

We were aware of this risk in April and for our clients we ran a manual analysis (based on the rules we were aware of at the time) to make sure none of our clients over claimed as we knew the system calculations were not up to date. We intend to run a similar analysis in May and inform our clients, but of course there may also be clients who now did overclaim in April because of the changes in May. We will then do our best to rectify these and minimise the impact where possible. We will then have to do a manual final true up in June when all the rules are finalised and assuming no further changes. The net impact is to minimise but not eliminate all risk to clients. There is nothing further we can do.

For those who are not our clients we recommend doing a similar process to limit the damage. You cannot rely on your payroll software providers to solve this for you – it is not possible as they don’t have all the variables.