In terms of paragraph 14(6) of the Fourth Schedule of the Income Tax Act 58 of 1962, if an employer fails to submit the EMP 501 return by the relevant due date, the Commissioner may impose an administrative non-compliance penalty for each month that the employer fails to submit a complete return. This penalty has been available for some years, but to date SARS has yet to apply it. In line with recent Budget proposals compliance will be stepped up, and SARS issued a notice that warns employers of the potential imposition of penalties starting from the February 2021 tax certificate submissions and reconciliations.
The February 2021 tax certificate submission and reconciliations must be submitted to SARS by 31 May 2021. In terms of the above legislation, SARS can impose a penalty of up to 10% of the total amount of the Employees Tax deducted or withheld, or which should have been deducted or withheld by the employer from remuneration for that reconciliation period. SARS has however taken a decision to impose a penalty of 1% (instead of 10%) for each month that the employer fails to submit the complete return. A penalty notice in the form of an EMP 301 will be issued at the end of every month to confirm the penalty imposed.
If an employer ceases to be an employer from 1 March 2021 onwards, a final reconciliation return must be submitted within 14 days from the date that the employer ceased to be an employer. If these returns are not received timeously the 1% penalty will be applied.
At this stage it is unclear how SARS will deal with cases where due to the non-submission of monthly or six-monthly returns the Employees Tax for the period is unknown. Whilst it would make sense for the penalty in such cases to be applied retrospectively, this would undermine the purpose and deterrent effect of the non-compliance penalty. The Payroll Authors Group of South Africa has suggested that SARS might raise the penalty on an alternative basis in such cases, for example through an estimate of the Employees Tax with an adjustment once the actual Employees Tax is known.
What is clear is that SARS is stepping up efforts to punish non-compliance. Employers will be put under more pressure to ensure compliance due to the severity of the penalties that will be imposed. As compliance becomes more important, employers will need to ensure that their payrolls and related SARS submissions are accurate and submitted timeously.