The South African Revenue Service (SARS) has signaled an intensified focus on PAYE compliance. SARS is committing to stricter oversight and greater accountability, particularly regarding the responsibilities of the employer in the role of agent in the tax deduction and payment process. While this responsibility is clear in terms of the Act, SARS has implemented a more rigorous auditing strategy aimed at ensuring that employers accurately withhold and pay across PAYE. Employers are now being urged to carefully assess their PAYE practices to confirm legislative compliance.
SARS’s new approach places increased emphasis on ensuring that PAYE collections are conducted correctly and consistently. Non-compliance, whether due to intentional practices or inadvertent errors, is now more likely to draw intense SARS scrutiny.
For employers who may be uncertain about the robustness of their PAYE practices, now is the perfect time to address any areas of concern or legislative non-compliance to prevent future challenges by SARS. SARS has expanded the scope of its audits to examine the PAYE compliance of both individuals and businesses. This expanded audit framework not only addresses PAYE but also includes other employment-related tax considerations, such as the Employment Tax Incentive (ETI). We have seen increased SARS focus on ETI in the past year. We have also seen many employers not taking advantage of this incentive due to the added SARS scrutiny that it brings.
While SARS has recently been more focused on desk audits, we have started to see more detailed field audits being conducted. These audits are undertaken by groups of auditors will multi-tax knowledge. The outcomes of these audits are frightening.
The focus of PAYE audits extends well beyond a cursory payroll review. SARS is taking a comprehensive look at all components of PAYE withholding, including fringe benefits, allowances, ETI, reimbursements and any additional employee remuneration to ensure that they are properly reported. During new payroll take-ons, it is disturbing to see how income and employer contributions are incorrectly reported.
Employers need to understand the urgency of this matter and allocate more time and resources to ensure that all aspects of PAYE compliance are focused on and managed. While SARS often refer to the new measures as being implemented to help the taxpayer, the reality is that these processes allow SARS to access information quicker and flag areas for further investigation. Recent such updates include refined processes for tax directives, the bi-annual PAYE submissions (EMP501), and expanded e-Filing capabilities for submitting third-party data. There are imminent ITReg processing changes, and the dreaded monthly IRP 5 reporting – whilst recently delayed – will be implemented within the next two to three years.
Staying compliant with PAYE obligations is essential for employers who wish to avoid penalties and lengthy battles with SARS. Non-compliance, of any nature, can result in serious financial challenges for the taxpayer. There are now more processes and systems that SARS has at their disposal to identify possible irregularities and flag matters for further investigation than ever before. The employer / taxpayer must invest the required time and resources to ensure that they stay abreast of all legislation and have the required checks and balances to ensure accurate and timely PAYE submissions.
Those uncertain about their compliance status should be considering preemptive measures such as consulting with tax experts or conducting internal compliance checks before those checks are done by SARS. This could help mitigate any potential risks. To fix current problems timeously often allows there to be sufficient ‘water under the bridge’ to ensure that there are limited or no loose ends to pull when SARS does an investigation or audit.
With South Africa having a relatively small tax base, it is no surprise that they are focusing on PAYE compliance as a means of strengthening the country’s tax collection processes. Employers who collect PAYE are an important cog in this system, and SARS’s new approach demonstrates a commitment to holding them accountable. The enhanced auditing practices, along with updated compliance tools, are a clear signal for employers to revisit and verify their PAYE processes to remain in good standing.
If you have any PAYE compliance queries, chat to a member of our team. We are here to help!