Employees should ensure that they receive their tax certificates (IRP5) from their employers in time for the annual filing season as it reflects how much tax they have already paid.
The South African Revenue Service (Sars) said the deadline for Pay-As-You-Earn (PAYE) remuneration reconciliations for the year to February 2018 closed at the end of May.
Employers who have not submitted their reconciliations are late and should submit them without any further delay as they may be liable for penalties.
Mark Sevitz, founder of digital tax assistant TaxTim, says the penalty for late payment is 10% of the amount owing.
In addition, the combined amount (the amount due plus the penalty amount) is subject to interest at the prescribed rate used by Sars – and this interest charge is levied each month that the payment is late.
“This is very serious, and unfortunately happens a lot,” says Sevitz.
Taxpayers may find themselves having to prove to Sars that they have indeed paid their taxes, and that any delay in Sars receiving the payment is not through any fault of their own.
Jaco la Grange, associate director at Deloitte, says employers are also required to submit the IRP5s of their employees to Sars. The information is used to pre-populate taxpayer returns.
The annual filing season kicks off in two weeks’ time (July 1, 2018).
La Grange says the IRP5 must reflect the PAYE that has been deducted. The document serves as ‘evidence’ that it has been deducted.
The individual’s tax certificate sets out all employment-related incomes, deductions and taxes paid, such as PAYE. Employees are paying the tax they owe to Sars on a monthly basis instead of all at once at the end of the year.
The tax that is owed to Sars is calculated and withheld monthly by the employer and then paid over to Sars. This is a statutory obligation imposed on employers by the Income Tax Act.
Failure to withhold or pay the tax over to Sars is a criminal offence, says La Grange. However, there have been instances where, especially small to medium size companies, have used the PAYE to fill their own cash flow gaps.
Money that was either not paid over, or never withheld from the employee, is still owed to the fiscus. “It is money owed to the state by the employer,” says La Grange. “The fact that it is essentially paid by the employees does not take away the obligation of the employer to withhold it and to pay it to Sars.”
In cases where a company has not issued tax certificates, or worse, has gone belly-up, the individual employee must prove that the monthly tax amount has been withheld.
Keith Engel, CEO of the South African Institute of Tax Professionals (Sait), says the law seeks to hold both the employer and employee liable for any tax shortfall. “If an employer takes the employee tax money and never pays the amount over to Sars, the employee is technically liable.”
Sars effectively waives the liability if the employee can demonstrate that the amount of tax was indeed taken from them on the assumption that the money would go to Sars.
“Sars provides this relief out of fairness to the taxpayer,” says Engel. “This waiver, however, should actually be written into the law.”
There are several documents that can serve as proof that PAYE has indeed been deducted. One such document is the employment contract in which the employee was promised a certain income.
A payslip that reflects what the person has earned and what has been deducted may also help taxpayers who finds themselves in the unfortunate position of having to prove that they have paid their taxes.
The Basic Conditions of Employment Act requires of companies that employ and remunerate people to give their employees specific information on the day they receive their pay, in writing.
This includes the name and address of the employer, the name and occupation of the employee, the period for which the payment is being made, the employee’s remuneration in monetary terms and, importantly, the amount and purpose of any deduction made from the remuneration.
Sevitz says the employee is ultimately responsible for the PAYE, but if they can prove to Sars that the money was not given to them, and that the employer was at fault, then Sars should be accommodating and not demand payment from the taxpayer.
“Employees should ask their employer to [let them] see the records of payment to Sars. If an employee suspects their company is not making the PAYE payment, then they can report this to Sars for investigation.”
An employee who cannot prove that the PAYE has been deducted will unfortunately be liable, and will have to pay the outstanding amount over to Sars.
La Grange emphasises the need for employees to insist on a monthly payslip. It must reflect deductions such as PAYE and any contributions for unemployment insurance.
Employees should also, as part of their financial housekeeping, ensure that they get an annual benefit statement to show that they are a member of a pension fund in their own right (as opposed to the company being a member), and that the relevant contributions were paid to the fund on their behalf.